Increased health care spending across developed nations, including the US, has put pressure on both public and private payers. The current literature has attributed this growth in spending as being largely due to technological change.  To prioritize adoption of new technologies, so called cost-effectiveness analysis has been used as the main tool by third-party payers and, as a result, has generated perhaps the largest sub-field within health economics.  In this paper we argue utilization of cost-effectiveness analysis is subject to a form of Lucas critique; the stated goals of the policy will not materialize when those affected by it respond to it. In particular, we stress that cost-effectiveness analysis by payers invariably reflects prices set by producers rather than resource costs used to produce treatments.  This implies that the “costs” in cost-effectiveness assessments depend on endogenous markups which are, in turn, influenced by demand factors of patients, doctors, and, most importantly, the cost-effectiveness policy used by payers to translate prices to adoption decisions. We argue this has two important implications. First, under endogenous cost-effectiveness analysis policies aimed at lowering spending may actually raise it. Second, reimbursement policy based on endogenous cost-effectiveness levels may lead to adoption of more inefficient treatments. Under the standard conditions when producer costs are unobservable, we provide a test for these conditions using data on technology appraisals in the United Kingdom 1999-2005.