Chapter 37
Economic evaluation
Doctors, health service managers and policy-makers clearly want to provide treatments and services that are safe, effective and acceptable to patients. It is less obvious but also critical that they are cost-effective – that is, represent good ‘value for money’ for the health system or society as a whole. In the language of the previous chapter, it is important that the benefits exceed the opportunity costs. Thus, the rigorous assessment of the balance of benefits and costs – or economic evaluation, as it is more broadly known – is a major strand of the work of health economists.
A policy-maker’s concern about the cost and cost-effectiveness of a treatment typically has another element though, affordability. While cost-effectiveness is to do with judging the desirability of a particular decision, affordability is about whether there are enough resources available; for example, can a hospital or the health system afford the total cost?
What is an economic evaluation?
Economic evaluation is simply the comparative evaluation of both the costs and the effects of two or more alternatives – such as alternative treatments, health services or public health programmes. As well as measuring the effectiveness of alternative treatments an economic evaluation would also require measurement of the costs of using the treatment (Figure 37a).
However, an economic evaluation does not just capture the costs of initially providing the treatments. If the treatment is effective, and improves health, then there may be reduced or delayed healthcare costs (e.g. due to fewer acute episodes, such as asthma attacks, or a reduced need for monitoring appointments or supporting medication). Therefore, a good economic evaluation will normally assess the costs and effects of a treatment for a number of years – preferably for as long as either the costs or the effects are likely to differ between the compared alternatives.
Three main types
In healthcare, three main types of economic evaluation are used: cost-benefit analysis, cost-effectiveness analysis and cost-utility analysis
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