OBJECTIVES: The effectiveness of Medication Therapy Management Programs (MTMP), as defined in the Medicare Modernization Act, at reducing adverse drug events (ADEs) may vary depending on the MTMP structure and delivery method. The cost-effectiveness of such programs are not known. To estimate the break-even and cost-effectiveness thresholds for MTMP specialized in ADE prevention in ambulatory patients from a third party payer perspective. METHODS: A Markov model was developed using a hypothetical cohort of 1,000 patients. A systematic review was conducted to estimate probabilities and costs for preventable and non-preventable ADEs, and the associated permanent disability and mortality. Breakeven and cost-effectiveness analyses were conducted by altering the effectiveness of the MTM program at reducing preventable ADEs and calculating 10-year costs, life expectancy, and breakeven points. RESULTS: Probabilities and costs were primarily obtained from a cohort study of all Medicare enrollees (30397 person-years of observation) cared by a multispeciality group practice during a 12-month study period. As the relative risk reduction of the MTM program on preventable ADEs was varied from 0.1 to 1, the 10-year cost offset (breakeven cost) of the MTM program varied from $75,500 to $272,900 per 1,000 persons, life years gained varied from 0.9 to 8.2 per 1,000 persons, healthy life years gained varied from 1.3 to 11.6 per 1,000 persons. Assuming a cost-effectiveness threshold of $100,000, the 10-year costs of the MTM program could approach $160,500 (RRR=0.1) to $1,432,900 (RRR=1) per 1,000 persons to be considered cost-effective. CONCLUSION: The breakeven points for MTM programs specialized in ADE prevention were realistic and attainable. Generally speaking, MTM programs should be viewed as cost-effective. The cost-effectiveness of individual programs will depend heavily on the effectiveness of such programs in reducing preventable ADE's, as demonstrated by the wide range in breakeven points.