OBJECTIVES: Managing diabetes within accepted limits (A1c °Ü 7%) is often complicated by the occurrence of hypoglycemia. To reduce the risk of hypoglycemia, patients and clinicians sometimes settle for sub-optimal glucose control. However, sub-optimal glycemic control increases the risk of diabetes-related complications, having important economic consequences to the health care system. Basal insulin glargine, has a distinctive A1c hypoglycemia relationship compared to NPH insulin, with reduced chance of hypoglycemia at lower A1c values. The objective is to assess the value of insulin glargine, compared to NPH insulin, in insulin treated people with type 2 diabetes who failed to achieve an A1c °Ü 7%. METHODS: A 36-year time horizon state transition model simulating the natural history of diabetes and projecting clinical and economic benefits of insulin glargine compared to NPH insulin, was used. The study used Canadian costs and utilities from previous publications.. UKPDS and DCCT provided the base for complication risks. The Ministry of Health perspective was taken. RESULTS: Considering the 36-year (lifetime) direct drug and complications costs, NPH was found to be less expensive than insulin glargine ($1559 in type-1 diabetes and $2248 in type-2 diabetes). However, since the treatment with insulin glargine substantially reduced risk of long-term complications, it produces greater life years (LY) (0.08 LY gained and 0.25 LY gained in type-1 and type-2 diabetes, respectively) and quality-adjusted life years (QALYs) (0.07 QALY gained and 0.23 QALY gained in type-1 and type-2 diabetes, respectively). When considering glargine over NPH, the incremental cost per LY gained and cost per QALY gained were $20,317 and $23,717 for type-1 diabetes, and $9131 and $9804 for type-2 diabetes. CONCLUSION: For type-2 patients, insulin glargine therapy results in substantial clinical benefits and represents an economical alternative to NPH insulin with a competitive cost-effectiveness ratios.