OBJECTIVES: The purpose of this study was to estimate the cost-utility of a topical formulation of diclofenac compared to a standard diclofenac oral preparation in patients treated for osteoarthritis of the knee having risk factors for gastrointestinal complications (older age or previous GI events). METHODS:  For this cost-utility analysis, a Markov model was developed based on the model by Maetzel et al.. The analysis was performed according to a Minister of Health perspective over a five-year horizon. The model takes into account incidence of gastrointestinal events, incidence of complicated gastrointestinal events (perforation and bleeding, mortality), incidence of skin related adverse events and use of PPI. Utility estimates associated with each health states were taken from published sources. Cost of medications and costs associated with the management of gastrointestinal events (hospitalisation, emergency visits, physician’s visits, endoscopy, etc.) were considered. RESULTS:  Cost-utility ratios are $39,342 per QALY for patients 65 to 74 years old, $22,019 for those 75 years old and more and $24,141 for patients with previous GI events. Base case results were robust to various deterministic and probabilistic sensitivity analyses. CONCLUSIONS: Topical diclofenac is a cost-effective alternative to oral diclofenac for patients having risk factors for GI complications.