The aim of this study is to assess the long-term economic impact of treatment of chronic hepatitis B and C with interferon alfa. Estimates were made of the progression of the disease over a 30-year period using a transitional probability model. Cohorts of 1,000 hypothetical patients with either chronic hepatitis B or C treated with interferon alfa were compared with an untreated cohort. The costs were estimated for therapy, monitoring, and treatment of the disease, including transplantation. The cost-effectiveness of therapy was expressed in terms of cost per life saved, cost per year of life saved, and cost per quality-adjusted year of life saved. The analysis was extended to include the indirect costs to patients. The analysis included two rates of progression, two mortality rates, and discounted and undiscounted costs. Mortality in the treated group was lower, saving 18 to 31 lives in the hepatitis B virus (HBV) cohort and 13 to 22 lives in the hepatitis C virus (HCV) cohort. Fewer patients progressed to cirrhosis or decompensated cirrhosis. Discounted costs per year of life saved ranged from 2,142 pounds to 17,128 pounds. A cost-benefit analysis indicated excess benefits over costs when values for life were included in the analysis. The potential usefulness of interferon alfa on the clinical and economic outcome of treatment is indicated from the model. These findings together with the benefits that are likely to accrue from the reduction in infectious individuals suggest that this therapy has a role to play in public health policy to contain the impact of hepatitis.