Highlights
- Efficiency: Economic evaluation informs on the intervention’s efficiency. An intervention is considered efficient when benefits are maximized and opportunity costs are minimized.
- Economic evaluation: Various types of economic evaluations exist including cost-effectiveness analysis, cost-utility analysis, cost-benefit analysis, and cost-consequence analysis.
- Decision-making: Although economic evaluation methodologies have been ethically and methodologically contested, they remain valued for the synthesized information they provide. The efficiency criterion alone is often insufficient for sound decision-making and should be considered alongside other criteria, such as equity.
Introduction
Economic evaluation is a set of methodologies that help assess the efficiency of an intervention. Efficiency is a criterion that relates the intervention’s costs with its results to support decision-making in systems that are not regulated by the market, such as the healthcare sector. The rationale is to choose interventions that offer the best results at the lowest cost. By considering efficiency as a resource allocation criterion the opportunity cost of investments is minimized. Recently, the evaluation field has seen a growing interest in economic evaluation methods for estimating return on investment and for assigning a monetary value to nature.
Economic evaluation is a field of applied research that aims at guiding decision-making. Entire books have been dedicated to economic evaluations, as it is a specialized field. There is a long history of methods development and critiques of how economic evaluation introduces biases or leads to undesirable choices. This chapter offers an overview of mainstream economic evaluation approaches. It should help evaluators understand their specificities, differences, strengths and risks. It provides an avenue for evaluators to support informed decision-making while integrating planetary health lenses and avoiding identified gaps.
Background
Economic evaluation aims at providing information on the efficiency of interventions. Its methodologies encompass different types of studies, including cost-effectiveness analysis, cost-utility analysis, cost-benefit analysis, and cost-consequence analysis.
Costs are measured in the same way in all types of economic evaluations. What differs is how effects are measured and the degree of synthesis. Cost-consequence analysis provides disaggregated information, while other economic evaluations offer a synthetic index to assess efficiency. Cost-effectiveness analysis uses effects measured in natural units, whereas cost-utility analysis captures effects and impacts on quality of life through a synthetic measure called 'utility' (in economics, a proxy for satisfaction). In cost-benefit analysis, effects are converted into monetary values. Return on investment studies are a derivative of cost-benefit analysis.
Economic evaluation methodologies have expanded in application domains where market regulation is not used. In the healthcare system, allocations often rely on economic evaluation results to make decisions regarding technology and drug coverage. This sector has been a major driver in the development of economic evaluation methodologies. Of course, economic evaluation studies can also be traced back to other sectors, such as large-scale public works. In this chapter, we will primarily draw from the literature in the field of health and healthcare, but the insights can be applied to practice in other domains.
What is efficiency about?
Efficiency results when benefits are maximized and opportunity costs (i.e., the value of benefits forgone by choosing one particular allocation of scarce resources over another) minimized (Donaldson et al., 2002). Initially, economic evaluation was a method intended to help health care decision-makers make the best choices under conditions of uncertainty, conflicting objectives and resource constraints (Weinstein, 2006). However, it rapidly proved inadequate for setting health care priorities. For example, in 1990, the state of Oregon tried using economic evaluation for health care priority setting. To determine what services would be covered by Medicaid, the Health Services Commission used cost-utility ratios to rank services according to efficiency (Tengs et al., 1996); in those results, life-saving interventions were ranked below less critical items such as headache treatment (Hadorn, 1991; Tengs et al., 1996). This experience clearly demonstrated the unacceptability of using efficiency as the only criterion to prioritize health care resource allocations (Hadorn, 1991, 1996; Pinkerton et al., 2002; Tengs et al., 1996; Ubel et al., 1996). Since then, several authors have analyzed the philosophical and theoretical foundations of the utilitarian approach to economic evaluation in relation to access to care, emphasizing the inadequacy of considering only this value in priority setting (Domenighetti, 1998; Veatch, 1995; Williams, 1992; Williams & Cookson, 2006). Nevertheless, economic evaluation has become increasingly institutionalized with, among other things, the creation of the National Institute for Health and Clinical Excellence (NICE) in England and Wales and a growing number of health technology assessment (HTA) agencies around the world. The trend toward evidence-based decision-making reinforced the need to base resource allocation decisions on rational criteria, with effectiveness and efficiency being especially important. In fact, it is widely recognized that inefficient resource allocations have important consequences in terms of opportunity costs, e.g. reduced access to care for other patients. Furthermore, it is now recognized that other criteria, such as equity of access to care and the rule of rescue (Caro, 2009; Domenighetti, 1998; McKie & Richardson, 2003; Nord et al., 1999) should be considered at the same time as efficiency of interventions. (as cited in Brousselle & Lessard, 2011, p. 832)
The rule of rescue is based on the assumption that saving the life of someone facing avoidable death should trump the efficiency criteria (McKie & Richardson, 2003; Rozworski, 2014).
Types of Economic Evaluations
Different types of economic evaluations exist. Table 10.1 presents the main characteristics of each approach, when they are appropriate to use, and their limitations. All types of economic evaluation include the same measurements of costs; the difference between them is how effects are measured.
Table 10-1 Comparison of Types of Economic Evaluations
Type | Relevant When… | Comparator | Measure of Results | Decision Criteria | Limitations |
Cost minimization | Several interventions offer the same results in scope and intensity. | Yes: At least one. The most natural and mainstream comparator. | No need to compare the results as they are the same. | The least expensive intervention is the preferred choice. | |
Cost-effectiveness | Different interventions presenting the same unique results but at different levels. | Yes: At least one. The most natural and mainstream comparator. | In natural units (for example: life years saved, case prevented, cholesterol levels, etc.) | Dominant intervention if there is one, or calculation of the Incremental Cost-Effectiveness Ratio (ICER) | |
Cost-utility | (1) Quality of life is the important outcome (2) the interventions’ effects are of a different nature (3) interventions have multiple relevant outcomes (4) some outcomes can be considered more important than others (Brousselle et al., 2011c). Compares interventions with different results in scope and quantity. Utility makes it possible to integrate various effects on morbidity and mortality into the same measure. | Yes: At least one. The most natural and mainstream comparator. | Quality Adjusted Life Years (QALYs) are calculated by multiplying the number of life years living with a given health state by the utility associated with this health state. The utility is measured using different methods: Standard gamble, time trade-off, and visual analog scale. Indirect measures of utility also exist using classification systems of multi-attribute health states, such as EuroQol 5-Dimensions questionnaire (EQ-5D), Health Utilities Index (HUI), Short Form 6-Dimensions (SF-6D) (Bryan et al., 2017; Kim et al., 2022). | Dominant intervention if there is one, or calculation of the Incremental Cost-Effectiveness Ratio (ICER). | Measures of utilities vary according to the instruments used and the types of respondents. There is no consistency in utility values including when estimated with indirect measure systems (Brousselle et al., 2011c; Brousselle & Lessard, 2011; Bryan et al., 2017). |
Cost-benefit | Comparing interventions with different results and when including indirect effects such as reduction of hospitalization costs. | Yes. | Results are converted into dollar values. The main methods for converting results into dollar values are the human capital approach (for example, time lived in good health valued according to market salary), revealed preferences (injury compensations; wage-risk approach), and contingent valuation studies (willingness-to-pay; willingness-to-accept) (Drummond et al., 1998). | Incremental benefits are compared to differential costs, the difference between these two being the net social benefit (Brousselle et al., 2011c; Drummond et al., 1998) | Many ethical issues when converting value of human life (and potentially other lives and environmental conditions) into monetary value. No consistency across methods used. |
Return on Investment and Social Return on Investment | One wants to know how much economic benefit is derived from an intervention as compared to its costs (Brousselle et al., 2016). | No. | Direct effects are converted into monetary value and added to indirect effects such as costs avoided. Other studies try to include externalities such as environmental and social benefits, also converted into monetary value. | Ratios of benefits/costs are calculated. ROI of different interventions can be compared. | Many ethical issues when converting value of human life (and potentially other lives and environmental conditions) into monetary value. No consistency across methods used (Brousselle et al., 2016). |
Cost-consequence analysis | One wants to avoid methodological pitfalls and provide transparent comprehensive information. | Both are possible. | All results (direct effects, indirect effects and externalities) are presented using a tabular or graphical representation. | Deliberations on affordability, efficiency, and other principles such as equity, environmental impacts, access for underserved populations, etc. | Consequences are presented in a disaggregated format which makes the decision criteria less attractive to decision-makers. |
The Comparator
Most economic evaluations involve a comparator, which should be the intervention most similar to the one being analyzed. The evaluator should not select a comparator with the intention to influence the results (a more costly drug providing similar effects, for example) but should instead choose the comparator based on what is typically offered as a substitute for the intervention under study. In cost-effectiveness and cost-utility analysis, you want to select the most natural comparator, which is the intervention that is the most similar to the one you are analyzing and the most current alternative (Brousselle et al., 2011c; Bryan et al., 2017). If a comparator is needed but does not exist, the status quo can be used as the comparative baseline.
Cost Calculation
The costs considered in the study are determined according to the study perspective (see Table 10.2). Cost calculation is the same across all types of economic evaluation. However, the study perspective will determine which types of costs will be included into calculations. Savings resulting from the implementation of the intervention are not included in the cost calculation; instead, they are considered consequences of the intervention.