Treating Health Care by Raisa Deber

Author:Raisa Deber
Language: eng
Format: epub
Publisher: University of Toronto Press

Economic Analysis: What Does Cost-Effective Mean?

Economic analysis is a series of methods for comparing the costs and consequences of policy alternatives. A number of classic texts address how to perform economic analysis.2 Although there are many complexities (including how to deal with uncertainty), these methods share a basic approach. First, they involve comparing alternatives. We cannot speak of something as being cost-effective without recognizing that we are only analysing whether it is more or less cost-effective than the alternatives to which it is being compared. Second, they require the ability to compute the costs and consequences of the alternatives. An economic analysis thus involves calculating the difference in costs between the pair of alternatives being compared (net costs) and dividing these by the difference in their outcomes (net effectiveness). We can then compute the incremental cost of obtaining an additional unit of benefit (e.g., many analyses of health care interventions look at how many dollars would be spent per year of life gained) or, if the consequences are negative, how much would be saved per year of life sacrificed. (In general, most economic analysis focuses only on potential gains.) However, doing this analysis is rarely simple. One set of questions is whose costs and consequences count; analyses can be done from various perspectives (commonly, patients, providers, payers, or society). Another set of issues relates to how these costs and consequences will be determined. The resulting family of economic analysis approaches has a wide variety of possibilities, including cost-minimization and cost-benefit, cost-effectiveness, and cost-utility analysis.

If consequences are identical for both alternatives, by definition, no incremental benefit exists. We can thus save some time, since it is not necessary to compute these consequences, given that the net incremental benefit will be zero. This allows us to use a cost-minimization approach, the simplest form of economic analysis, where we need only to compute the costs and then select the lowest cost alternative. One example might be decisions about where to purchase an item (or, similarly, which brand of an otherwise identical product to buy).

If consequences do differ, but they can all be expressed in monetary terms, then we can perform cost-benefit analysis, where we price out the costs and consequences and then look at the monetary return on the money invested. This is similar to calculating returns on investment, in which you pick the alternative giving you the highest return.

If consequences cannot be expressed in monetary terms but can be translated into a single common metric, we can do a cost-effectiveness analysis (CEA). For example, we can compute the number of life years gained, or the number of cases with a particular disease detected by a screening program, and can then compute the cost for each unit of benefit. This is sometimes expressed in terms of what are called incremental cost-effectiveness ratios (ICERs).

Cost-utility analysis is closely related to cost-effectiveness; it expresses consequences in terms of a common metric (such as life years gained) but then adjusts these for the ‘quality’ of those years. Commonly, quality is measured on a scale from 0 (worst) to 1 (best).

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