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Keys to understanding cost-effectiveness analyzes and other types of economic evaluations


Laura van der Werf Paintings
MBE Researcher

In all regions of the world there are limited resources for health and rapidly increasing needs. Resources for health are scarce relative to growing health needs. This leads to the need to establish priorities for the allocation of resources.

In this blog we will talk about cost-effectiveness analyzes and other economic evaluations of health technologies. We will mention how they make it possible to systematically compare the relative costs and the effects of health interventions. In addition, on how they allow resources to be used in a more efficient way.


What are economic evaluations of health technologies? Why do we need them?

Economic evaluations of health technologies are a type of quantitative analysis. This seeks to systematically compare the relative costs and effects of different health interventions. Thus, they offer a conceptual framework that allows the costs and benefits of different health interventions to be compared. This makes it possible to establish whether the benefits generated make them worth investing in the resources they cost. Its objective is then, to make the resources are used efficiently (1,2).


To define priorities in the use of health resources, a systematic analysis is essential. Without it, it is difficult to clearly identify the relevant alternatives. On the other hand, without some attempt at quantification, informal assessment of costs and benefits can be misleading. In addition, a systematic approach makes decision-making about financing health technologies more explicit and transparent. This also facilitates accountability (3). These assessments are, therefore, a fundamental part of health technology assessments.


What types of economic evaluations are there?

The term cost-effectiveness is often used to refer to economic evaluations of health technologies. However, there are different types of economic evaluations. These differ from each other by the way in which the benefits obtained by an intervention are quantified.


Cost-effectiveness evaluations

Evaluations of efectivity cost they are used to compare health interventions or technologies that have a common outcome. For example, the reduction in blood pressure, cholesterol or the risk of heart attack. Their results are presented as a ratio between the costs of the intervention and the benefits obtained in this outcome (2).


Analysis of cost-utility

The analyzes of cost-utility are a variant of cost-effectiveness analyzes (3). In this, the benefits generated by the intervention are measured in terms of quality and life expectancy. The purpose is to measure the benefits according to people's preferences for different health states. That is, an approximation to the utility. This is defined as the perceived health benefit obtained using a health technology.


The most frequently used measure in these evaluations is the Quality Adjusted Life Year (QALY). This measurement is known as QALY for its acronym in English. This common outcome makes it possible to compare technologies for the same condition, even if they produce different health outcomes. It even makes it possible to compare the cost-effectiveness of interventions and technologies used for different diseases. Therefore, these evaluations are useful to decide on the inclusion of technologies in benefit plans (2).


Cost-benefit evaluations

Evaluations of cost-benefit they are characterized in that both costs and benefits are measured in monetary terms. It is difficult to convert the benefits produced by a health intervention to monetary terms. For this reason, this type of evaluation is not used very often (2).


Evaluations of cost-minimization

Finally, there are the evaluations of cost-minimization. Some authors consider that this type of analysis is not a true economic evaluation. This is because benefits are not taken into account. Only the costs of the alternatives to be evaluated are considered and it is assumed that the benefits of the different alternatives are equivalent. Rarely are the benefits obtained from the use of two health technologies really equivalent (2). For this reason, this type of evaluation is also not used as often.


How are the results of economic evaluations interpreted?

The results of the different types of economic evaluations show, in different ways, the relationship between the costs of the intervention and the benefits it offers. Cost-effectiveness and cost-utility analyzes are the two most frequent types in the health area. For this reason, here we will focus on explaining how your results are presented.


Results of cost-effectiveness evaluations: incremental cost-effectiveness ratio

The results of these evaluations are presented as the ratio between the difference in the cost of two possible interventions and the difference in their effect. That is, the costs of the intervention minus the costs of the comparator, over the benefits of the intervention minus the benefits of the comparator. This ratio is known as incremental cost-effectiveness ratio (RICE, ICER).  (See example 1)


Results of cost-utility evaluations: incremental cost-utility ratio

The term RICE is often used to refer to the results of cost-utility evaluations as well. However, when the effects are measured in terms of quality and life expectancy, the ratio is called incremental cost-utility ratio. In this case the benefits are generally expressed in the form of QALYs.  (See example 2). Table 1 summarizes the characteristics of the different types of economic evaluations of health technologies.






The results of these types of economic evaluations can be represented graphically using the incremental cost-effectiveness plane (Figure 1). In this plane, the 'X' axis shows the difference between the benefits of both alternatives. These benefits can be measured in terms of QALY or clinical outcomes. The 'Y' axis shows the difference between the costs of both alternatives. That is, the numerator of the RICE is located on the 'Y' axis and the denominator on the 'X' axis.


How are the results interpreted?

The results of the comparison between a new intervention and a potential alternative can be four. The first is that the new alternative is more effective and less expensive  . When this happens it is said that the new alternative is dominant. A second option is that the new therapy is less effective and more expensive In this situation, the new alternative must be rejected because it is not cost-effective. In this case it is said that the new alternative is dominated. A third option is that the new therapy is less effective and expensive . In this situation, it is necessary to determine whether the savings it produces justifies the decrease in effectiveness. Finally, the fourth option -the most frequent- is for the new alternative to be simultaneously more effective but more expensive. . In this case, it is necessary to assess whether the additional effectiveness justifies the additional costs.





Opportunity cost

In the latter case, it is necessary to consider which benefits will have to be given up in order to implement the new alternative. This is because, if the resources are used to pay for it, they can no longer be used to pay for other possible interventions for the same disease and even for interventions for other diseases.


This cost incurred by losing the possibility of obtaining the benefit associated with the best available alternative is called opportunity cost. Ideally, the cost-effectiveness threshold should represent what you are willing to pay for the additional benefit obtained. This taking into account the benefits that other interventions could generate, that is, the opportunity cost (4).


Currently in Colombia, when the RICE is less than 1 GDP per capita, the intervention is considered to be cost-effective. When it is between 1 and 3 GDP per capita it is considered potentially cost-effective (5). This, until you have your own cost-effectiveness threshold that takes into account the opportunity cost.


Applicability of the results of economic evaluations

The need to consider economic aspects in decisions to allocate resources to cover health interventions is recognized. However, the influence of economic evaluations on decision making remains limited. This is due, among other reasons, to the fact that decision makers often do not have adequate economic evaluations for the context in which they find themselves. Also because they do not have the time or the necessary information to be able to interpret their results (7).


It is for this reason that those who must decide on what procedures and medications people have access to - both health professionals and policy makers - have increasing knowledge about how to interpret their results and the availability of evaluations applicable to their context.


The economic evaluations of health technologies are a tool that helps to make decisions that make it possible to make the use of resources more efficient. However, decisions about which drugs, procedures or medical devices should be preferred should not be made based on financial evaluations alone. For this reason, the evaluation of health technologies requires a multidisciplinary process, which, in addition to economic aspects, takes into account clinical, social, organizational and ethical aspects (6).


Example 1

Back to text

evaluación de costo-efectividad



Example 2


evaluación de costo-utilidad


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1. Chisholm D, Evans DB. Economic evaluation in health: Saving money or improving care? J Med Econ. 2007; 10 (3): 325–37.

2. Kernick DP. Introduction to health economics for the medical practitioner. Postgrad Med J. 2003; 79 (929): 147–50.

3. Drummond M, Sculpher MJ, Claxton K, et al. Chapter 1. Introduction to Economic evaluations. In: Methods for the Economic Evaluation of Health Care Programs. Oxford: OUP Oxford; 2015.

4. Drummond M, Sculpher MJ, Claxton K, et al. Chapter 4. Principles of Economic evaluation. In: Methods for the Economic Evaluation of Health Care Programs. Oxford: OUP Oxford; 2015.

5. Moreno M, Mejía A, Castro H. Manual for the preparation of economic evaluations in health. IETS 2014 p. 1–36.

6. World Health Organization. WHO | Health technology assessment [Internet]. 2015 [cited 2020 Feb 16].

7. Oliver K, Innvar S, Lorenc T, et al. A systematic review of barriers to and facilitators of the use of evidence by policymakers. BMC Health Serv Res. 2014; 14.

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2 years ago

In the cost-effectiveness example, the example is given that program A spends 243 dollars, but once the formula is applied, it comes out 234 dollars.

4 years ago

Excellent tool to support cost center studies

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