OBJECTIVES: Pharmacist-provided medication therapy management (MTM) has been reported to improve patient outcomes in a variety of settings and patient populations. Yet, little is known about the long-term economic and clinical outcomes of MTM. Here, we sought to estimate the incremental, lifetime cost-effectiveness of MTM in type 2 diabetes, over "usual" dispensing care, from a health payer perspective. METHODS: We constructed a decision-analytic Markov model with 10 diabetes disease states. A hypothetical cohort of 40-year-old patients were followed for the rest of their life expectancy (31 years). Transition probabilities were derived from the validated CDC-RTI diabetes model. Costs (in 2010 dollars) associated with each disease state were derived from the ADA's 2007 report on diabetes costs. In the base case, MTM was assumed to increase annual, per-patient direct medical costs by 1.7%, which is a median of values retrieved from the literature. Glycemic levels reported under MTM were used to model the corresponding effects on the risks for microvascular complications via an exponential parametric form (Eastman 1997). Risk reduction for coronary heart disease under MTM was taken from the Fremantle Diabetes Trial. The primary outcome of the model is the incremental cost per quality-adjusted life-years (QALYs) gained. Future costs and QALYs were discounted at 3% per annum. Sensitivity analyses were undertaken to assess model robustness and uncertainties. RESULTS: Over "usual care", MTM was estimated to result in an additional 0.44 QALYs, and in lifetime cost savings of approximately $20,000 per patient. MTM appeared to improve survival by 4%. Our estimates are robust to plausible variations in key parameters, and are most sensitive to the probability of nephropathy, and to the effect of MTM on costs. CONCLUSIONS:  Our results suggest that MTM dominates usual care. The increase in direct medical costs associated with MTM appears to be offset by large cost savings due to reduction in diabetes-related morbidity and mortality.