🔬 What is Cost-Effectiveness Analysis?

Cost-effectiveness analysis (CEA) is a quantitative method used in health economics to assess the value of medical interventions relative to their costs. Unlike cost-benefit analysis (CBA), which converts health benefits into monetary terms, CEA measures health outcomes using indicators such as:

• 📌 Quality-Adjusted Life Years (QALYs): Reflects the quantity and quality of life gained from an intervention.

• 📌 Disability-Adjusted Life Years (DALYs): Estimates the overall disease burden by accounting for years lost due to ill-health, disability, or premature death.

CEA is widely applied in public health, pharmaceutical research, and clinical decision-making to identify interventions that provide the most significant benefit per dollar spent.

According to Drummond et al. (2015) in Methods for the Economic Evaluation of Health Care Programmes, CEA is a health technology assessment (HTA) cornerstone. It is commonly used by organisations such as the World Health Organization (WHO), the National Institute for Health and Care Excellence (NICE), and the U.S. Preventive Services Task Force (USPSTF).

📊 Key Steps in Conducting Cost-Effectiveness Analysis

A robust CEA requires systematic data collection, rigorous analysis, and straightforward interpretation. Here’s a step-by-step breakdown:

1️⃣ Define the Objective & Scope

Clearly outline the healthcare intervention being evaluated.

Identify the target population, perspective (e.g., societal, payer, or healthcare system), and timeframe.

2️⃣ Identify and Compare Alternatives

Compare the new intervention against standard care, placebo, or another treatment alternative.

Example: Evaluating a new cancer drug versus chemotherapy regarding both costs and survival rates.

3️⃣ Measure Direct and Indirect Costs

Direct Costs: Medical expenses (hospitalisation, physician fees, medications, medical equipment).

Indirect Costs: Productivity losses, caregiver burden, and transportation costs.

Example: In a diabetes intervention, costs may include insulin, physician visits, and patient adherence programs.

4️⃣ Measure Health Outcomes (Effectiveness)

Use clinical trials, observational studies, or meta-analyses to measure effectiveness.

Outcomes should be converted into QALYs or DALYs for standardised comparisons.

5️⃣ Calculate the Incremental Cost-Effectiveness Ratio (ICER)

ICER is the ratio of the difference in costs between two interventions to the difference in their effectiveness:

 ICER=Cost of Intervention A−Cost of Intervention BEffectiveness of A−Effectiveness of BICER = \frac{{\text{Cost of Intervention A} - \text{Cost of Intervention B}}}{{\text{Effectiveness of A} - \text{Effectiveness of B}}}

The intervention is considered cost-effective if the ICER is below the willingness-to-pay (WTP) threshold.

Example: If a new cardiovascular drug gains an ICER of $30,000 per QALY, and the WTP threshold is $50,000 per QALY, the drug is considered cost-effective.

6️⃣ Conduct Sensitivity Analyses

Deterministic Sensitivity Analysis (DSA): Varies one parameter at a time to assess impact.

Probabilistic Sensitivity Analysis (PSA): Uses Monte Carlo simulations to assess uncertainty in multiple parameters.

7️⃣ Interpret and Communicate Results

Present findings to stakeholders, policymakers, and healthcare decision-makers.

Use cost-effectiveness acceptability curves (CEACs) to visualise probability distributions.

🚀 Why Cost-Effectiveness Analysis Matters

CEA is not just an academic exercise—it has real-world applications that influence healthcare policies and patient care. Here’s why it’s crucial:

• ✅ Improves Resource Allocation – Helps prioritise interventions that offer the highest health benefits per dollar spent.

• ✅ Supports Evidence-Based Decision-Making – Policymakers use CEA to determine which treatments should be publicly funded.

• ✅ Enhances Public Health Outcomes – Allows better prevention strategies, such as vaccination programs.

• ✅ Optimizes Pharmaceutical Pricing – Ensures drug pricing reflects health benefits.

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🌎 Real-World Applications

• 📌 Vaccination Programs: WHO uses CEA to assess the cost-effectiveness of vaccines like HPV, COVID-19, and measles in low- and middle-income countries (Walker et al., 2020).

• 📌 Cancer Screening: The National Cancer Institute (NCI) evaluates CEA in breast and colorectal cancer screening to determine optimal screening intervals (Mandelblatt et al., 2016).

• 📌 HIV/AIDS Treatment: Antiretroviral therapy (ART) has been deemed cost-effective in preventing disease progression, with studies showing an ICER of $500 per QALY gained in sub-Saharan Africa (UNAIDS, 2021).

📢 Let’s Advance Cost-Effective Healthcare!

Understanding cost-effectiveness analysis is crucial for ensuring that healthcare interventions are clinically effective and financially sustainable. Integrating CEA into health research and policymaking can improve health outcomes while optimising costs.

💡 Are you conducting research in health economics or interested in applying CEA in your field? Let’s discuss your insights! Drop a comment below or share your experience with cost-effectiveness analysis. What challenges have you faced in CEA implementation? Let’s exchange ideas! 👇

Written By:
Aszad Hossain Akib

Assistant Content Lead, BIIHR