OBJECTIVES: Two simulation models were developed to analyze the cost and outcomes of the biological agents currently marketed in Italy vs disease-modifying anti-rheumatic drugs (DMARDs) that affect the progression of rheumatoid arthritis (RA). METHODS: A Markov model over 10 years was constructed with four disease states according to functional status (HAQ). Disease progression (transition probabilities between the states) was taken from clinical trial data and published literature. Patient mortality depends on epidemiological evidence relating reduced risk to HAQ improvement.. Costs and utilities associated with different HAQ levels were based on data from cohort studies and cross-sectional surveys in Italy. RESULTS: In the base case scenario (10% of patients treated in each disease state) we estimated that treatment with any biologic had an incremental cost of 26.4% over 10 years (including only direct costs). By analysing each disease state separately, costs vary from 22.3% to 28.3%. The inclusion of potential avoided nursing home admissions and indirect costs/lost employment further improved the cost-effectiveness ratio. The model shows that a higher percentage of treated patients with a HAQ score between 1.1 and 2.6 improves the cost-effectiveness ratio. The greater effectiveness of biological agents contribute to maintaine patients in less severe disease states by favoring disease improvement and remission; this significant health benefit is also reflected on mortality rate. Sensitivity analyses showed long-term HAQ progression with biologic therapies and discounting as most sensitive variables. CONCLUSIONS: Our results suggest that biologic therapies are cost-effective when compared with DMARDs. The model is further suitable for use in a wide range of other cost-effectiveness questions in rheumatoid arthritis. It appears to accurately capture disease progression and its effects and can therefore be useful for estimating cost-effectiveness of new treatments in RA in different Italian health care settings