OBJECTIVES:  The Veterans Health Administration (VHA) is the largest single provider of hepatitis C (HCV) care in the United States. The newly approved direct acting antivirals (DAAs), Boceprevir (BOC) and Telaprevir (TEL) have significantly improved SVR rates for HCV Genotype 1 (GT1) patients. The objective was to project potential costs of DAAs on GT1 patients in the VHA.    METHODS:   A decision-analytic Markov model was developed to simulate the lifetime progression of HCV disease and to estimate the costs and clinical impacts of DAA in the current cohort of 103,331 GT1 treatment-naïve patients. Estimated federal pricing for drug costs and published response-guided antiviral efficacy data were used in the model.  Treatment costs included drugs, inpatient/outpatient visits, and laboratory tests.  We estimated cost and effectiveness for four treatment strategies: 1) Standard dual therapy pegylated interferon alfa and ribavirin (PR); 2) BOC+PR triple therapy; 3) TEL+PR triple therapy; and 4) no treatment.    RESULTS:  In our model, patients received 1) PR for 48 weeks; 2) TEL for 12 weeks with PR for 34-36 weeks; or 3) BOC for 29 weeks with PR for 34-36 weeks.  Estimated treatment cost associated with PR alone, BOC+PR, and TEL+PR are about $8,300, $31,000 and $45,000 per average patient, respectively.  Total system-wide costs to adopt BOC+PR or TEL+PR would be $673 million and $971 million, respectively.  Assuming continuation of the current 21% VHA treatment rates and optimal SVR results, the long term reduction in liver related death from treatment PR, Boc+PR, and Tel+PR are 7.9%, 13.1%, and 14.5%, respectively.    CONCLUSIONS: Our model indicates upfront investments with BOC+PR, and TEL+PR are high, with the benefits of extending quality of life and lower costs due to liver-related morbidity.  Though model projected potential cost under these assumptions, a clinical trial of comparative effectiveness would be needed to evaluate both costs and benefits of DAAs in veterans.