Cost-Effectiveness Analysis (CEA)

CEA measures benefit in natural units (QALYs, life-years); all benefits are in the same units, summed. CBA assigns monetary value to benefits, so both cost and benefit are in dollars (or pounds). CEA: Cost / Health Benefit (e.g., $50,000 per QALY). CBA: Net Benefit = Monetary Benefit − Cost (e.g., $2 million − $1 million = $1 million net benefit). CEA is more common in healthcare because assigning a dollar value to health is ethically fraught ('How much is a life worth?'). CBA is standard in transportation, environmental policy.

Thresholds reflect a country's healthcare resources and priorities, not a universal truth. UK (£20,000–£30,000/QALY) has higher threshold than lower-income countries (WHO: 1–3× GDP per capita) because higher GDP allows more spending per health benefit. A QALY in a $50,000-GDP country (e.g., Vietnam) is worth less by purchasing power. Threshold also reflects political will: if a country increases health spending, threshold can rise.

CEA studies should report costs in a specified year and currency. If comparing studies from different years, inflate/deflate using health price index (more accurate than general CPI, as healthcare costs diverge). For international comparison, use Purchasing Power Parity (PPP) exchange rates, which adjust for cost-of-living differences, not nominal exchange rates.

Standard practice: 3–5% annually in developed countries (UK, Canada, Australia, USA typically use 3%; some use 5%). The logic: society values money and health today more than in 10 years. A benefit in year 10 is discounted to ~60% of present value at 3%. Sensitivity analysis should test 0%, 3%, 5% to see if results are robust. Debate: some argue lower discount rates (0–1%) for long-term prevention (climate, child health) to avoid excessive discounting of future generations.

Consolidate into single metric: QALY (utility-weighted; each health state assigned utility 0–1, reflecting symptom relief, side effects, mortality risk). Build a decision model tracking transitions between health states, incorporating improvements (symptom relief) and harms (side effects). If multiple outcomes cannot be combined into QALY, report separately (multi-outcome CEA); decision-makers integrate trade-offs.

Perspective defines whose costs count. Healthcare perspective: only medical costs (drugs, hospital, staff) count. Societal perspective: includes productivity costs (lost wages, caregiver time) and non-medical costs. Healthcare CEA is narrower; societal CEA is broader and often shows larger benefit if intervention also enables return-to-work. Different countries prefer different perspectives: NICE uses healthcare perspective; Australian PBS includes societal; WHO recommends societal for developing countries. Analysts should pre-specify and clearly report perspective, as it affects ICER.