This article provides an initial look at how managed care organizations(MCOs) might incorporate cost-effectiveness analysis (CEA) into their decision-making process and how the courts might respond. Because so few medical liability cases directly involve CEA, we must look at other areas of the law to assess potential MCO liability for applying CEA. In general negligence cases, courts rely on a risk-benefit test to determine customary practice. Likewise, in product liability cases, courts use a risk-utility calculus to determine liability for product design defects. And in challenges to government regulation, courts examine how agencies use CEA to set regulatory policy. The results have been mixed. In product liability cases,CEA has led to some punitive damage awards against automobile manufacturers. But courts have integrated it in negligence cases without generating juror antipathy, and generally defer to agency expertise in how to incorporate CEA. The article discusses the implications of these cases for MCO use of CEA and outlines various options for setting the standard of care in the managed care era.

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