PURPOSE: To use 5 years of primary data to compare the incremental cost-effectiveness of breast conservation and radiation versus mastectomy with the restriction of choice to a single therapy versus providing a choice of either therapy. PATIENTS AND METHODS: We evaluated a random retrospective cohort of 2,517 Medicare beneficiaries treated for newly diagnosed stage I or II breast cancer from 1992 through 1994. The outcome measures were quality-adjusted life-years (QALYs) and 5-year medical costs. Risk and propensity score adjustments were used in the analysis. RESULTS: A breast conservation and radiation regimen has significantly higher costs than mastectomy in the first year after surgery; the adjusted 5-year costs are $14,054 (95% confidence interval, $9,791 to $18,312) greater than those of mastectomy. The adjusted incremental cost-effectiveness ratio comparing breast conservation and radiation to mastectomy was $219,594 per QALY for the comparison of the two strategies. If the possibility of patient choice from maintaining the availability of multiple treatments versus restricting choice to mastectomy alone provides a quality-of-life gain of 0.031 QALYs, then the cost-effectiveness ratio of this choice option is $80,440 per QALY. CONCLUSION: The current system of providing a choice between mastectomy and breast conservation surgery is economically attractive when the economic analysis includes the benefit of patient choice of treatment.