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# 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.

Updated Nov 13, 2026

## Key points

- Cost-minimisation: only when outcomes are shown to be equivalent; the cheaper option is chosen.
- Cost-effectiveness: outcomes in natural units (cases detected, deaths prevented, life-years gained).
- Cost-utility: outcomes in quality-adjusted (QALY) or disability-adjusted (DALY) life-years; allows comparison across diseases.
- Cost-benefit: everything in money; gives a net benefit or a benefit/cost ratio.
- ICER = (cost B − cost A) / (effect B − effect A): the price of each extra unit of health; compare increments, not averages.
- A dominated option (dearer and less effective) is dropped; results are tested with sensitivity analysis.

On this page

- The basics Key points
- What it is
- Formula and reading
- Worked example
- Types of economic evaluation
- Markers
- How to read it
- Common pitfalls
- Memory aid

- Study Test yourself

- Connections Connections

## 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

| 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.

## Memory aid

‘What it costs extra over what it gives extra’: the ICER is always one subtraction on top and one below.

## 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.

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## Connections

## Related 6

- [Quality-adjusted life years (QALYs)](https://durgical.com/en/epidemiology/quality-adjusted-life-years/)
- [Disability-adjusted life years (DALYs)](https://durgical.com/en/epidemiology/disability-adjusted-life-years/)
- [Efficacy, effectiveness and efficiency](https://durgical.com/en/epidemiology/efficacy-effectiveness-and-efficiency/)
- [Clinical practice guidelines](https://durgical.com/en/epidemiology/clinical-practice-guidelines/)
- [The health benefits plan](https://durgical.com/en/epidemiology/the-health-benefits-plan/)
- [Number needed to treat](https://durgical.com/en/epidemiology/number-needed-to-treat/)

[← All of epidemiology](https://durgical.com/en/epidemiology/)

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](https://www.cochrane.org/authors/handbooks-and-manuals/handbook/current/chapter-20) (Cochrane, 2024); [Making Choices in Health: WHO Guide To Cost-Effectiveness Analysis](https://www.who.int/publications/i/item/9241546018) (World Health Organization, 2003); [Instituto de Evaluación Tecnológica en Salud — Evidencia que promueve confianza](https://www.iets.org.co/) (Instituto de Evaluación Tecnológica en Salud (IETS), Colombia, 2026).

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Representative model, for educational purposes only.

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