OBJECTIVES: Linezolid, a novel antibiotic, has demonstrated efficacy in known or suspected methicillin-resistant Staphylococcus aureus (MRSA) infections. Among patients with MRSA nosocomial pneumonia, survival and clinical cure rates (resolution of baseline signs and symptoms) were better for those treated with linezolid versus vancomycin: 80% versus 63.5% (survival) and 59% versus 35.5% (clinical cure) (Chest. 2003;124:1789-97). We evaluated the economic impact of these clinical outcomes from the German perspective. METHODS: A decision-analytic model was developed to examine the costs and outcomes of using linezolid versus vancomycin in hospitalized patients with nosocomial pneumonia in a German setting. Five German physicians experienced in treating nosocomial pneumonia provided resource utilization data through structured interviews. Costs from published sources (Rote Liste, EBM, DKG-NT) were applied to tests, adverse events, isolation and days of intravenous and oral (linezolid only) treatment and hospitalization by ward type (medical, intensive-care). The model assumed 50% of suspected MRSA patients had proven MRSA. Outcomes included total costs per patient, cost per death avoided, cost per life-year gained and cost per cure. RESULTS: An additional 11% of patients treated with linezolid (71%) versus vancomycin (60%) were cured. Average total cost per episode was 12,288€ versus 11,444€ for linezolid- versus vancomycin-treated patients, translating to €7,756 per additional patient cured. Death rates were 21% (linezolid) versus 34% (vancomycin), resulting in an average 2.3 life-years gained per linezolid patient in a 65-year-old cohort (13.6 versus 11.3 years). Using incremental costs from the treatment episode, the costs per life-year gained and death avoided were 371€ and 5124€, respectively. Although the model was sensitive to the percentage of proven MRSA cases and costs accrued by patients who die, varying these parameters by 25% did not change the overall conclusions. CONCLUSIONS: Linezolid is cost-effective versus vancomycin in the treatment of nosocomial pneumonia due to suspected MRSA.