OBJECTIVES: Diabetic nephropathy significantly increases the risk of cardiovascular disease (CVD) and end-stage renal disease (ESRD) in hypertensive patients. According to the AVOID study, the direct renin-inhibitor aliskiren, when added to losartan and optimal antihypertensive therapy in patients with hypertension, type 2 diabetes (T2DM) and diabetic nephropathy, significantly (p=0.001) reduced albuminuria by 20% over 6 months, as assessed by urinary albumin-creatinine ratio (UACR). This simulation examines the potential long-term clinical benefits and costs of add-on therapy with aliskiren in hypertensive patients with T2DM and diabetic nephropathy in Germany. METHODS: We developed a micro-simulation model to depict the progression to ESRD, measured by UACR levels over time. Patients at model entry were on maximal recommended doses of losartan and optimal antihypertensive therapy, and either continued this regimen or received aliskiren as an add-on therapy. In scenario analyses, different assumptions on the maintenance of the 20% UACR-reduction were made. Expected costs of pharmacotherapy and medical care were calculated based on German-specific sources over 10 years applying an annual discount rate of five percent. Sensitivity analyses were conducted to analyze the impact of different input parameters. RESULTS: Add-on therapy with aliskiren was projected to reduce the risk of ESRD by 1.8% and delay the onset of ESRD by 0.15 years assuming that the effects of aliskiren on UACR-reduction are maintained over 5 years. While discounted costs of pharmacotherapy were estimated to increase by 1762€ per patient with aliskiren, costs of ESRD-related care were estimated to decrease by 3804€ over this same period, yielding total cost savings. Findings were sensitive to the duration over which the benefits of add-on therapy with aliskiren were assumed to be maintained. CONCLUSIONS: In hypertensive patients with T2DM and diabetic nephropathy receiving losartan and optimal antihypertensive therapy, add-on therapy with aliskiren is projected to yield clinical benefits and cost savings.