COST EFFECTIVENESS

ANALYSIS

Metropolitan Medical Center

College of Medicine

Capili, Edalyn R.
Endaya, Nadine J.
WHAT IS COST EFFECTIVENESS ANALYSIS?
• A specific type of economic analysis in which all costs
are related to a single, common effect.
• Decision makers can use it to compare different
resource allocation options in like terms.
• A general misconception is that CEA is merely a means
of finding the least expensive alternative or getting the
“most bang for the buck.”
WHAT IS COST EFFECTIVENESS ANALYSIS?
• A comparison tool; it will not always indicate a
clear choice, but it will evaluate options
quantitatively and objectively based on a defined
model
• CEA was designed to evaluate health care
interventions, but the methodology can be used for
non- health economic applications as well
 ELEMENTS OF COST-EFFECTIVENESS
ANALYSIS
Health intervention
Competing alternative(s)
Health states
Health status (measured by Health Related Quality
of Life (HRQL) and life expectancy)
Quality-Adjusted Life Years (combines a measure of
quantity of life adjusted for the quality of life)
Costs (measured by peso or dollars)
 COST EFFECTIVENESS ANALYSIS
Decision Rule
• Two programs A (comparator) and B
• If outcome B = outcome A  compare costs
• If outcome B > outcome A and cost B < cost A  B is dominant
• If outcome B > outcome A and cost B > cost A  we have to
make a decision
• In order to make a decision on which intervention to choose,
COST-EFFECTIVENESS RATIO should be calculated
 COST EFFECTIVENESS ANALYSIS
The most commonly CERs used are the:
• Average Cost-Effectiveness Ratio (ACER)

• Incremental Cost-Effectiveness Ratio (ICER)

COST EFFECTIVENESS RATIO
• EXAMPLE:
• Comparison of two screening
interventions
• $10,000/life year gained
• VS. $40,000/life year gained

• The first intervention requires

monthly screening and the second
requires biannual screening.

WHICH IS THE MOST COST

EFFECTIVE?
COST EFFECTIVENESS PLANE
 COST EFFECTIVENESS ANALYSIS
• There is no magic cut-off number that establishes whether or not
an intervention is cost-effective.
• It will depend on what is termed the decision maker’s ceiling ratio.
• The ceiling ratio can be inferred from the amount that decision
makers are willing to pay.
To make a decision:
• If ICER of the program ≤ ceiling ratio  adopt the program
• If ICER of the program ≥ ceiling ratio  do not adopt the program
INTERPRETING AN ICER
WHY EMPLOYERS USE CEA?
Supports objective decision making: Decision makers can
consider options in a comparable and objective way that
provides support for the final decision

Brings clarity to data sources and outcomes: CEA evaluates

options in similar terms to avoid “comparing apples to
oranges.”

Allows for strategic review of organizations: CEA might justify

some operational centers operating at a loss to increase overall
return on investment, employee health, or both.
WHY EMPLOYERS USE CEA?
Can be used in a host of operational and benefits areas including:
• Screening coverage
• Pharmacy
• Strategic Planning
• Labor Relations
• Disease Management
• Disability Management
• Wellness and Prevention Programs

Presents evidence that can help gain support for changes

in benefits plans or employer-sponsored health
programs.
 COMMON
APPLICATIONS
 EVALUATING PROGRAM OPTIONS
• Determining Appropriate Screening Frequencies
 EVALUATING PROGRAM OPTIONS
• Justifying Program Implementation
 COST EFFECTIVENESS ANALYSIS
Hypothetical League Table for a Village in Malawi with $58,000 Health Budget
ICER (compared to
Population affected Total Cost per
Intervention do nothing) Ranking
(Number of Persons) Year ($)
($/QALY)

Most Cost-
Measles Vaccine 375 5,000 15,000
Effective
STD treatment 420 300 2,100
Pneumonia
428 150 1,800 Cheapest
treatment
Mosquito nets 846 22,000 44,000
Least Cost-
HIV treatment 3,000 100 30,000
Effective
Total 92,900
COST EFFECTIVENESS ANALYSIS

Intervention Outcomes/100 Drug

patients costs/patient
No treatment 15 deaths -

Thrombase 10 deaths R 2, 000

Klotgon 7 deaths R 10, 000

 COST EFFECTIVENESS ANALYSIS
• We could calculate the costs per patient relieved
of symptoms and/or death for each therapy
Thrombase vs. No Treatment:
• R2000 – R0/ 10 deaths – 15 deaths = R400
Klotgon vs. No Treatment:
• R10000 – R0/ 7 deaths – 15 deaths = R1250
COST EFFECTIVENESS RATIO
Q: Are today’s new, expensive
treatments usually bad values?
A: Not necessarily. Some expensive
breakthroughs not only bring
better health outcomes, but are well
worth the money. One example is
the implantable cardioverter
defibrillator. Its cost-effectiveness
ratio compares favorably to
dialysis for end-stage renal
disease—which we accept as being
worth the money.
 COST EFFECTIVENESS ANALYSIS
• There are some important features to notice about cost
effectiveness as a method of assessing which is the best
use of resources:
a) Just because something is cost-effective it does not
mean you can afford it
b) Even if something is cost effective you may need it –
e.g. Immunization with basic EPI vaccines is one of
the most cost effective interventions; TB-DOTS
c) The cost effectiveness will vary with the conditions
and the target group concerned.
SOURCES:
• Hurley, J. E. (2010). Health economics. Toronto:
McGraw-Hill Ryerson.
• Folland, S., Goodman, A. C., & Stano, M. (1997). The
economics of health and health care. Upper Saddle River,
NJ: Prentice Hall.
• Cost effectiveness analysis: An employer decision
support tool by Center for Prevention and Health
Services (August 2014)
THANK YOU FOR LISTENING! 