This paper covers five questions: (1) What is cost-effectiveness analysis;quest; (2) How can cost-effectiveness analysis help policymakers allocate scarce resources;quest; (3) What are misconceptions about the cost effectiveness of health care interventions;quest; (4) What is an attractive cost-effectiveness ratio;quest; (5) What is the relevance of cost effectiveness to clinicians? The cost side of the equation includes more than simply the cost of the intervention, but rather the cost of all of the downstream clinical events that occur with either therapeutic alternative. Cost-effectiveness analyses are used to help decisionmakers rank programs competing for scarce resources in order to achieve the following objective: to maximize the net health benefits derived from a fixed budget for a target population. A simple example is shown. Measured cost-effectiveness ratios for selected cardiovascular interventions are displayed. The systematic use of information on effectiveness and cost effectiveness should help those involved in setting policies to have a more rational basis for funding of new programs and discontinuation of funding for old programs. In Canadian health care it is important that we use this information to make room for innovations that are effective and efficient, and to remove funding from programs that are either known to be ineffective and costly or inefficient use of resources. More energy should be put toward generating the information necessary to make these kinds of decisions.