Cost-utility analysis (CUA) is a technique that can potentially be used as a guide to allocating healthcare resources so as to obtain the maximum health benefits possible under a given budget constraint. However, it is not clear that current practice captures societal preferences regarding health benefits. In analyses of healthcare interventions providing survival benefits, the market rate of interest is the sole empirical variable that reflects societal preferences. This approach is based on the assumptions that: (i) healthcare interventions should be ranked using cost-effectiveness (CE) ratios; (ii) the discount rate for costs in CUA should be equal to that used in cost-benefit analysis (CBA); (iii) the discount rate in CBA should be the market rate of interest on long-term government bonds; and (iv) the Keeler-Cretin paradox is applicable to CUA of healthcare interventions, so that the discount rate for benefits in CUA should be set equal to the discount rate for costs. This approach ignores a fundamental difference between CBA and CUA, namely that CUA assumes that a budget constraint has been specified prior to the analysis. It starts with the assumption that a given amount of funds have been withdrawn from the economy to fund healthcare, so there is no opportunity cost to consider. For that reason, the principles on which the choice of discount rate rests differ in the two techniques. Furthermore, use of CE ratios to rank interventions assumes that the budget constraint can be expressed as a single constraint. But healthcare budgets are multiyear budgets that are roughly constant from year to year. A more realistic model would involve multiple constraints and would require linear programming for solution. This can be reduced to a series of single constraints, thereby allowing use of the simpler CE ratio approach, if we assume that the budget being allocated is intended for one cohort at a time, i.e. all people for whom a new funding decision must be made in a given year. In general, we assume that future cohorts will be allotted comparable funding. However, the Keeler-Cretin paradox depends on the assumption that cohorts are competing with each other for resources, and is therefore not applicable to CUA of healthcare. Other approaches are therefore needed to assign utilities to healthcare interventions providing survival benefits. Methods should be developed that allow analyses to reflect a range of philosophical approaches through sensitivity analysis. Cost-utility analysis (CUA) is a technique that is being widely applied to healthcare interventions at a time when spiraling healthcare costs have become an important national concern in the US. CUA was developed as an alternative to cost-benefit analysis (CBA) for the formal analysis of healthcare programmes, primarily because of ethical and methodological concerns over the assignment of a dollar value to a life, as required by CBA.([1-4]) According to the formal theory of CUA, results of analyses can be used as a guide to allocating healthcare resources so as to obtain the maximum health benefits possible under a given budget constraint.([5]) While there is extensive philosophical literature on the allocation of healthcare resources, with numerous controversies about fundamental principles,([6-10]) CUA methodology has evolved essentially without reference to this literature. The Panel on Cost-Effectiveness in Health and Medicine (PCEHM), convened by the US Public Health Service, published guidelines for the practice of CUA in 1996.([11]) While there has been some criticism of the Panel's report,([12,13]) a recent review by one of the PCEHM members recommends the same approach to ranking interventions as did the original report,([14]) and the PCEHM guidelines continue to be the standard reference for those performing, analysis.([15-18]) A number of techniques were discussed in the PCEHM report that can be used to try to capture individual preferences regarding the relative value of different interventions that affect quality of life. However, the methodology presented allows the ranking of interventions that affect survival using only a single empirical variable, the market rate of interest, to reflect societal preferences. This rate is employed as the discount rate for both costs and benefits. The panel recognised that the methodology 'does not reflect every element of importance in healthcare decisions', but they did claim that,the information it provides is critical to informing decisions about the allocation of healthcare resources'.([19]) This paper critically examines the discussion on discounting in the PCEHM report, and the implicit claim that the priority list developed by this methodology, when applied to interventions that provide survival benefits, in some way reflects societal preferences regarding the allocation of healthcare resources. It suggests that the potential applicability of cost-utility analyses would be broadened if the methodology was adapted to allow explicit incorporation of a range of philosophical points of view through sensitivity analysis. An approach to incorporating, such a range into analyses that involve quality of life issues has been presented elsewhere.([20]).
