Health Economic Methodology Guides

Welcome to our methodology hub. Guided by internationally recognized standards and lessons from teaching and global research leadership, these practical guides demystify the science and art of health economic evaluation for diverse audiences.

Types of Economic Evaluation

There are several ways to compare costs and effects in economic evaluations. The table on the right outlines the major types of economic evaluation methods.

The first type of evaluation assesses only costs, without considering outcomes. The next method is Cost-Effectiveness Analysis (CEA), which is the focus of this lecture. In CEA, costs are measured in monetary units, while effects are assessed in natural units, such as mortality, morbidity, cases, or patient visits.

Some health economists have attempted to distinguish between CEA and Cost-Utility Analysis (CUA), primarily reflecting preferences within the UK, where researchers often use Quality-Adjusted Life Years (QALYs) as the measure of effectiveness. In contrast, measures like QALYs and Disability-Adjusted Life Years (DALYs) represent societal preferences. In CUA, outcomes are specifically measured in QALYs. Regardless, CUAs are essentially the same as CEAs when outcomes are measured in either DALYs or QALYs. For our purposes, this distinction is not particularly significant.

Lastly, we have Cost-Benefit Analysis (CBA), where both costs and outcomes are measured in monetary terms. In a CBA, the outcomes are also expressed in monetary value, allowing for a direct comparison of costs and benefits.

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Cost-Effectiveness Analysis

Cost-effectiveness analysis is a method used to compare the relative costs and outcomes/effects of two or more alternative actions. Unlike CBA, CEA does not require that outcomes be expressed in monetary terms. Instead, it typically measures results in natural units, such as lives saved, cases prevented, or quality-adjusted life years (QALY) gained. The result is a ratio, such as “cost per life year saved” or “cost per case prevented,” which helps determine which option delivers the desired outcome for the lowest cost. CEA is especially useful in fields like healthcare or public policy where quantifying benefits in monetary terms can be difficult or ethically inappropriate. CEA helps decision-makers identify the most efficient option, but does not directly answer whether the benefit justifies the cost—that judgment requires additional value-based or policy considerations

Cost-Benefit Analysis

Cost-benefit analysis is a systematic process used to evaluate the economic worthiness of investments, projects, or policy decisions by comparing their expected costs and benefits. All anticipated costs—both direct (like construction or labor) and indirect (like opportunity or intangible costs)—are summed and weighed against all benefits, which can be tangible (such as revenue or cost savings) or intangible (such as improved employee morale or customer satisfaction). Benefits and costs are typically expressed in monetary terms, allowing for a clear financial comparison. The key question answered by a CBA is: Do the projected benefits outweigh the projected costs? If so, the project or decision is generally considered worth pursuing. CBA also incorporates concepts like opportunity cost and may use calculations such as net present value (NPV), return on investment (ROI), and the benefit-cost ratio (BCR)

Economic Evaluation Course Series: Uncover the Secrets Behind Health Program Funding Decisions

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Cost-Effectiveness Analysis Explained: A Beginner's Guide for Public Health

Unlock the power of economic evaluation in public health decision-making! This introductory module explores cost-effectiveness analysis and its real-world applications.

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Cost-Utility Analysis Explained: US Guidelines & Key Concepts - Clear, uses the full term, and promises a practical overview

Dive into the world of cost-utility analysis (CUA)! This module provides a comprehensive introduction to CUA, a critical tool for evaluating healthcare interventions.