OBJECTIVES: A new cost-effectiveness model, using head-to-head data, was developed to validate results from a prior indirect analysis comparing olanzapine with ziprasidone in the treatment of schizophrenia from the perspective of a third-party payer in the United States. METHODS: A decision analytic modeling approach was used to estimate the annual medical costs and health outcomes associated with treatment of schizophrenia with the 2 comparators. The decision-tree structure included branches representing key clinical events such as response, relapse, and suicide attempts/completion. Patients without response to first-line treatment switched to the other comparator. Decision-tree probabilities were extracted from a head-to-head study and other published clinical literature. Direct medical costs and quality-adjusted life years (QALYs) were estimated based on resource use (inpatient, outpatient, suicide, and drug costs) and utility weights for initial and relapse episodes, maintenance therapy, and extended episodes of schizophrenia. Disutilities associated with adverse events (extrapyramidal symptoms [EPS], weight gain, and hypotension) were also considered. One-way and probabilistic sensitivity analyses were performed. RESULTS: First-line treatment with olanzapine was associated with fewer hospital days, fewer EPS days, and greater number of QALYs than first-line treatment with ziprasidone. Drug costs were higher for the olanzapine pathway; however, total costs were lower for the olanzapine pathway than the ziprasidone pathway due to cost savings associated with better health outcomes and less medical resource use. The incremental cost per QALY gained indicated that the olanzapine pathway dominated the ziprasidone pathway. The one-way and probabilistic sensitivity analyses confirmed the robustness of the model and its results. CONCLUSIONS: The model confirms results of the previous model and indicates that olanzapine is associated with better expected health outcomes and lower costs than ziprasidone. Despite a potential increase in drug costs, treating schizophrenia with olanzapine instead of ziprasidone could lead to cost savings for payers in the United States.