Health care costs in the United States of America continue to rise. Legislators, economists and third party payers are becoming increasingly concerned with intervention outcomes and the distribution of resources. It is the responsibility of the medical profession to assume a leading role in assessing the cost-effectiveness of health care interventions. Although many physicians perform informal cost-effectiveness analyses on a daily basis, health economists employ a variety of more complex methodologies. This article will attempt to provide physicians with an understanding of the value and limitations of the tools used in formal cost-effectiveness analyses and demonstrate how these tools may be applied to the management of colon and rectal cancer.