OBJECTIVES: To assess the cost-effectiveness of three treatments (tiotropium, salmeterol, and no treatment) in patients with moderate chronic obstructive pulmonary disease (COPD). METHODS: A Markov model with a time horizon of one year was developed to evaluate the cost-effectiveness of three treatments including i) tiotropium, ii) salmeterol, and iii) no treatment, in patients with moderate COPD. A hypothetical cohort of 100,000 subjects with moderate COPD with the following characteristics were included in the model: mean age of 65 years, smoking history of 50 pack years, and disease duration of 9.5 years. The efficacy and withdrawal data was taken from published randomized clinical trials of the treatments conducted in patients with moderate COPD. The effectiveness measure was exacerbations avoided per patient per year. Incremental cost-effectiveness ratio (ICER) was calculated as additional cost per patient to prevent one exacerbation, compared with the next most expensive option. A payer's perspective was used and only direct costs were included in the study. Sensitivity analyses were conducted to test the robustness of the baseline estimates and the study assumptions. RESULTS: The mean annual costs for no treatment, salmeterol, and tiotropium groups were $392, $1268.7 and $1408.6, respectively. The ICER of tiotropium compared with no treatment group was $1830.46/exacerbation avoided, while the ICER of salmeterol compared with no treatment group was $2454.35/exacerbation avoided. Sensitivity analysis results for study variables were stable over a wide range; however the results were most sensitive to the compliance rates of the drugs. CONCLUSION: In patients with moderate COPD, tiotropium was more cost-effective than salmeterol and no treatment strategy. The study helps demonstrate the cost-effectiveness of new treatment interventions in COPD, which would assist private payers in evaluating the role of costly, yet effective therapies.