What is Cost-Effectiveness Analysis and why is it useful in health economics?
Cost-effectiveness is the standard methodology used to compare strategies in health economics. It evaluates treatment strategies or health policies based on the average cost and effectiveness per patient and recommends treatments with good health outcomes that come at a reasonable cost.
Cost-effectiveness analysis is used to balance health outcomes with limited resources in healthcare expenditure. We usually want the maximum health benefits based on the resources available. Health measures or effectiveness measures commonly used are Life Years (LY) or Quality Adjusted Life Years (QALYs). In some cases, there is a Willingness-to-Pay (WTP) which determines the cost we are willing to pay for an additional unit of effectiveness.
When there is a limit on the Willingness-to-Pay (WTP), we calculate the Incremental Cost-Effectiveness Ratio (ICER) between two strategies. The ICER is the ratio for two strategies of the incremental cost versus the incremental effectiveness. The ICER is then compared to the WTP, and if the ICER is less than the WTP, the more costly strategy is optimal.