Background: Results of phase III clinical trials of rofecoxib, a selective inhibitor of cyclooxygenase 2, have shown that osteoarthritis patients treated with rofecoxib had significantly fewer clinically significant gastrointestinal (GI) adverse events than those who received nonselective nonsteroidal anti-inflammatory drugs (NSAIDs). Objective: This paper explores the potential economic implications of the use of rofecoxib versus nonselective NSAIDs for the treatment of osteoarthritis via a decision analytic model based on rofecoxib clinical data and the published literature. Methods: Base-case 1-year analyses were done with data on GI adverse events, specifically perforations, ulcers, and bleeds (PUBs), obtained from a prespecified pooled analysis of the rofecoxib clinical trials. Analyses were also performed using pooled results of two 12-week endoscopic surveillance trials, with adjustments for silent ulcers of 40% and 85%. Results: Under base-case conditions, the expected cost savings in GI problems and comedications averted with rofecoxib versus NSAIDs was $0.81 per day, representing an 85% offset of the difference in drug price. For rofecoxib versus NSAIDs, the expected cost per PUB avoided with rofecoxib was $4738, and expected cost per year of life saved was $18,614. In analyses based on endoscopic data, therapy with rofecoxib was less expensive than therapy with NSAIDs, regardless of silent ulcer adjustment. Results were most sensitive to prophylactic GI comedication rates, and were robust over a range of model assumptions and costs. Conclusions: In this analysis based on differences in clinically significant GI events for osteoarthritis patients, cost differences between rofecoxib and NSAIDs were markedly offset by expected cost savings in GI problems and comedications averted with rofecoxib. Costs per year of life saved with rofecoxib versus NSAIDs were well within accepted benchmarks for cost-effectiveness. When endoscopic data alone were considered, rofecoxib was cost savings across all assumptions about silent ulcer rates.