Background: Chronic hepatitis B (CHB) is associated with a significant burden of illness and treatment involves substantial health-care costs. This study estimates clinical outcomes and cost-effectiveness of lamivudine compared with other treatment scenarios for CHB, from an Australian health-care provider perspective. Methods: A two-step modeling approach depicted clinical progression of hepatitis B in hypothetical patient cohorts using three different treatment scenarios: scenario A, lamivudine and alpha-interferon (IFN-alpha) available; scenario B, IFN-alpha available only; and scenario C, no treatment available. Assumptions were based on clinical trials, published studies, a hepatologist's questionnaire and an expert panel follow up. One-year clinical outcomes and costs were estimated using a decision tree, while lifetime costs and outcomes were estimated using available clinical trial data for lamivudine (up to 4 years therapy duration) and a Markov model. Results: The analysis considered only patients with pretreatment elevated alanine aminotransferase levels greater than or equal to 2 x upper limit of normal. In the short term, the introduction of lamivudine is expected to result in almost 3.5 times more CHB patients receiving therapy (lamivudine or IFN-alpha) compared to IFN-alpha only (67% compared to 20%, respectively). Hence, scenario A subsequently doubled the seroconversion rate. The incremental cost-effectiveness ratio was $A3341 per additional seroconversion. Also, non-seroconverted lamivudine patients are less likely to progress to cirrhosis than those receiving IFN-alpha/no treatment. One-year progression to cirrhosis was estimated at 5.1% with scenario A, compared to 12.2% and 12.7%, scenarios B and C, respectively. From the long-term analysis, lamivudine is expected to increase life expectancy by years and reduce the lifetime risk of compensated cirrhosis, decompensated cirrhosis and hepatocellular carcinoma by 6%, 12% and 12%, respectively. Additionally, the introduction of lamivudine decreases lifetime costs by $548, thus making it a cost-saving and life-extending strategy. In both short- and long-term models, worst case scenarios in sensitivity analyses still associate lamivudine with a favorable cost-effectiveness ratio. Conclusion: Introduction of lamivudine is expected to improve health outcomes in CHB patients, resulting in overall savings in health-care costs. In this model, compared with IFN-alpha only and no treatment, lamivudine allowed more CHB patients to be treated, increased the seroconversion rate, delayed disease progression and prolonged life expectancy. (C) 2002 Blackwell Science Asia Pty Ltd.