Cost-effectiveness analysis

Cost-effectiveness analysis (CEA) is a form of economic analysis that compares the relative costs and outcomes (effects) of different courses of action. It is distinct from cost-benefit analysis, which assigns a monetary value to the measure of effect.

Overview

Cost-effectiveness analysis is often used in the field of health services, where it may be inappropriate to monetize health effect. Typically the CEA is expressed in terms of a ratio where the denominator is a gain in health from a measure (years of life, premature births averted, sight-years gained) and the numerator is the cost associated with the health gain. The most commonly used outcome measure is quality-adjusted life years (QALY).

Methodology

The first step in the process of cost-effectiveness analysis is to identify the health interventions that are being compared. These could be different treatments for the same condition, or different approaches to preventing a health problem.

The next step is to measure the costs of each intervention. This includes not only the direct costs of the intervention itself, but also any indirect costs, such as those associated with side effects or with changes in productivity resulting from the intervention.

The final step is to measure the effectiveness of each intervention. This is typically done in terms of the number of years of life saved, the number of cases of disease prevented, or some other measure of health benefit.

Applications

Cost-effectiveness analysis is used in many fields, but it is particularly common in health economics. It is used to inform decisions about which interventions to fund, and is often used in the development of clinical guidelines.

Limitations

One of the main limitations of cost-effectiveness analysis is that it does not take into account the distribution of costs and benefits. It may be that an intervention is cost-effective on average, but that the costs are borne by one group (e.g., taxpayers) while the benefits accrue to another (e.g., patients).

Another limitation is that it can be difficult to measure the effectiveness of an intervention in a way that can be compared across different interventions. For example, how does one compare the effectiveness of a drug that extends life by a year with a surgical procedure that prevents a heart attack?

See also

• Health economics
• Cost-benefit analysis
• Quality-adjusted life years

References

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