OBJECTIVES: Most decision-analyses for chronic hepatitis C (CHC) treatment ignore co-morbid illness associated with CHC, leading to overly optimistic results. Therefore, we sought: 1) to predict population-based clinical and economic burden of CHC and associated diseases for the next 20 years in Germany, and 2) to examine the potential impact of different antiviral treatment (AVT) policies. METHODS: The German Hepatitis C Model (GEHMO), a validated and published CHC Markov model, was linked to German CHC prevalence and incidence data to project the morbidity, mortality and costs for all treatable patients with known CHC and elevated transaminases in Germany. The model considered HCV genotype and CHC-associated diseases (e.g., HIV co-infection, hemophilia, extra-hepatic manifestations) and evaluated the following policies: 1) no AVT; 2) interferon monotherapy; 3) interferon plus ribavirin; and (4) pegylated interferon plus ribavirin. For each policy, the model calculated the incidence of clinical complications, CHC-related deaths, population life years (LY), quality-adjusted life years (QALY), costs, and incremental cost-effectiveness ratios (ICER). We used treatment efficacy data from meta-analyses of randomized clinical trials and literature-based epidemiologic data on co-morbidities. We adopted a societal perspective with a 3% annual discount rate. RESULTS: In the absence of AVT during the next 20 years, HCV would cause more than 16,000 CHC-related deaths and 29,000 cases of liver cirrhosis leading to 1,200 liver transplantations. Peginterferon plus ribavirin would prevent about half of these complications and would add about 53,000 LY (or 49,000 QALYs) at a total cost of 1.3€ billion (undiscounted values). In the discounted lifetime analysis, peginterferon plus ribavirin was the most effective strategy with an ICER of 23,000 €/QALY compared with interferon monotherapy (next non-dominated strategy). CONCLUSIONS: Incorporating co-morbid illnesses associated with CHC increased the ICER of peginterferon plus ribavirin, but treatment remained cost-effective and would halve the burden of disease.