Economic evaluation in health
- Measure
Economic evaluation compares the costs and results of two or more options to choose the one that buys the most health with what there is.
What it is
A full economic evaluation compares at least two alternatives in both their costs and their consequences. Depending on how consequences are measured, it is cost-minimisation, cost-effectiveness (natural units), cost-utility (QALYs or DALYs) or cost-benefit (money). Its central result is the incremental cost-effectiveness ratio (ICER), which is compared with a willingness-to-pay threshold.
Formula and reading
- ICER = ΔCost / ΔEffect.
- If B costs more and gives more effect: compare the ICER with the threshold; if lower, B is considered cost-effective.
- If B costs less and gives more effect: B dominates A.
- If B costs more and gives less effect: B is dominated and dropped.
- State the perspective (health system or society), the time horizon and the discount rate.
Worked example
- Data (made up): case-finding strategy A costs 200 million pesos a year and detects 100 cases; B costs 290 million and detects 130.
- Average costs: A 200 / 100 = 2.0 million per case; B 290 / 130 ≈ 2.23 million per case.
- Increments of B over A: cost 290 − 200 = 90 million; effect 130 − 100 = 30 cases.
- ICER = 90 / 30 = 3 million pesos per extra case detected.
- Strategy C (made up): 300 million and 125 cases; it costs more than B and detects fewer: it is dominated and dropped.
- Made-up threshold of 4 million per extra case: 3 < 4, so B is considered cost-effective compared with A.
- Sensitivity: if B detected only 115 cases, the ICER would be 90 / 15 = 6 million, above the threshold.
- Reading: B looks worthwhile, but the conclusion hinges on how many cases it really detects; that assumption must be checked.
Types of economic evaluation
| Type | How the outcome is measured | Result | When it fits |
|---|---|---|---|
| Cost-minimisation | Not measured: assumed equivalent on evidence | Cost difference | Two options with proven equal effect |
| Cost-effectiveness | Natural units | Cost per case prevented or detected | Options with the same kind of outcome |
| Cost-utility | QALYs or DALYs | Cost per QALY gained or DALY averted | Comparing across diseases and programmes |
| Cost-benefit | Money | Net benefit or benefit/cost ratio | Comparing health with other sectors |
Markers
- ICER
- QALY
- DALY
- Dominance
- Threshold
- Budget impact
How to read it
- In Colombia, the Instituto de Evaluación Tecnológica en Salud (IETS) produces economic evaluation reports and budget impact analyses on medicines, devices, procedures and programmes.
- Cost-effective is not the same as cost-saving: a cost-effective intervention almost always costs more; it buys health at an acceptable price.
- Budget impact analysis answers another question: whether the system can afford the option for the whole population.
Common pitfalls
- Comparing average costs instead of the ICER.
- Running a cost-minimisation without evidence that outcomes are equivalent.
- Not stating the perspective or time horizon, or not discounting future costs and effects.
- Giving a single result with no sensitivity analysis.
Test yourself
Think of the answer, then tap the question to see it.
How is the incremental cost-effectiveness ratio calculated?
The difference in costs between two options divided by the difference in their effects; for example, 90 million / 30 cases = 3 million per extra case.
What distinguishes a cost-utility analysis from a cost-effectiveness analysis?
Cost-utility measures the outcome in QALYs or DALYs, which combine quantity and quality of life; cost-effectiveness uses natural units such as cases or deaths prevented.
What is a dominated option?
One that costs more and produces less effect than another available alternative; it is dropped without computing its ICER.
When is a cost-minimisation analysis valid?
Only when there is evidence that the options' outcomes are equivalent; then comparing the costs is enough.
Connections
Educational content on epidemiological and statistical methods; the examples use made-up numbers to teach the calculation. Not a clinical or legal guide: current Colombian rules are in the official sources.
Sources: Chapter 20: Economic evidence (Cochrane, 2024); Making Choices in Health: WHO Guide To Cost-Effectiveness Analysis (World Health Organization, 2003); Instituto de Evaluación Tecnológica en Salud — Evidencia que promueve confianza (Instituto de Evaluación Tecnológica en Salud (IETS), Colombia, 2026).
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Representative model, for educational purposes only.