OBJECTIVES: In adults with CHC, peginterferon alfa-2a (40KD)/ribavirin obtains a higher rate of sustained virological response (SVR) than interferon alfa-2b/ribavirin, in both genotypes 1 and 2/3 and high and low viral loads. However, it is still unproven whether this increase is cost-effective from the perspective of the National Health Service (NHS)in the UK. METHODS: We constructed a 7-stage Markov model in which cohorts of hepatitis C virus (HCV) genotype 1 and 2/3 patients received peginterferon alfa-2a (40KD)/ribavirin or interferon alfa-2b/ribavirin for 48 and 24 weeks, respectively, and were followed for their expected lifetime. The SVRs to peginterferon alfa-2a (40KD)/ribavirin and interferon alfa-2b/ribavirin were 46% and 36% for HCV genotype 1 and 76% and 61% for genotype 2/3. The impact of predictability testing at 12 and 24 weeks on the cost-effectiveness ratio was explored in the model. Quality of life and costs were based on literature and on estimated UK treatment patterns, respectively. Costs were discounted at 6% and benefits at 1.5%. RESULTS: In genotype 1 patients, peginterferon alfa-2a (40KD)/ribavirin increases quality-adjusted life expectancy (QALY) by 0.43 years compared to interferon alfa-2b/ribavirin. The incremental cost per QALY gained is £5596. In genotype 2/3 patients, peginterferon alfa-2a (40KD)/ribavirin increases QALY by 0.65 years and is cost saving (dominant) to the NHS. The incremental cost-effectiveness ratio for all genotypes was £914. At a cost effectiveness threshold of £30,000 probabilistic sensitivity analysis demonstrated peginterferon alfa-2a was the cost effective treatment strategy in 96% of the simulations. CONCLUSIONS: In the UK setting, peginterferon alfa-2a (40KD)/ribavirin is cost-effective compared with conventional interferon alfa-2b/ribavirin for treatment of naive adults with CHC in genotype 1 patients and a cost-saving/dominant therapy in genotype 2/3 patients.