The incidence, morbidity and mortality of chronic obstructive pulmonary disease (COPD) is rising throughout the world. The total economic cost of COPD in the US in 1993 was estimated to be over $US15.5 billion, with $US6.1 billion for hospitalisation, $US4.4 billion for physician and other fees, $US2.5 billion for drugs, $US1.5 billion for nursing home care and $US1.0 billion for home care. Office visits, hospital outpatient visits and emergency department visits accounted for 17.3% of the direct costs for COPD in the US. When stratified by severity, COPD treatment costs strongly correlate with disease severity. The American Thoracic Society, the European Respiratory Society and the British Thoracic Society have developed guidelines for the pharmacological treatment of COPD. However, the guidelines establish inhaled bronchodilators (anticholinergic agents and beta 2-adrenergic agonists) as the mainstay of therapy for patients with COPD. The guidelines were not based on cost analyses and thus are not a priori cost-effective guidelines. Since the publication of these guidelines, several new pharmacological products have been approved for use in patients with COPD including a combination of an anticholinergic and selective beta 2-adrenergic agonist [ipratropium/salbutamol (albuterol)] and a long-acting beta 2-adrenergic agonist (salmeterol). Both products are effective bronchodilators in COPD. The purpose of this report is to place these new agents in an updated pharmacological guideline scheme, utilising recently published data on clinical efficacy as well as pharmacoeconomics. The annualised healthcare costs were computed to be $US788/patient/year for the combination ipratropium/salbutamol inhaler and $US1059/patient/year for salmeterol (1999 values). Based upon an improved understanding of the complexity of COPD, the response of patients to newer bronchodilators (given individually or in combination), and recent pharmacoeconomic data for COPD treatment, a new treatment algorithm with associated costs is proposed. The use of an algorithm, based on medical and pharmacoeconomic data, will improve lung function in patients with COPD, improve patient satisfaction (e.g. quality of life, dyspnoea) and outcomes (e.g. exacerbations). It will also result in a positive effect on healthcare costs.