OBJECTIVE: A recent randomized clinical trial demonstrated that improvement in moderate to severe congestive heart failure (CHF) with treatment for anemia. To estimate the health economic implications of treating anemia with subcutaneous erythropoietin and intravenous iron in patients with moderate to severe CHF. METHODS: A Markov model of CHF was developed using New York Heart Association (NYHA) classes as the main states and the effects of anemia treatment on these. At the start, all patients are in class III or IV. The risks of hospitalization, death and change in class are considered on a monthly basis, depending on current NYHA class. Hospitalizations and deaths are accumulated over 1 year and survival is quality-adjusted according to class. Direct medical costs of treatment, hospitalizations and deaths from a third-party payor perspective are reported in 2002 Canadian dollars. RESULTS: In 1,000 patients (class III: 19%, IV: 81%), treating anemia improves severity (class I: 4%, II: 61%, III: 19%, IV: 15%), whereas without treatment there is deterioration: class III: 13%, IV: 87%. Over one year, this results in avoidance of 108 hospitalizations and 24 deaths, increased survival of 142 months (a 51% increase in quality-adjusted life-months) and savings of over $1.2 million. Treatment with erythropoietin and intravenous iron will cost on average $3,680 per year per patient. Thus, improving one patient from class III or IV to I or II costs $4,380, a cost-effectiveness ratio of $13,620 per QALY. CONCLUSION: The enormous improvement in NYHA class with anemia treatment in CHF would result in very cost-effective improvement in quality of life and in survival.