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Cost-effectiveness analysis: Concepts and applications 

Cost-effectiveness analysis: Concepts and applications
Cost-effectiveness analysis: Concepts and applications

Dean T. Jamison

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date: 19 May 2022

Cost-effectiveness analyses (or CEAs) in health describe interventions in terms of their cost per unit of health gain that they provide. Deaths averted provides a measure of health gain but CEAs typically use measures that take account of both years and quality of life gained. Cost and effects are typically measured from the perspective of society as a whole but other perspectives are possible. Broadly speaking CEAs are used in two distinct ways: One use provides an input into a (usually public sector) decision maker about whether to alter intervention mix or change intervention coverage levels. The second is to inform broader generalizations about health policy. This chapter provides an overview of the methods currently in use to undertake CEAs and provides an extended example—based on the Disease Control Priorities Project—that illustrates both uses.

Many of the world’s poorest countries spend under US$10 per person per year on health services. High-income countries spend thousands of dollars per year. Yet across this entire expenditure range questions arise about value gained for money spent on health. Most poor countries suffer huge burdens from some mix of childhood infection, malaria, maternal deaths, tuberculosis, and HIV/AIDS. Highly effective interventions exist to address most (but not all) of these conditions. If a few additional dollars per year were available, misspending those dollars on interventions offering relatively little health gain for the money would entail lost opportunities to postpone many deaths and prevent much serious disability. High- income countries, too, face choices: Could an improved mix of interventions reduce overall costs (or at least their rate of growth) while maintaining existing levels of health? Which of the effective but usually costly new interventions emerging from the R&D pipeline should public or private insurance plans cover? Rationing of healthcare is part of our future and, in many cases, our present (Maynard & Bloom 1998).

Concern, then, with value for money (or cost-effectiveness) spans income levels. Neither is the issue one principally for the private sector, for non-governmental organizations or for the public sector. Each has a potential interest. Analysts have responded to this interest over a period of several decades and produced a substantial literature on both methods and results. The purpose of this chapter is to introduce the reader to this literature. It is often said that ‘Prevention is more cost-effective than cure’ or ‘Tertiary facilities are not cost-effective in low-income countries’. One application of CEA involves generation of the cost-effectiveness generalizations that would support or undermine such propositions. In the second major application of CEA, analysts assess options for dealing with a particular problem—options involving scale of intervention or choice of technique. Discussion in this chapter covers both these applications.

The chapter begins with a brief discussion of background and terminology, then describes methods of cost-effectiveness analysis (hereafter CEA). The chapter then illustrates use of the methods with an application that provides a sense of results.

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