Cost-Effectiveness Analysis


Health Economics

  • A method of comparing the opportunity costs of various alternative courses of action having the same benefit or in terms of a common unit of output, outcome, or other measure of accomplishment. This procedure is used when benefits are difficult to value monetarily, when those that are measurable are not commensurable, or when the objectives are set in terms of health itself. It is similar to cost-benefit analysis except that benefit is expressed in terms of a homogeneous index of results achieved rather than in monetary terms (as in cost-benefit analysis) or in terms of several non-commensurable benefits (as in cost-consequences analysis). These may be natural units such as the number of lives saved or number of days free from disease, they may be units that are specific to the procedures being compared (like the speed of healing of a wound), or they may be generic (like quality-adjusted life-years) thus enabling comparisons of cost-effectiveness to be made across many different technologies and patient groups. Many gurus advocate the use of the term cost-utility analysis for this latter type of analysis, which in some respects is unfortunate since it seems to imply that QALYs are a measure of utility in the customary sense of indicating strength of preferences. It might be more useful, however, to consider them to be a measure of health embodying other - perhaps higher - values than mere preferences - even the preferences of prospective patients and their carers. In truth, QALYs can be both preference based (though there is an issue about whose preferences they should be based on, how they are acquired, and how stable those preferences are - e.g. as between before and after treatment) and, say, social value of health based (when there are again issues of whose values and how acquired).

    Many of the issues that arise in cost-benefit analysis, such as those of perspective, scope of consequences, discount rate, sensitivity analysis, modelling, also arise in cost-effectiveness analysis.

    There are literally thousands of empirical cost-effectiveness studies (and the related types) and there is a great deal of quality variation in this corpus, some arising from inherent design problems and others from degrees of expertise in the research team. The Appendix contains a list of studies of acceptable quality (or better) and attempts to indicate the very wide range of topics (diseases, technologies, settings) that have been covered. The criteria used by the Centre for Reviews and Dissemination at the University of York, UK, which is the world's major such centre and which has a huge database of evaluated studies, include the following: specification of study question, description of health technology in question, the settings in which it might be used, the population to which it applies, the type of study (CEA, CUA, etc.), perspective of the study (societal, third party payer, etc.), sources of data, methods of obtaining data, time period over which data were obtained, measures of benefit, measures of cost, synthesis of benefits and costs, types of modelling employed, currency used, dates of measures, treatment of uncertainty (types of sensitivity analysis), discounting procedure and rates chosen. A good study would be expected to include at the very least a statement about each of these elements. Until relatively recently, most studies were in developed country settings but there is now a good range of studies based in the third world, some of which are listed in the Appendix.

  • acronymCEA
    (written as cost-effectiveness analysis)
  • synonymIncremental Analysis
    (written as cost-effectiveness analysis)
  • synonymIncremental Cost
    (written as cost-effectiveness analysis)
  • The differences in costs or outcomes between two or more technologies or solutions.


  • noun analysis of the changes in costs and revenues that occur when business activity changes