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OBJECTIVE: The aim of this study was to develop a generic treatment algorithm for influenza and influenza-like illness (ILI) that could be used to estimate the costs and outcomes of current and new treatments for influenza in different countries for different patient subgroups. METHODS: A series of possible treatment pathways was identified and the probabilities of different patient subgroups following each pathway were estimated by using the published literature. The health outcomes and health service use and unit costs for each pathway were estimated from trial data and standard data sources. An interactive computer model was created, the base-case input parameter values were assigned, and estimates of the current costs of influenza and ILI in different population subgroups estimated. Sensitivity analyses were performed by changing input parameter values. RESULTS: The average healthcare cost of influenza and ILI per person in the US was $US72 for the general population and $US330 for a high risk population (1997 values). The average total cost per patient (healthcare cost plus productivity losses) was $US320 for the general population and $US546 for a high risk population. These costs are sensitive to changes in the proportion of patients visiting a physician and to the proportion of patients hospitalised with complications of the disease. Days to alleviate major symptoms and other health outcome measures are sensitive to the percentage of patients who receive antiviral therapy as well as to the efficacy of this therapy. CONCLUSIONS: The costs and health outcomes of influenza and ILI depend on the extent to which patients visit a physician, the use of antiviral drugs, and the incidence of complications requiring hospital care. The computer model will allow decision-makers to assess the cost effectiveness and the potential budget impact of new antivirals for treating influenza