OBJECTIVES: Paliperidone Extended-Release OROS (ER) is a new atypical antipsychotic for schizophrenia. The cost effectiveness of paliperidone ER compared to olanzapine was analyzed in a Swedish, Norwegian, Finnish and Danish setting, using a pharmacoeconomic discrete event simulation (DES) model. METHODS: Following interviews with local expert panels an existing DES model, which simulates individual schizophrenia patients over a five-year time period, was adapted to reflect schizophrenia treatment and comply with local health-economic guidelines in Sweden, Finland, Denmark and Norway. Model inputs were derived from clinical trial data, literature and database analysis and expert opinion. Cost estimates depend on treatment and treatment location; quality of life depends on symptom severity (measured by the PANSS score) and side-effects. Multivariate sensitivity analyses were carried out to assess the robustness of results. RESULTS: An indirect comparison of trial data suggests that paliperidone ER (6 mg) and olanzapine (10 mg) are equally efficacious in terms of PANSS reduction, while the former has a superior side-effect profile, especially with respect to weight gain and sedation. In the model this reduction in side effects on paliperidone ER translates into (discounted) QALY gains of ~0.03 compared to olanzapine. These health benefits are realized at (discounted) incremental costs ranging from -€3200 (-23,800 DKK) in Denmark to cost-neutrality in Finland, suggesting either dominance or cost-effectiveness in all four countries. The sensitivity analysis suggests results are robust to changes in input parameters. If the side-effect profile of paliperidone ER is assumed to improve compliance, further cost-savings and QALY gains are predicted. CONCLUSION: Based on the available evidence and input from local experts, paliperidone ER is predicted to dominate olanzapine in Sweden, Norway, Finland and Denmark. Results are robust to changes in input parameters. Improved compliance on paliperidone ER due to reduced side effects would further strengthen its predicted dominance.