The implantable cardioverter-defibrillator (ICD) greatly reduces the incidence of sudden cardiac death among patients with recurrent sustained ventricular tachycardia and fibrillation who do not respond to conventional antiarrhythmic therapy. A cost-effectiveness analysis was performed, comparing the ICD, amiodarone and conventional agents. Actual variable costs of hospitalization and follow-up care were used for 21 ICD- and 43 amiodarone-treated patients. Life expectancy and total variable costs were predicted with use of a Markov decision analytic model. Clinical event rates and probabilities were based on published reports or expert opinion. Life expectancy with an ICD (6.1 years) was 50% greater than that associated with treatment with amiodarone (3.9 years) and 2.5 times that associated with conventional treatment (2.5 years). Assuming replacement every 24 months, ICD lifetime treatment costs (in 1989 dollars) for a 55-year old patient are expected to be $89,600 compared with $24,800 for amiodarone and $16,100 for conventional therapy, yielding a marginal cost/effectiveness ratio for ICD versus amiodarone therapy of 1f429,200/year of life saved, which is comparable to that of other accepted medical treatments. If technologic improvements extend average battery life to 36 months, the marginal cost/effectiveness ratio would be $21,800/year of life saved, and at 96 months it would be $13,800/year of life saved. Patient age at implantation did not significantly affect these results. If quality of life on amiodarone therapy is 30% lower than that with the ICD, the marginal cost/effectiveness ratio decreases by 35%. If the quality of life for patients receiving drugs is 40% lower than that of patients treated with an ICD, use of the defibrillator becomes the dominant strategy.