The principle of extended dominance is applied in incremental cost-effectiveness analysis to eliminate from consideration strategies whose costs and benefits are improved by a mixed strategy of two other alternatives. Ethical considerations arise, however, in that equal care is not provided to all of the population. To explore these concerns, the authors establish a theoretical health care example with three diagnostic strategies. They demonstrate, both algebraically and geometrically, how to calculate the set of all possible mixed strategies that dominate the strategy eliminated by extended dominance. With the consideration of budget constraints, they define the "coefficient of inequity" as the minimum proportion of the population that would receive an inferior health care strategy if a mixed strategy were to be used instead of the dominated strategy. The implications of cost-effectiveness analysis are made explicit, revealing classic economic concerns about the tradeoff of equity and efficiency.