A crash course in cost-effectiveness analysis
“Is it cost-effective?”
You will probably have heard or asked this question. Cost-effectiveness analysis is one of multiple decision making tools. In health, cost-effectiveness analyses are particularly useful because they help decide between multiple options. While we would love to implement every intervention that has been proven useful in a clinical or public health setting, this is not always possible. We live in a world where resources, especially financial, are limited. As such, decision makers need a logical way to choose among hundreds of options. In this blogpost, we will discuss what cost-effectiveness analysis is and how they help decision makers.
Cost-effectiveness analysis is borne from the principle that resources are finite but our needs are unlimited. Imagine that you are the new Minister of Health in your country. You organize a town hall to interact with members of the public. You figure that this will help you identify their pain points. One after another, members of the public take the mic and discuss the issues they would like to see solved. One person complains about the long waiting times in emergency rooms, another complains about the lack of HIV/AIDS medication, the third person lost a loved one due to obstetric complications, and the fourth person has been on dialysis for the past three years and would like to see improvements in the kidney transplant system. After a full day of discussions, you head back to your office and schedule a meeting with your Minister of Finance. During this meeting, she tells you that your ministry will be getting 12% of the government’s budget. You explain that addressing the emergency room, HIV/AIDS, obstetrics, and transplant issues will require five times the current allocation. The Minister acknowledges your concern but explains that she was tasked with reducing government expenditure because of inflation and a rapidly increasing national debt. However, she agrees to raising your budget by 3% and says she cannot do better than that. Now, you are back in your office with your team and you have to make tough decisions.
You ask:
“Which projects should you address and why?”
Your health economist suggests using cost-effectiveness to answer these questions. First, she says, “you need to choose a condition and identify your options. Secondly, you need to understand the current situation. Next, you need to quantify the cost and effectiveness of each new option. Finally, you need to compare the old and new options.”
The effectiveness part of cost-effectiveness is measured using quality adjusted life years. This metric estimates the burden of a disease and the contribution of health care interventions to alleviating this burden. This data can be obtained from databases like the Tufts Cost-effectiveness registry and the NIHR. Cost in cost-effectiveness analysis goes beyond the direct monetary cost of an intervention. It includes cost from the patient’s perspective, the hospital’s perspective, but also society’s perspective. These different perspectives are important because they allow for a holistic understanding of the situation.
For example, if one of the options for decreasing emergency room waiting times was to reassign physicians from one department to the emergency room, there would be a cost borne by the other department as they lose their physicians. These costs are usually measured using a standardized currency called the international dollar and the costs are adjusted for inflation. These adjustments allow for comparisons across geography and time. Once effectiveness and cost have been computed, they are expressed as a ratio. The ratio for the current scenario and the new options are then compared using a metric called the incremental cost effectiveness ratio or ICER. Interventions will be preferred if they can avert a larger proportion of disability or death with a smaller amount of money. Literally yielding the best bang for the buck. TreeAge is the premier software for cost-effectiveness analysis. However, Amua is a free software that offers basic functionalities and a decent experience given its cost.
