Cost-Utility Analysis
Also known as: CUA, Cost per QALY Analysis, QALY-Based Economic Evaluation
Cost-utility analysis (CUA) is a form of economic evaluation that compares the costs of alternative interventions with their outcomes expressed in a common, preference-based measure of health — most often the quality-adjusted life year (QALY), or in global health the disability-adjusted life year (DALY). By combining length and quality of life into a single index, CUA allows interventions with very different effects to be compared on a like-for-like basis, and it produces an incremental cost-effectiveness ratio expressed as cost per QALY gained. It is the dominant method for informing decisions about which health technologies and programs to fund.
Key highlights
- Makes interventions with very different effects comparable through the common QALY metric.
- Captures both quality and length of life in a single, decision-relevant outcome.
- Supports explicit, consistent priority-setting against a willingness-to-pay threshold.
- Is the established reference-case method of major health-technology assessment agencies.
Intuition
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How it works
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When to use it
Use cost-utility analysis when comparing interventions whose benefits affect both length and quality of life, or whose effects are otherwise hard to compare, and when a decision-maker needs to allocate a fixed budget to maximise health gain — the standard situation in health-technology assessment and many public-health decisions. It assumes outcomes can be meaningfully captured by QALYs or DALYs and that preference-based utility values are available. It is less appropriate when benefits fall largely outside health (where cost-benefit analysis monetising all effects is better), when a single natural outcome unit suffices (cost-effectiveness analysis), or in contexts that reject the ethical premises of QALY weighting. It is a specialised member of the economic-evaluation family alongside cost-effectiveness and cost-benefit analysis.
Strengths & limitations
- Makes interventions with very different effects comparable through the common QALY metric.
- Captures both quality and length of life in a single, decision-relevant outcome.
- Supports explicit, consistent priority-setting against a willingness-to-pay threshold.
- Is the established reference-case method of major health-technology assessment agencies.
- QALY weighting embeds contested ethical judgements, for example about valuing life-years across age and disability.
- Utility values depend on the elicitation instrument and population, introducing measurement uncertainty.
- Captures health benefits well but neglects effects outside health unless the perspective is broadened.
- Cost-effectiveness thresholds are often poorly justified, yet decisions hinge on them.
Common pitfalls
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Applications
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Frequently asked
What is a QALY and how is it calculated?
A quality-adjusted life year combines length and quality of life into one number. Each year of life is weighted by a utility value between 0 (death) and 1 (full health) representing the quality of health during that year, and the weighted years are summed. For example, four years lived at a utility of 0.5 equal two QALYs. Utility values are usually derived from preference-based instruments such as the EQ-5D. The QALY lets interventions that affect survival, quality of life, or both be compared on a single scale.
How does cost-utility analysis differ from cost-effectiveness and cost-benefit analysis?
All three relate costs to outcomes. Cost-effectiveness analysis measures outcomes in a natural unit specific to the problem, such as cases detected or life-years gained, which limits comparison across different conditions. Cost-utility analysis uses the QALY (or DALY), a generic preference-based measure, so interventions for entirely different diseases can be compared. Cost-benefit analysis goes further and monetises all outcomes, allowing comparison beyond health but requiring a money value to be placed on health and life. CUA is essentially a specialised form of cost-effectiveness analysis using a utility-based outcome.
What is an ICER and how is it interpreted?
The incremental cost-effectiveness ratio is the extra cost of one intervention over its comparator divided by the extra QALYs it produces — the additional cost per additional QALY gained. It is judged against a cost-effectiveness threshold reflecting how much the decision-maker is willing to pay for a QALY: an ICER below the threshold suggests the intervention is good value. The ICER should always be reported with sensitivity analysis, because the underlying costs, utilities and effects are uncertain, and the threshold itself is a contested policy parameter rather than a scientific constant.
Sources
- 1.Drummond, M. F., Sculpher, M. J., Claxton, K., Stoddart, G. L., & Torrance, G. W. (2015). Methods for the Economic Evaluation of Health Care Programmes (4th ed.). Oxford: Oxford University Press.ISBN 9780199665877
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Cite this page
ScholarGate. (2026, June 22). Cost-Utility Analysis. ScholarGate. https://scholargate.app/public-policy/cost-utility-analysis