Cost effectiveness analysis (CEA) and cost-utility analysis are increa
singly used to compare competing uses for limited health care resource
s, informing policy decisions at governmental, payer, and clinical lev
els of the health system. The authors discuss various methodologic cho
ices in CEA and the normative (value) assumptions and implications of
those choices. The treatment of adult onset diabetes is used as a simp
lified case example to illustrate the choice of perspective, cost incl
usion and exclusion, benefit measurement and aggregation, and how thes
e and other aspects of CEA can implicitly influence policy decisions w
ith consequences for individuals and groups. CEA can be a valuable sou
rce of information, but it is a poor ''technologic fix'' for the thorn
y problem of allocating limited health care resources.