Economic analysis

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see PHRU on appraising economic evaluation studies



At its simplest economic analysis depends on data and a model for what will happen. The assumptions of the model will include values assigned to non-monetary variables (such as a life or disabilities), that the data is representative for the population the model is applied to and that the model itself has useful economic output. Accordingly all economic modeling that is not fully transparent should be suspected and all transparent modeling can be expected to be challenged. The literature of health economic analysis is known to be subject to sponsor bias[1].

Economic evaluation techniques

Cost-benefit analysis

Looks to see which intervention gives greatest net benefit in monetary terms: outcomes all have to be converted to ££.

Everything in financial terms.

All costs (to organisation, society… including e.g. pollution, direct and indirect loss of earnings, pain and distress…)

All benefits to all members of society.

In practice they usually involve so many guesstimates that they end up being no use to man nor beast. Outcome measure has to be ££ or benefit to cost ratio (BCR).

Example - which drug- or diet-based therapy for reducing cholesterol produces the greatest net benefits?

Cost-minimisation analysis

Assuming all options of equal effectiveness, which is cheapest (least cost).

Outcome measure - must be the same for each.

Example - given evidence that two drug- or diet-based therapies produce the same benefit, which is the least cost treatment?

Cost-effectiveness analysis

Cost-effectiveness is a ratio of input to outcome.

It is fairly easy to compare the cost-effectiveness of treatments for a specific condition (e.g. varicose veins); but harder when comparing treatments for different conditions. The latter requires a utility measure such as QALYs, DALYs (disability adjusted life years), HYEs (health year equivalents) or EUROQOLS.

Strictly these are cost utility, not cost effectiveness analyses.

Cost-effectiveness/cost-utility analyses consider only:

  • costs to organisation
  • benefit to patients

Values options in terms of cost per unit effect, e.g. £/mmHg drop in BP; per life year gained…

Outcome measure - Same outcome measure used for each.

Example - which drug- or diet-based therapy produces the greatest reduction per £1 cost?

Cost-utility analysis

Within a patient population identify the health care option that produces either the greatest overall health benefit (such as increase in QALYs); or the least cost for a given health benefit.

Outcome - multiple health benefits all converted to a single measure such as a QALY.

Example - which drug- or diet-based therapy produces the greatest gain in QALYs per £1 cost?

All cost-x analyses

Costs: all the cost-x analyses take as costs the opportunity cost, and the type of costs depends on the perspective adopted. Remember:

  • tangible and intangible (e.g. psychological) costs; and
  • costs to individual; population; district; NHS; LA; population; government…

Financial appraisal

Financial appraisal might identify that it is better to say direct money to appropriate social welfare interventions than health interventions as would recently have been the case in addressing tuberculosis or alcohol problems in the EU. On the other hand suicide mortality benefits from money spent on appropriate health interventions

(Not strictly a a proper economic evaluation technique.) Within a patient population identify the health care option that produces the greatest returns from a financial investment.

Costs: direct financial expenditures - only the ones that appear on the accounts.

Outcomes: physical units representing service delivery: numbers using the service, financial savings, profits.

Example - which drug or diet-based therapy for reducing cholesterol levels is complied with by the greatest number of patients per £1 cost to the provider?


It is common practice to discount the economic value of both costs and benefits if they occur in the future.

Discounting future costs is uncontroversial but the process of discounting health related benefits is more controversial, partly as it leads to governments undervaluing (in the eyes of many people working in the health sector) the health benefits of interventions. The main argument against discounting health benefits is that health, unlike wealth, cannot be invested to produce future gains. The Department of Health has thus recommended that health related benefits should not be discounted, although others have proposed that future health benefits should be discounted but at a very low rate of 1.5%-2%.[2] [3]


  • Paper on "The value of vaccination" which discusses methods of economic evaluation.[4]
  • Papers modelling the costs and benefits of HPV vaccination.[5][6]
  • Review of cost-effectiveness literature re reviewing modelling Herpes Varicella-Zoster virus vaccination.[7] (This paper describes well many of the concepts involved in vaccination modelling, and economic analyses.)