Azithromycin IV was recently approved in Canada for the treatment of community-acquired pneumonia (CAP) requiring initial hospitalization. According to current guidelines, a second or third generation cephalosporin ? a macrolide or an extended-spectrum fluoroquinolone is preferred for first-line therapy. Azithromycin is well tolerated, reducing the potential for costly adverse events and has a once daily dosing frequency, minimizing drug preparation and administration costs. OBJECTIVES: To compare the costs and outcomes of a 10-day course of azithromycin IV/PO versus cefuroxime IV/PO ? erythromycin IV/PO. METHODS: The analysis was conducted from the hospital perspective and considered 2 days of intravenous followed by 8 days of oral therapy for a 10-day course. A cost-minimization approach was used since clinical trial results suggest similar efficacy and tolerability between the comparators. The weighted cost of cefuroxime ? erythromycin therapy was based on a clinical trial where 52% of patients received cefuroxime alone and 48% of patients received cefuroxime + erythromycin for suspected atypical pathogens. The analysis included drug acquisition, supply and labour costs (in 1998 Canadian dollars). RESULTS: Two days of IV therapy cost $57.48, $78.51and $82.52, for azithromycin, erythromycin, and cefuroxime, respectively. The total cost of a 10-day course of therapy was $136.36 for azithromycin and $165.58 for cefuroxime ? erythromycin ($126.36 for cefuroxime alone and $208.07 for cefuroxime + erythromycin). Approximately 280 CAP patients were seen at our institution in 1996, translating into potential cost savings of $8,182 per year with azithromycin. CONCLUSION: Azithromycin IV/PO is a cost-effective alternative for in-patient treatment of CAP.