What is cost-effectiveness?

Authors: Pippa Anderson and Ceri Phillips

Cost-effectiveness analysis (CEA) compares the costs and health effects of an intervention to assess the extent to which it can be regarded as providing value for money.

In a jurisdiction where economic evaluation of healthcare interventions plays a formal or informal role in determining where to allocate limited healthcare resources, CEA indicates the relative value of one intervention compared with another.

Cost-effectiveness ratios should be related to the size of relevant budgets to determine the most cost-effective strategies.

Cost–utility analysis – a type of CEA – is the approach required in the UK by the National Institute for Health and Care Excellence (NICE), the Scottish Medicines Consortium (SMC) and the All Wales Medicines Strategy Group (AWMSG) to determine the relative cost-effectiveness of therapeutic interventions. Outside of the UK, other assessment agencies exist – for example, the Swedish Dental and Pharmaceutical Benefits Agency.

All CEAs should be subjected to sensitivity analysis, which should be included as part of the reporting of the findings.

Cost-effectiveness is only one of a number of criteria that should be employed in determining whether interventions are made available. Issues of equity, needs and priorities, for example, should also form part of the decision-making process.

Care should be exercised in interpreting cost-effectiveness studies to ensure that all underlying assumptions have been made explicit and the context and perspective of the study are adequately reported.

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