Dementia severity is unavailable in administrative claims data. We examined whether a claims-based frailty index (CFI) can measure dementia severity in Medicare claims. This cross-sectional study included the National Health and Aging Trends Study Round 5 participants with possible or probable dementia whose Medicare claims were available. We estimated the Functional Assessment Staging Test (FAST) scale (range: 3 [mild cognitive impairment] to 7 [severe dementia]) using information from the survey. We calculated CFI (range: 0-1, higher scores indicating greater frailty) using Medicare claims 12 months prior to the participants' interview date. We examined C-statistics to evaluate the ability of the CFI in identifying moderate-to-severe dementia (FAST stage 5-7) and determined the optimal CFI cut-point that maximized both sensitivity and specificity. Of the 814 participants with possible or probable dementia and measurable CFI, 686 (72.2%) patients were ≥75 years old, 448 (50.8%) were female, and 244 (25.9%) had FAST stage 5-7. The C-statistic of CFI to identify FAST stage 5-7 was 0.78 (95% confidence interval: 0.72-0.83), with a CFI cut-point of 0.280, achieving the maximum sensitivity of 76.9% and specificity of 62.8%. Participants with CFI ≥0.280 had a higher prevalence of disability (19.4% vs 58.3%) and dementia medication use (6.0% vs 22.8%) and higher risk of mortality (10.7% vs 26.3%) and nursing home admission (4.5% vs 10.6%) over 2 years than those with CFI <0.280. Our study suggests that CFI can be useful in identifying moderate-to-severe dementia from administrative claims among older adults with dementia.