OBJECTIVE: To assess the cost-effectiveness of pioglitazone (PIO) in combination therapy versus usual care for patients with type2 diabetes in Sweden. METHODS: A published, validated model for type 1 diabetes mellitus developed by the Institute of Medical Informatics and Biostatistics was adapted to simulate long-term (until death) management, health outcomes, resource utilisation and treatment costs of patients with type2 diabetes. The model accounts for most complications occurring in diabetes patients: nephropathy, retinopathy, acute myocardial infarction, angina pectoris, stroke and amputation. The analysis was done from third-party-payer perspective and costs figured relative to the year 2000. A 3% discount rate was applied to costs and outcomes and sensitivity analysis was performed to test the results. RESULTS: PIO in combination with metformin (MF) was associated with longer life expectancy (15.6 years) than sulphonylureas (SU)/MF (14.9) or rosiglitazone (RSG) 8 mg/MF (15.5). The same applied for PIO 15 mg/SU (15.5 years) with a greater life expectancy than MF/SU (15.0) and RSG 4 mg/SU (15.3). Furthermore, PIO 30 mg/MF, PIO 30 mg/SU, PIO 15 mg/SU were associated with the lowest number of serious complications. For every 33 patients treated with PIO 30 mg/MF instead of SU/MF, one death was avoided. The higher expense of the PIO combination was offset in some, but not all scenarios, by a reduction in incidence of complications. The incremental undiscounted cost per life year gained of PIO 30 mg/MF relative to SU/MF and RSG 8 mg/MF was respectively 86,440 Sweden Kronor (SEK) and 123,313 SEK. After discounting both costs and life years at 3%, the above becomes 146,196 SEK and 148,561 SEK, respectively. Finally, after discounting, PIO 15 mg/SU versus MF/SU or RSG 4 mg/SU was associated with an incremental cost per life year gained of 123,029 SEK and 42,401 SEK, respectively. CONCLUSION: This model suggests that combined treatments with pioglitazone improve survival and reduce complications in patients with type2 diabetes patients and represent a cost-effective choice in Sweden when judged against other therapeutic interventions. Nonetheless, the results of modelling exercises such as this should be confirmed by long-term observational studies.