Economic Evaluation « Research Design Service

Economic evaluation

An economic evaluation is the comparative analysis of alternative course of actions (i.e. healthcare interventions) in terms of both inputs (i.e. healthcare resources and their costs) and consequences (i.e. health outcomes). The use of economic evaluation is becoming increasingly popular amongst different healthcare systems, including the UK NHS, as a means of prioritising healthcare spending to interventions that are most likely to improve the health of the population given the resources available. There are different methods used to conduct an evaluation, mainly: 1) using individual patient data on costs and effects from a randomised controlled trial (RCT) or cohort study; and 2) synthesising all available published and unpublished data on costs, resource use and health outcomes using a decision analytic model.

Types of economic evaluation

There are different types of frameworks for combining costs and benefits within an economic evaluation framework. Whilst the approach to measuring costs is the same in all frameworks, they differ in the way health outcomes are measured and valued.

Cost-effectiveness analysis

In cost-effectiveness analysis, benefits are measured in “natural units”, which are clinical in nature and unidimensional, e.g. life-years, number of recurrent events, or number of days with disability. Although these are relatively simple to measure, other important outcomes may be ignored when using such measures. For example, when additional life expectancy is gained due to treatment, the quality of such years may also be important to patients. Another limitation of this type of analysis, is that it does not facilitate comparisons across different disease areas when different outcomes have been used.

Cost-utility analysis

In economic evaluation, cost-utility analysis has become synonymous with the quality-adjusted life year (QALY – an outcome measure that combined both life expectancy and quality of life) framework. The main difference between cost-effectiveness and cost-utility analysis is that the latter incorporates utilities in its outcome measure and outcomes are, generally, represented in terms of QALYs. Cost-utility analysis can, therefore, be seen as an improvement on cost-effectiveness analysis as it attempts to combine more than one outcome measure (e.g. both quality and quantity of life in the case of QALYs). In addition, comparisons across different disease areas can be made as all outcomes are measured using the same metric.

Cost-benefit analysis

In cost-benefit analysis both costs and benefits are measured in monetary terms. The advantage of this framework is that the decision over whether or not to adopt an intervention will be based on whether benefits (i.e. health outcomes valued in monetary terms) outweigh the costs. However, there are inherent difficulties in measuring health outcomes in monetary terms, not least the ethical objections to measuring life in monetary terms.

Cost-consequences analysis

In a cost-consequences analysis, instead of combining the costs and effects, all the costs and outcomes are reported separately. This framework has been advocated for its simplicity and ease of interpretation, and because it allows decision makers to impute their own values to the different costs and consequences. However, a disadvantage of this approach is the difficulty of comparing outcomes between different interventions in order to prioritise them.

Health Economics