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A short primer on cost-effectiveness analysis

Peter A L Bonis, MD
John B Wong, MD
Section Editors
Joann G Elmore, MD, MPH
David M Rind, MD
Deputy Editor
Carrie Armsby, MD, MPH


Healthcare advances such as new drugs, devices, or screening and diagnostic tests must demonstrate safety and efficacy to be approved for clinical use. However, because of rising healthcare costs and limited budgets, questions may remain about their value [1]. Cost-effectiveness analysis is one approach to determining value and refers to a method for assessing the costs and health benefits of an intervention [1]. Assuming that health budgets cannot meet all of the possible demand, cost-effectiveness evaluation can assist decision-makers in allocating resources to maximize the net public health benefit when choosing among options in the care of patients [2-7].

Although cost-effectiveness analysis has become a fundamental research method in health and medicine, it also has great potential to be misunderstood because of methodological complexity in definitions, measurement, and interpretation [8]. The term "cost-effective" itself is frequently misused as an adjective (eg, an intervention is "cost-effective") without providing a point of reference.

This topic review will provide a basic overview of the principles of cost-effectiveness analysis while highlighting some of the controversies. Detailed discussions on this topic have been presented in a series of consensus statements issued by the Panel on Cost-Effectiveness in Health and Medicine through the United States Public Health Service [9-11].


Four types of economic analysis have been applied to health care.

Cost-effectiveness analysis or cost-utility analysis (a type of cost-effectiveness analysis) is most commonly used for performing economic analyses in healthcare. In these analyses, monetary and health outcomes are measured separately and the relative value of an intervention is measured as the additional cost to achieve an incremental health benefit such as dollars to prevent a case of cancer. In cost-utility analysis, the effectiveness metric becomes life expectancy adjusted for the morbidity or quality of life associated with the alternative strategies.


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Literature review current through: Sep 2016. | This topic last updated: Sep 8, 2015.
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