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Objective: The objective of this study was to evaluate the short-term and long-term clinical and economic outcomes associated with insulin glargine or NPH insulin in patients with Type 2 diabetes mellitus (T2DM) inadequately controlled with oral anti-diabetic drugs in Switzerland, modeling the interaction between hypoglycemia and glycemic control (HbA1c). Methods: A validated discrete event simulation model for T2DM was used to predict incidence of short-term complications (symptomatic, nocturnal and severe hypoglycemic events) and long-term complications (microvascular and macrovascular events), life expectancy, quality-adjusted life years (QALYs) and direct medical costs in patients treated with insulin glargine or NPH insulin. The model was populated with published Swiss patient characteristics with T2DM. Baseline risks of hypoglycemic events, utility decrements of diabetes-related long-term complications and the hypoglycemia fear score were derived from the literature. Relative risk reductions of hypoglycemia adjusted for HbA1c using insulin glargine compared with NPH insulin were based on a published negative binomial meta-regression analysis. Costs of severe hypoglycemia, micro- and macrovascular events were analyzed from literature whenever possible otherwise guideline-projected resource-use estimations were valued with Swiss official prices or tariffs in 2006 CHF. Simulations were run with 1,000 patients per cohort over a time horizon of 40 years. Incremental cost effectiveness ratios (ICERs) were presented as cost per QALY and per life year gained (LYG). Future costs and clinical benefits were discounted at 3.5%. Wide-range one-way sensitivity analyses were performed. Results: Insulin glargine was associated with an improvement in quality of life (0.098 QALYs per patient) and additional life expectancy (0.05 life years gained per patient) compared to NPH insulin. Incremental costs of CHF 2,578 resulted in an ICER of CHF 26,271 per QALY and CHF 51,100 per LYG. The cost per QALY was most sensitive to changes in costs, utility decrements and relative risk reductions of hypoglycemia. Conclusions: This study evaluated, for the first time, the cost effectiveness of insulin glargine versus NPH insulin for the treatment of T2DM considering the interaction between glycemic control and hypoglycemia in Switzerland. The base case and sensitivity analyses demonstrated that insulin glargine proved to be cost-effective with respect to accepted willingness to pay thresholds and therefore represents good value for money.