Acute exacerbation of COPD (AE-COPD) is a major problem influencing patient outcome, increasing both economic burden and mortality. We investigated: 1) the direct medical cost for inpatients with AE-COPD, and 2) factors that contribute to the higher cost of AE-COPD. A total of 131 episodes in 99 patients (mean age: 77.9 yr) with AE-COPD (79 men and 20 women) were investigated. Mean FEV₁ and FEV₁%pred were 0.97L and 42.7%, respectively. Mean length of stay (LOS) was 23.9 days and longer LOS was correlated with poorer basic activities of daily living (ADL). Mortality during admission and one month after discharge was 4.8%, however, it reached 20.2% one year later. The mean total cost for each admission was 690,000 yen (median 613,000 yen). Univariate analysis indicated that advanced age, hypoxemia, hypercapnea, systemic steroid use and reduction of ADL significantly correlated with increased total cost over the median cost. Multivariate analysis showed that factors significantly correlated with high medical cost over the median cost were observed in patients with a reduction of ADL (p<0.001), hypoxemia OR 4.13 (95%CI: 1.54-11.05), systemic steroid use OR 3.14 (95%CI: 1.07-9.26), and reduced ADL OR 2.76 (95%CI: 1.04-7.30). However, neither advanced age nor severity of COPD, body mass index, or co-morbidity significantly correlated with the total cost. We concluded that reduction of ADL in elderly COPD patients closely correlated with increased cost due to acute exacerbation. Therefore, pulmonary rehabilitation should be implemented from the perspective of reducing economic health burden.