Cost-Effectiveness Analysis

A cost-effectiveness analysis compares decisions based on units of money per health outcome. For example, dollars per life saved, dollars per year of life gained, and dollars per carotid stenosis discovered are all potential units in a cost-effectiveness analysis. These units are chosen for convenience in terms of conceptualizing the results. However, results of one cost-effectiveness analysis are not directly comparable to those using different units. Therefore, if an HMO is choosing between screening for carotid stenosis and treating all stroke victims with pravastatin, it would not be possible to compare the results from cost-effectiveness analyses in which the units were dollars per stenosis detected and dollars per stroke averted.

A cost-utility analysis is a special kind of cost-effectiveness analysis in which the results of decisions are compared in units of dollars per year of healthy life gained (quality-adjusted life year--more on this below). Since the units of cost-utility analyses are always the same, it is possible to compare completely different interventions. There has been a push to encourage those doing cost-effectiveness research to use the methods of cost-utility analysis so that a common standard is employed (4).

A cost-benefit analysis measures all outcomes in costs. This means translating health states into dollars, and many are uncomfortable with this. Economists consider cost-benefit analysis the most pure form because only in these terms can medical care decisions be compared to other societal decisions, such as whether to build a bridge or lower taxes. Cost-benefit analysis is rarely used to study medical interventions, and we will not be discussing it in detail. Any cost-effectiveness analysis or cost-utility analysis can be translated into a cost-benefit analysis by placing a dollar value on the health outcome in the denominator.