The objectives of this study were to review the diagnostic, International Classification of Disease, 9th Revision, Clinical Modification (ICD-9-CM), diagnosis related groups (DRGs), and common procedural terminology (CPT) coding and reimbursement issues (including Medicare Part B reimbursement for physicians) encountered in caring for patients with Alzheimer's disease and related dementias (ADRD); to review the implications of these policies for the long-term clinical management of the patient with ADRD; and to provide recommendations for promoting appropriate recognition and reimbursement for clinical services provided to ADRD patients. Relevant English-language articles identified from MEDLINE about ADRD prevalence estimates; disease morbidity and mortality; diagnostic coding practices for ADRD; and Medicare, Medicaid, and managed care organization data on diagnostic coding and reimbursement were reviewed. Alzheimer's disease (AD) is grossly undercoded. Few AD cases are recognized at an early stage. Only 13% of a group of patients receiving the AD therapy donepezil had AD as the primary diagnosis, and AD is rarely included as a primary or secondary DRG diagnosis when the condition precipitating admission to the hospital is caused by AD. In addition, AD is often not mentioned on death certificates, although it may be the proximate cause of death. There is only one ICD-9-CM code for AD - 331.0 - and no clinical modification codes, despite numerous complications that can be directly attributed to AD. Medicare carriers consider ICD-9 codes for senile dementia (290 series) to be mental health codes and pay them at a lower rate than medical codes. DRG coding is biased against recognition of ADRD as an acute, admitting diagnosis. The CPT code system is an impediment to quality of care for ADRD patients because the complex, time-intensive services ADRD patients require are not adequately, if at all, reimbursed. Also, physicians treating significant numbers of AD patients are at greater risk of audit if they submit a high frequency of complex codes. AD is grossly undercoded in acute hospital and outpatient care settings because of failure to diagnose, limitations of the coding system, and reimbursement issues. Such undercoding leads to a lack of recognition of the effect of AD and its complications on clinical care and impedes the development of better care management. We recommend continuing physician education on the importance of early diagnosis and care management of AD and its documentation through appropriate coding, expansion of the current ICD-9-CM codes for AD, more appropriate use of DRG coding for ADRD, recognition of the need for time-intensive services by ADRD patients that result in a higher frequency of use of complex CPT codes, and reimbursement for CPT codes that cover ADRD care management services.