OBJECTIVES: To evaluate the cost-effectiveness of diabetic nephropathy management using Angiotensin-converting-enzyme inhibitors (ACEIs), Angiotensin II receptor blockers (ARBs), or a combination therapy of both among adults with diabetes mellitus and microalbuminuria from a U.S. health care payer perspective. METHODS: Markov model was developed using Microsoft Excel version 2013 to simulate the progression of diabetic nephropathy in a hypothetical cohort of 10,000 individuals with diabetes and microalbuminuria. Three strategies were compared: using ACEIs, ARBs, or a combination of them. Lives saved without developing end stage renal disease (ESRD), costs, average cost-effectiveness ratios (ACER), and the incremental cost-effectiveness ratios (ICERs) were the outcome measures assessed over a 20-year horizon. Data from randomized clinical trials, epidemiological studies, and costs, were complemented to build the model. RESULTS: Treating microalbuminuria with a combination of ACEIs and ARBs was associated with highest cost ($270,980,303.9) and least effect (4,488 lives saved without ESRD). Management of microalbuminuria with ACEIs was less costly with lowest ACER ($16,984.58 per treatmnet success without ESRD). Treating microalbuminuria with ARBs was the cost-effective strategy to manage the early stages of diabetic nephropathy with an ICER determined to be $171,480.5482 per additional 20-year treatment success using ARBs relative to ACEIs. CONCLUSIONS: Management of the diabetic nephropathy from the earliest stage (microalbuminuria) using ARBs is the cost-effective strategy to reduce death and end-stage kidney disease for individuals with diabetes and microalbuminuria if they do not have contraindications.