Economic evaluation and modelling - Economic evaluation and modelling methods

Compares the costs of alternative procedures, services or interventions with a treatment’s common therapeutic goal, expressed in natural units (e.g. improvement in blood pressure or cholesterol level).

An incremental cost-effectiveness ratio (ICER) is used in this method. An ICER calculates the difference in costs between one intervention and an alternative, divided by the difference in outcomes.

This method is an extension of cost effectiveness analysis but uses standard units; quality adjusted life years (QALYs) or disability adjusted life years (DALYs).

DALYs and QALYs are roughly speaking, the reciprocal of each other; we talk about cost per QALY gained, or cost per DALY saved/prevented. These units account for health losses from medical conditions (morbidity) and length of life (mortality) and allow policymakers to compare the value of different types of health interventions, and decide which ones are most cost-effective for a given budget.

This method places monetary values on both costs and outcomes and ultimately aims to answer whether the cost is ‘worth’ the benefit.

In evaluations of health care services or procedures, assigning monetary values makes it possible to determine whether a service or procedure provides an overall benefit to society if its total benefits exceed its costs.

Benefits in this method may be valued using the following approaches:

• • A human capital approach, an approach that values benefit in terms of productivity gains;

• • Or by individual’s preferences using willingness to pay or willingness to accept methods.

Cost benefit analysis is often used prospectively by Governments in impact assessments. It also has some similarities with social cost benefit analysis or social return on investment, which often take a broader economic perspective and value more non- financial outcomes.

Find out more about social value in public health.

Otherwise known as an impact inventory, compares cost with a disaggregated set of outcomes.  For example, when evaluating smoking cessation services, a cost consequence analysis might include the amount of prevented lung cancer cases, productivity gains, savings on cleaning up litter, and fires prevented. This level of information is useful but puts the onus on the decision maker to decide whether the costs are worth the investment. It can be used as a step towards producing a cost benefit analysis, where the outcomes would have financial values placed on them.

This method is a form of economic evaluation used when an intervention or service and its alternative (e.g. usual care or current practice) achieve outcomes that are the same. Under these circumstances, cost-minimisation analysis aims to identify the least costly option. However, in practice it is difficult to find interventions or services with the same outcomes, and there is often uncertainty around the outcome measure of choice. It is most useful for generic drugs, where the outcomes may be expected to be identical to the branded alternatives.