This article describes an economic model for evaluating Helicobacter pylori (H. pylori) eradication and conventional treatment of peptic ulcer disease. The model was developed using decision analytic techniques with literature-based estimates of probabilities, cost, and population sizes. One-way sensitivity analysis was conducted varying costs and probabilities over relevant ranges. Decision points used in the model include endoscopy, tests for H. pylori presence, and use of maintenance therapy. Chance relationships include probabilities of ulcer, presence of H. pylori, eradication of H. pylori, success of treatment, compliance, and recurrence. The outcome measure is first-year cost of peptic ulcer management. Results support the use of H. pylori eradication. Savings depend on the rate of endoscopy and expense of eradication therapies. The model suggests that costs may be reduced if patients with a prior history of ulcer are targeted for empiric H. pylori eradication therapy. Our findings suggest a three-stage approach to treating peptic ulcer disease if first-year costs are considered. Patients who initially present with symptoms consistent with ulcer should be treated with conventional therapy. If one or more recurrences are experienced, then ulcer diagnosis can be considered as substantiated and H. pylori eradication is indicated. Endoscopy should be conducted if more serious disease is suspected or if patient is' nonresponsive to conventional or H. pylori eradication therapies. Managed care organizations should develop and communicate ulcer management strategies that consider both eradication and' conventional treatment.