Appropriate use

Economic evaluation

Sound decision making with regards to rapid diagnostic tests (RDTs) (as with other health interventions) relies on careful analysis of their costs and potential impact on health outcomes.

A number of approaches are available to understand the economic costs and impact on health outcomes. The most common type of economic evaluation for evaluating health interventions is cost-effectiveness analysis (CEA). CEA compares the costs and outcomes of two or more alternatives or compares a new intervention or treatment with the status quo. CEA relates the net costs associated with a health outcome, such as cost per disease avoided, cost per death avoided, or cost per additional expected life year. The net cost includes the cost of delivering a specific health intervention to prevent a disease or unwanted health outcome minus the treatment and other costs not incurred because of the beneficial effects of the intervention. A ratio is calculated for each alternative intervention: the numerator is the cost, expressed in money terms (dollars); the denominator is the measurable health outcome. The health outcome typically is expressed in terms of the gain in years of life, although there are many expressions of the effectiveness measure that attempt to capture both morbidity and mortality in a single metric (see the next section below). The intervention with the lowest dollar value per health benefit is the more cost-effective of the two or more alternatives.

CEA is just one of several methods for economic evaluations of health interventions. The family of economic evaluation methods is described in the next section. Three broad types of analyses are generally used: cost-minimization analysis, cost-benefit analysis, and cost-utility analysis.

The family of economic evaluation methods

This section is taken from: Levine R. Cost-effectiveness of Immunization: Asking the Right Questions. In: Bloom B. and Lambert P. The Vaccine Book, San Diego: Academic Press, 2003, with the permission of the author.

Cost-effectiveness analysis often is confused with several other economic evaluation methods, and for that reason, it is useful to define those as well. Cost-minimization analysis, the simplest form of economic evaluation, compares the costs of two or more competing interventions. The cheapest one, regardless of differences in effectiveness, wins the competition for resources. This type of analysis is a sensible approach to allocating resources efficiently when the effectiveness of two interventions is identical—a rare circumstance.

Cost-benefit analysis (CBA) is an evaluation method in which the benefits of the health intervention are expressed in money terms—that is, a dollar value is placed on the life-years gained—and thus a ratio of benefit to costs of less than one would imply that the intervention was not worth undertaking at all, while a benefit-to-cost ratio greater than one would suggest that the intervention is a good investment. While CBA is a popular method for decisions about the advisability of allocating resources to investment projects—for example, building a hydroelectric dam—it has been less well accepted for evaluating investments in the health sector (or other social sectors). Placing a dollar value on health benefits is an exercise fraught with conceptual and empirical difficulties; the sensitivity of the CBA result to assumptions about the value of life renders the method of limited practical value in the field of health policy.

Cost-utility analysis (CUA), which is often mistaken for cost-effectiveness analysis, attempts to incorporate the dimension of quality of life into the measurement of benefits. Benefits are measured as “quality-adjusted life-years,” or QALYs, in which the gain in expected lifespan resulting from an intervention is weighted by the quality of that life, as assessed through some type of systematic surveying of the affected (or general) population. Thus, an intervention that leads to a ten-year gain in life expectancy, but implies considerable pain during those years, might be estimated to have a lower QALY than an intervention that results in only an eight-year gain in years, but with less pain during that period. Although there is considerable debate about the optimal ways to assess the subjective “quality” dimension, analysts generally agree that QALYs are closer to the fundamental concept of health benefits than are the standard physical measures used in cost-effectiveness analysis.

The most basic type of economic evaluation is a cost analysis, which is a partial form of economic appraisal because it looks only at the costs of the programs and provides no information on the health outcome of interest. A cost analysis can be used when the effectiveness of an intervention is not yet known. For instance, if we are evaluating a pilot project that lasts two years, but the impact on health outcomes is not expected until several years beyond that, then we may want to have information on cost of reaching intermediate targets. Also, a cost analysis is useful for comparing two interventions where the effectiveness is not the same.

Figure 1 shows how the different economic evaluations are different, and can help determine which type of analysis is most appropriate and feasible.

Figure 1. Types of Economic Evaluation
Figure 1

Why conduct economic evaluations?

Economic evaluations are used to assist in setting priorities, making resource allocation decisions and designing services when there are competing health interventions and limited resources. Economic appraisals evaluate efficiency, sustainability, and cost-effectiveness. More specifically, they assist health program managers and policy makers in a number of ways:

  • To guide decisions about the most appropriate mix of strategies and the best way to allocate scarce resources.
  • To provide an overview of the total amount of resources that will be needed to start or expand a project.
  • To assist discussions about the relative efficiency and equity of projects.
  • To assist managers in deciding on the most appropriate way to deliver a particular health intervention.
  • To provide information for the advocacy of new health interventions and technologies.
  • To provide evidence-based information to donors and policy makers that funding decisions resulted in cost-effective allocation of resources.

To this end, CEA can be used to inform decisions about incorporating new health interventions, health technologies, or treatments into existing health service delivery systems. CEA can also be used to support decisions to increase coverage of a service or to scale up projects from pilots to national programs. CEA is often essential for advocacy and raising awareness prior to introducing a health intervention or technology that is new to a specific country setting. CEA can provide useful information for increasing access to health care provision, and better targeting scarce resources to maximize the impact of health interventions.

Even a stand-alone cost analysis provides decision makers with important information on the resources needed to introduce or expand a service or product.

Once an intervention is established, a cost analysis becomes the more relevant evaluation for health program managers at the service provision level. It provides budgetary information about the actual resource needs or inputs required to provide the intervention; it improves program budgeting by monitoring costs; it helps to estimate the resources needed to expand the intervention into new districts; and it assesses the likely sustainability of the intervention nationally over time. The simpler cost analysis is also useful for assessing the replicability of the project in other settings, and informing budgetary requirements for financial planners and donors.

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