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Cost-utility analysis (CUA) is a form of economic analysis used to guide procurement decisions. The most common and well-known application of this analysis is in pharmacoeconomics, especially health technology assessment (HTA).
CUA in health economics
In health economics, the purpose of CUA is to estimate the ratio between the cost of a health-related intervention and the benefit it produces in terms of the number of years lived in full health by the beneficiaries. Hence it can be considered a special case of cost-effectiveness analysis, and the two terms are often used interchangeably.
Cost is measured in monetary units. Benefit needs to be expressed in a way that allows health states that are considered less preferable to full health to be given quantitative values. However, unlike cost-benefit analysis, the benefits do not have to be expressed in monetary terms. In HTAs it is usually expressed in quality-adjusted life years (QALYs).
If, for example, intervention A allows a patient to live for three additional years than if no intervention had taken place, but only with a quality of life weight of 0.6, then the intervention confers 3 * 0.6 = 1.8 QALYs to the patient. If intervention B confers two extra years of life at a quality of life weight of 0.75, then it confers an additional 1.5 QALYs to the patient. The net benefit of intervention A over intervention B is therefore 1.8 - 1.5 = 0.3 QALYs.
The incremental cost-effectiveness ratio (ICER) is the ratio between the difference in costs and the difference in benefits of two interventions. A threshold value is often set by policy makers, who may decide that only interventions with an ICER below the threshold are cost effective (and therefore should be funded).
In the United Kingdom, as of January 2005, the National Institute for Health and Clinical Excellence (NICE) is believed to have a threshold of about £30,000 per QALY, although a formal figure has never been made public  Thus, any health intervention which has an incremental cost of more than £30,000 per additional QALY gained is likely to be rejected and any intervention which has an incremental cost of less than or equal to £30,000 per extra QALY gained is likely to be accepted as cost-effective.
In North America, US$50000 per QALY is often suggested as a threshold ICER for a cost-effective intervention.
A complete compilation of cost-utility analyses in the peer reviewed medical literature is available at the CEA Registry Website
Advantages and Disadvantages
On the plus side, CUA allows comparison across different health programs and policies by using a common unit of measure (money/QALYs gained). CUA provides a more complete analysis of total benefits than simple cost-benefit analysis does. This is because CUA takes into account the quality of life that an individual has, while CBA does not.
However, in CUA societal benefits and costs are often not taken into account. Furthermore, some economists believe that measuring QALYs is more difficult than measuring the monetary value of life through through health improvements, as is done with CBA. This is because in CUA you need to measure the health improvement effects for every remaining year of life after the program is initiated. While for CBA we have an approximate value of life ($2 million is one of the estimates), we do not have a QALY estimate for nearly every medical treatment or disease.
In addition, some people believe that life is priceless and there are ethical problems with placing a value on human life.
- [Devlin, Nancy, David Parkin (2004). Does NICE have a cost-effectiveness threshold and what other factors influence its decisions? A binary choice analysis. Health Economics 13 (5): pp. 437–52. Article also available directly from the authors at City University, London, UK.
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