OBJECTIVE: To assess the cost effectiveness of primary prophylaxis with clotting factor instead of treatment following a bleed (on-demand) for individuals with severe haemophilia. DESIGN: Different data sources on the clinical effects and costs of treatments were combined using a Markov model. SETTING: English treatment centres. PERSPECTIVE: UK societal. PARTICIPANTS: Hypothetical cohorts of 100 individuals with severe haemophilia A or B or severe von Willebrands disease. INTERVENTIONS: Primary prophylaxis treatment on-demand with clotting factor. OUTCOME MEASURES: Costs, quality-adjusted life-years (QALYs) and incremental cost per QALY in UK pounds ( pound, 1999/2000 values). RESULTS: The baseline results showed that treating individuals with severe haemophilia A/severe von Willebrands disease or severe haemophilia B with primary prophylaxis instead of treatment on-demand cost an additional pound 46500 and pound 8600 per QALY gained, respectively. However, the results were extremely sensitive to a number of factors including the clotting factor unit cost, the time between prophylactic doses and the discount rate. CONCLUSIONS: Despite the high costs of treatment, primary prophylaxis was cost effective compared with treatment on-demand in some scenarios. Primary prophylaxis is more likely to be cost effective for individuals with severe haemophilia B compared with individuals with severe haemophilia A/severe von Willebrands disease. Further research is required to assess the relationship between methods of clotting factor infusion and health-related quality-of-life.