Health Economics - Guide to economic evaluation

Economic evaluation offers a systematic and transparent approach to examine the costs and benefits associated with taking a particular course of action. Economic evaluation is used to inform decision-makers about the cost-effectiveness of an intervention or programme. Decision-makers may want to incorporate other considerations within their decisions, such as issues of access to health care and its impact in terms of equity. Economic evaluation answers one dimension of health care programme decisions.

In Methods for the Economic Evaluation of Health Care Programmes (Drummond et al., Oxford University Press, 2005) economic evaluation is defined as "the comparative analysis of alternative courses of action in terms of both their costs and consequences". This definition highlights two contributions that economic evaluation can make to the decision-making process.

Drummond MF, Sculpher MJ, Torrance GW et al., Methods for the economic evaluation of health care programmes. 3rd ed. 2005, Oxford: Oxford University Press.
http://www.oup.com/uk/catalogue/?ci=9780198529453

1. Economic evaluation is concerned with the costs and consequences of health care and other services and interventions aimed at improving health. It is used to relate the inputs to outputs of particular activities. Health care interventions and services are examined using economic evaluation to assess how efficiently resources are being used, that is to examine value for money. If service X generates more benefits and costs less than service Y, service X is the more cost-effective service. If, however, service X generates better outcomes but it costs more than service Y, a second consideration is involved to examine which is the more cost-effective service. Service X will be more cost-effective than service Y if it delivers more than proportionate benefits to patients, assuming that the value of those benefits is perceived as greater than the costs.
2. Economic evaluation involves comparing two or more interventions or programmes and is concerned with making the best use of resources. Based on the idea that resources are scarce, choices have to be made in the face of competing needs or demands for those resources. The real cost of any programme is the value of the benefits foregone by committing resources to one programme rather than the next best alternative. Economic evaluation seeks to estimate this opportunity cost.