OBJECTIVES: To determine the cost effectiveness of Pegatron combination therapy compared with no treatment for Australian patients who have failed an initial attempt at interferon-based (pegylated or non-pegylated) therapy. METHODS: The structure of the Markov model, utility values and transition probabilities were based on the literature. SVR and virologic response rates by genotype and fibrosis were obtained from EPIC3 (Evaluation of PegIntron in Control of Hepatitis C Cirrhosis).  EPIC3 is a large, prospective, multiphase clinical program evaluating the retreatment of chronic Hepatitis C patients with significant fibrosis/cirrhosis in whom previous treatment with nonpegylated or PEG-IFN alfa plus ribavirin was ineffective (ie, patients experienced virologic nonresponse or relapse). Resource utilization was determined by a modified Delphi approach for various CHC health states.  The population parameters used in the model reflect the mix of moderate and cirrhotic patients infected with different HCV genotypes, local medical management protocols, liver transplantation rates, and age-specific mortality rates of CHC patients in Australia.  RESULTS: In the trial (N=1336), SVR was achieved by 22.6% (99% CI 19.7 - 25.6) of subjects. Of the 499 subjects with undetectable HCV-RNA viral load after 12 weeks of treatment, 56.5% (95% CI 52.2 - 60.9) achieved an SVR.   After discounting of costs and outcomes and extending to a life-time model, the modelled ICER was $12,887 Australian dollars per QALY gained.  Sensitivity analyses indicated that when parameters are varied across reasonable ranges of their base case values, the ICER ratios range from cost saving to less than $50,000 per QALY gained. CONCLUSIONS: Based on clinical evidence, Pegatron treatment for patients who have failed prior interferon alfa combination therapy is highly cost-effective relative to no treatment. Thus, allowing one course of retreatment for individuals who have failed an initial attempt at interferon alfa-based therapy is a cost effective approach to preventing further extension of the Hepatitis C epidemic in Australia.