OBJECTIVES: To simulate the cost-effectiveness of two different treatment regimens for type 2 diabetes patients. METHODS: Cost-effectiveness was measured as cost per life years gained (LYG) and cost per quality adjusted life years gained (QALY). A standard Monte Carlo simulation combining published literature for risk of long-term diabetic complications with risk functions for each complication was used. Clinical outcomes were based upon the following long-term diabetic complications: cardiovascular, neuropathy, nephropathy, and retinopathy. Lifetime costs were calculated as the yearly costs for drugs plus cost for complications (US Medicare perspective) over a 30-year period, and clinical outcomes and lifetime costs were discounted at 3%. Patient baseline data were taken from a randomized, multicenter trial, comparing a treatment regimen of repaglinide plus metformin vs. nateglinide plus metformin for type 2 diabetic patients. After dose adjustments to achieve glycemic targets, median final daily doses were 5 mg repaglinide and 360 mg nateglinide. RESULTS: The reduction in A1c values from baseline was -1.28% point (p<0.001) and -0.67% point (p<0.001) for repaglinide plus metformin and nateglinide plus metformin, respectively. Incremental cost-effectiveness showed that the repaglinide plus metformin combination was a superior healthcare strategy. The difference in QALY was 0.26 years (LYG was 0.40 years) and lifetime cost was lower, due to fewer complications. Furthermore, clinical outcomes showed that the largest contributor to lifetime costs was cardiovascular events (37%), followed by cost for drugs (31%), neuropathy (25%), retinopathy (5%) and nephropathy (2%). Sensitivity analyses support the validity and reliability of the results. CONCLUSIONS: The improved efficacy rate in the repaglinide plus metformin group was estimated to be a cost-effective way of treating Type 2 diabetes, as compared to a regimen of nateglinide plus metformin. Further outcomes studies are needed to support these findings.