The whole purpose of cost–effectiveness/cost–benefit analysis is to determine the best way to allocate scarce resources among alternative uses. Because markets for medical care and health insurance have a natural tendency to fail (Enthoven 1993), no country in the world has left these decisions about resource allocation entirely to private markets. Conversely, only a handful of countries have eliminated private markets entirely. Instead, health system policies form a continuum based on the degree to which government intervenes to make health care a social right (Roemer 1991).

Alternative methods of allocating health resources under constraints

There are numerous approaches to allocating health resources. In the current environment, these are often characterized as policies designed to control costs (see CBO 1991). However, it should be kept in mind that health cost containment per se is not an appropriate objective of public policy. Instead, we should be seeking the “right” level of health spending that would bring into balance the benefits and costs of medical care (Pauly 1991). The various approaches to health resource allocation can be categorized into four broad groups based on the locus of resource allocation decisions. That is, decisions about how much to do or how much to spend can be made by patients, payers, providers, or the public (Table 10.1).

The remainder of the chapter describes in more detail various strategies for resource allocation and the potential role of cost–effectiveness/cost–benefit analysis in each.