Official reprint from UpToDate®
www.uptodate.com ©2017 UpToDate, Inc. and/or its affiliates. All Rights Reserved.

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


Health care 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 health care 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 comparative costs and health benefits of different interventions [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. The Second Panel on Cost-Effectiveness in Health and Medicine provide a detailed review of the state of the field and revised recommendations [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 health care. 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.

To continue reading this article, you must log in with your personal, hospital, or group practice subscription. For more information on subscription options, click below on the option that best describes you:

Subscribers log in here

Literature review current through: Nov 2017. | This topic last updated: Oct 19, 2017.
The content on the UpToDate website is not intended nor recommended as a substitute for medical advice, diagnosis, or treatment. Always seek the advice of your own physician or other qualified health care professional regarding any medical questions or conditions. The use of this website is governed by the UpToDate Terms of Use ©2017 UpToDate, Inc.
  1. Weinstein MC, Stason WB. Foundations of cost-effectiveness analysis for health and medical practices. N Engl J Med 1977; 296:716.
  2. Eisenberg JM. Clinical economics. A guide to the economic analysis of clinical practices. JAMA 1989; 262:2879.
  3. Detsky AS, Naglie IG. A clinician's guide to cost-effectiveness analysis. Ann Intern Med 1990; 113:147.
  4. Provenzale D, Lipscomb J. Cost-effectiveness: definitions and use in the gastroenterology literature. Am J Gastroenterol 1996; 91:1488.
  5. Drummond MF, Richardson WS, O'Brien BJ, et al. Users' guides to the medical literature. XIII. How to use an article on economic analysis of clinical practice. A. Are the results of the study valid? Evidence-Based Medicine Working Group. JAMA 1997; 277:1552.
  6. O'Brien BJ, Heyland D, Richardson WS, et al. Users' guides to the medical literature. XIII. How to use an article on economic analysis of clinical practice. B. What are the results and will they help me in caring for my patients? Evidence-Based Medicine Working Group. JAMA 1997; 277:1802.
  7. American College of Physicians. Information on cost-effectiveness: an essential product of a national comparative effectiveness program. Ann Intern Med 2008; 148:956.
  8. Doubilet P, Weinstein MC, McNeil BJ. Use and misuse of the term "cost effective" in medicine. N Engl J Med 1986; 314:253.
  9. Sanders GD, Neumann PJ, Basu A, et al. Recommendations for Conduct, Methodological Practices, and Reporting of Cost-effectiveness Analyses: Second Panel on Cost-Effectiveness in Health and Medicine. JAMA 2016; 316:1093.
  10. Neumann PJ, Sanders GD. Cost-Effectiveness Analysis 2.0. N Engl J Med 2017; 376:203.
  11. Neumann PJ, Sanders GD, Russell LB, et al. Cost-Effectiveness in Health and Medicine, 2nd ed, Oxford University Press, New York 2017.
  12. Russell LB, Gold MR, Siegel JE, et al. The role of cost-effectiveness analysis in health and medicine. Panel on Cost-Effectiveness in Health and Medicine. JAMA 1996; 276:1172.
  13. Hlatky MA, Lipscomb J, Nelson C, et al. Resource use and cost of initial coronary revascularization. Coronary angioplasty versus coronary bypass surgery. Circulation 1990; 82:IV208.
  14. Froberg DG, Kane RL. Methodology for measuring health-state preferences--III: Population and context effects. J Clin Epidemiol 1989; 42:585.
  15. Kaplan RM, Anderson JP. A general health policy model: update and applications. Health Serv Res 1988; 23:203.
  16. Torrance GW, Boyle MH, Horwood SP. Application of multi-attribute utility theory to measure social preferences for health states. Oper Res 1982; 30:1043.
  17. Sackett DL, Torrance GW. The utility of different health states as perceived by the general public. J Chronic Dis 1978; 31:697.
  18. Slevin ML, Stubbs L, Plant HJ, et al. Attitudes to chemotherapy: comparing views of patients with cancer with those of doctors, nurses, and general public. BMJ 1990; 300:1458.
  19. Weinstein MC, Siegel JE, Gold MR, et al. Recommendations of the Panel on Cost-effectiveness in Health and Medicine. JAMA 1996; 276:1253.
  20. Siegel JE, Weinstein MC, Russell LB, Gold MR. Recommendations for reporting cost-effectiveness analyses. Panel on Cost-Effectiveness in Health and Medicine. JAMA 1996; 276:1339.
  21. Husereau D, Drummond M, Petrou S, et al. Consolidated Health Economic Evaluation Reporting Standards (CHEERS) statement. BMJ 2013; 346:f1049.
  22. Claxton K, Sculpher M, Drummond M. A rational framework for decision making by the National Institute For Clinical Excellence (NICE). Lancet 2002; 360:711.
  23. Neuhauser D, Lewicki AM. What do we gain from the sixth stool guaiac? N Engl J Med 1975; 293:226.
  24. Pandya A, Sy S, Cho S, et al. Cost-effectiveness of 10-Year Risk Thresholds for Initiation of Statin Therapy for Primary Prevention of Cardiovascular Disease. JAMA 2015; 314:142.
  25. Provenzale D, Schmitt C, Wong JB. Barrett's esophagus: a new look at surveillance based on emerging estimates of cancer risk. Am J Gastroenterol 1999; 94:2043.
  26. Lansdorp-Vogelaar I, Kuntz KM, Knudsen AB, et al. Stool DNA testing to screen for colorectal cancer in the Medicare population: a cost-effectiveness analysis. Ann Intern Med 2010; 153:368.
  27. Knudsen AB, Hur C, Gazelle GS, et al. Rescreening of persons with a negative colonoscopy result: results from a microsimulation model. Ann Intern Med 2012; 157:611.
  28. Kim JJ, Campos NG, Sy S, et al. Inefficiencies and High-Value Improvements in U.S. Cervical Cancer Screening Practice: A Cost-Effectiveness Analysis. Ann Intern Med 2015; 163:589.
  29. Meltzer MI. Introduction to health economics for physicians. Lancet 2001; 358:993.
  30. Mark DB, Hlatky MA. Medical economics and the assessment of value in cardiovascular medicine: Part I. Circulation 2002; 106:516.
  31. Philips Z, Ginnelly L, Sculpher M, et al. Review of guidelines for good practice in decision-analytic modelling in health technology assessment. Health Technol Assess 2004; 8:iii.
  32. Weinstein MC, O'Brien B, Hornberger J, et al. Principles of good practice for decision analytic modeling in health-care evaluation: report of the ISPOR Task Force on Good Research Practices--Modeling Studies. Value Health 2003; 6:9.
  33. Dahabreh IJ, Trikalinos TA, Balk EM, Wong JB. Recommendations for the Conduct and Reporting of Modeling and Simulation Studies in Health Technology Assessment. Ann Intern Med 2016; 165:575.