Of the technologies available, dual-energy X-ray absorptiometry of the hip or femoral neck (DXA-FN) is the best predictor of hip fractures. Diagnostic approaches utilizing measures of peripheral sites with office-based technology, such as calcaneal quantitative ultrasound (QUS), may reduce costs although clinical and economic outcomes have not been evaluated. The objective was to compare three approaches for diagnosing osteoporosis in older women. The design was a decision-analytic model using diagnostic measures and clinical and economic outcomes from the Study of Osteoporotic Fractures, a prospective cohort of older white women that measured BMD and QUS and assessed fracture outcomes. The setting and patients were a hypothetical cohort of older white women presenting for diagnosis of osteoporosis. For the diagnostic and treatment alternatives, three diagnostic approaches-DXA-FN alone, QUS alone and a sequential approach (first QUS, then DXA-FN for those with low values for QUS)-were compared to no diagnosis. The outcome measures were the number of women identified for treatment, number of hip fractures prevented following diagnosis and subsequent treatment, number of women needed to treat to prevent one hip fracture and total direct medical costs. The sequential approach identified fewer women to treat, prevented more hip fractures and incurred lower total costs than using DXA alone. Diagnosis with QUS alone identified more women to treat and incurred higher total costs than DXA alone under most conditions. Compared to other approaches for diagnosing osteoporosis, sequential use of QUS followed by DXA resulted in fewer women treated and lower total costs.