otherwise either be left out or be relegated to a footnote, however, no effort to arrive at a single combined benefit value would be made.

A nonaggregated or array method of analysis would give decisionmakers a greater number of elements to consider, but it would also make intangible or nonquantifiable factors more explicit, and thus might help force consideration of

these factors by decisionmakers commensurate with the factors' significance.

A more detailed examination of this arraying possibility, along with a discussion of circumstances leading to OTA's suggesting it, is found in Background Paper #1: Methodological Issues and Literature Review.

4.

INTRODUCTION

Substantial disagreement and confusion surround the question of the potential usefulness of cost-effectiveness analysis/cost-benefit analysis (CEA/CBA) in decisions regarding medical technology and the health care system. With the continuing concern over health care expenditures, and with the advocacy of CEA/CBA by many people and groups as a means to ameliorate cost-related problems, this confusion and disagreement take on a significance that is far more than academic.

OTA believes that the potential usefulness of CEA/CBA depends very critically not only on the feasibility but also on the implications of its use. Accordingly, in this assessment, OTA examined three major issues: 1) the general usefulness (past and potential) of CEA/CBA in decisionmaking regarding medical technology; 2) the methodological strengths and limitations of CEA/CBA; and 3) the potential for initiating or expanding the use of CEA/CBA in health care decisionmaking regarding medical technology, especially in six health care programs— reimbursement coverage, health planning, market approval for drugs and devices, Professional Standards Review Organizations (PSROs), R&D activities, and health maintenance organizations (HMOs). A major aspect of the examination of the third issue is the potential implications-to the programs, to decisionmaking quality, and to society's values-of CEA/CBA use in the six program areas.

The primary focus of this assessment is on the application of CEA/CBA to medical technology-which OTA defines as the drugs, devices,

and medical and surgical procedures used in medical care, and the organizational and support systems within which such care is provided. With the exception of a background paper on CEA/CBA and psychotherapy,1 the assessment does not directly address psychosocial medicine. Other aspects of health, such as the environment, are also not covered. OTA believes, however, and it was the consensus of the advisory panel, that the findings presented in this report, and in the background paper on methodological issues,2 may apply also to other areas such as health care resource allocation in general. With modification, the findings may also apply to areas such as environmental health regulation, occupational safety and health, and education resource allocation.

Furthermore, although the subject of the assessment was CEA/CBA, the findings should also be examined with an eye to their applicability to other types of formal analysis. Risk-benefit analysis, decision analysis, systems analysis, technology assessment, and social impact assessment, for example, are all techniques used to examine various policy questions in both public and private organizations. The usefulness and implications of each of these techniques will vary according to many of the same factors that affect the usefulness of CEA/CBA. In fact, there are only hazy distinctions between these other forms of analysis and the forms of CEA/CBA.

'Background Paper #3: The Efficacy and Cost Effectiveness of Psychotherapy, prepared by OTA.

'Background Paper #1: Methodological Issues and Literature Review, prepared by OTA.

GENERAL FINDINGS

OTA found few examples of well-conducted, sophisticated CEA/CBAS conducted for and used in decisionmaking in health care. It is likely, however, that the extent of use of CEA/ CBAs in health care decisionmaking OTA found in its survey (see app. B) understates actual usage—of informal CEAs in particular, but of formal, relatively sophisticated analyses, as well. OTA's survey was not exhaustive. The effort that was undertaken to ascertain the amount of use, though, does seem to indicate that the level of use is not substantial. Use of formal CEA/CBA in decisionmaking in health care is the exception not the rule.

It is safe to say, however, that most decisions made take into account only a subset of the potential consequences of those decisions. The inherent complexities of many decisions and the uncertainties of decision variables make it extremely difficult to identify and weigh all the consequences. In general, OTA found, the quality and validity of decisions can be increased by analysis that forces a structuring of the decision process, that provides a framework for identifying and considering as many of the relevant costs and benefits as is feasible.

This finding supports the two major general findings of the assessment that were presented at the end of chapter 2. The process of CEA/CBA may be more helpful generally than would be the rigid and formal application of CEA/CBA study results in health care programs.

Chapter 2 also set out two broad classes of health care program decisions: constrained budget ones, and nonbudget or nonconstrained ones. CEA/CBA potentially can be more valuable for decisionmaking under a constrained budget where tradeoffs have to be made directly than when constraints are nonexistent or very indirect. Under the budget system, the budget itself would act as a cost containing or controlling factor. Under the nonconstrained type of system, since no direct tradeoffs are required, no direct limit on expenditures is set or forced. Thus, in neither case would CEA/CBA necessarily function as an effective cost-constraining mechanism or tool. Advocacy of CEA/CBA as

such a tool, therefore, should be regarded skeptically. CEA/CBA might, though, change the mix of expenditures. Technologies might be substituted for one another on the basis or partially on the basis of analysis-especially under a budget situation. In this regard, there is potential for CEA/CBA to help increase efficiency, even in terms of health outcome, without necessarily lowering total expenditures.

Related to this last point about the possible use of CEA/CBA in improving resource allocation within a constrained budget is the observation that this country's health care system might move closer to an overall constrained budget. This is mentioned only as a possibility. Perhaps in the future, health care expenditures may be limited (or constrained) to a fixed or specified percentage of gross national product, or to some specified absolute amount of dollars. If this situation ever comes about, or even as an increasing number of individual institutions and programs operate under budget constraints, the appropriateness of CEA/CBA may increase. In such a possible future situation, most resource allocation decisions would require explicit tradeoffs. It is conceivable, therefore, that efforts devoted to the development of a CEA/CBA-based approach to decisionmaking (not necessarily tied to numerical study results) will represent an investment in future social policymaking. The lack of direct applicability of formal CEA/CBA to many of today's decisions may then be offset by future applications of CEA/CBA.

Various sources consulted and numerous people interviewed by OTA for this assessment provided information yielding several seeming contradictions or paradoxes concerning CEA/CBA. For example, one common argument is that use of CEA/CBA may often be unethical if it does not take values and distributional issues into account adequately. There is validity to that statement. But there also seems to be validity to the argument that not considering costs and benefits in decisions on society's resources, especially in an area so basic as health, is unethical, because in the absence of the explicit consideration of consequences and of the parties on whom those