How is utility used in cost benefit analysis

Although these are often referred to as an extension of cost-benefit analysis, these analyses are less well defined. Cost-benefit analyses can therefore be used to consider the optimal allocation of resources in its broadest sense because once the benefits have been converted into monetary terms then the net economic benefit of very different activities can be compared, including to those outside of the healthcare sector In contrast, cost-utility analyses typically only consider the allocative efficiency of resources within the healthcare sector Table 2.

This type of analysis can incorporate benefits and costs that fall outside of the healthcare sector. A monetary output tends to be desirable to both healthcare and non-healthcare decision-makers such as those of the ministry of finance and patient representatives , as well as the public. Also, by placing 'proxy' monetary values on all identified impacts of interest to the stakeholders they can account for multiple stakeholders' views of impact simultaneously. This facilitates the stakeholders' voice in resource allocation decisions.

There is no consistently agreed-upon gold standard method for placing a monetary value on the health benefits of interventions. Consequently, although they have the same monetary outcome, the approaches used can be highly variable—making it difficult to compare different studies The different main approaches and their associated limitations are outlined further in Boxes 2 , 3.

A comparative analysis of the cost-benefit analyses of vaccination found that applying different approaches to monetise health benefits in cost-benefit analyses can lead to widely varying outcomes The variation in the approaches taken and their quality is important as there is always going to be a need to compare different health economic analyses informing resource allocation.

We would argue that the greater the variation between the different studies the less useful they are for practically informing resource allocation within global health. Recently, a reference case for cost-benefit analysis has been developed These guidelines will hopefully bring much-needed consistency in this area.

Willingness to pay estimates are less common for non-fatal health outcomes, particularly within LMICs. Hence, many studies in this area use averted cost or averted cost-of-illness estimates as a proxy to quantify the monetary benefits of non-fatal health outcomes of health interventions 33 i. This makes it harder to apply a cost-benefit analysis for evaluating interventions whose main health benefits are not related to averted excess mortality.

In addition, although this is a pragmatic solution to limited data, it could be argued that it does not fit within cost-benefit analyses welfarist approach underpinning. Although this is increasingly being used, it has been argued that these conversions have no theoretical basis and can be very arbitrary The results of these studies can have the potential to be misinterpreted.

Specifically, these types of studies are typically estimating measures of social welfare or potential economic benefits not estimating realisable financial benefits.

This means that the economic benefits being reported are typically an approximation as they are a way of summarising the health benefits experienced by a population in monetary terms which can be based on the approximated monetary value of estimated productivity gains or willingness to pay methods. For example, the human capital approach would be valuing potential productivity gains and not the productivity gains actually experienced by the population and the willingness to pay technique would be valuing the benefits based on the individuals' preferences and how much they would be willing to pay to obtain the health gains.

The risk here is that many stakeholders may not realise how intangible these estimated economic benefits can be and may misinterpret them as the actual monetary benefit to society i. For example, if the estimated benefit-cost ratio of an intervention is 6.

However, not all the estimated economic benefits are realisable, so it may not generate cost savings at all. This is not to say that cost-benefit analysis is not meaningful but greater care is needed in how these studies are reported and interpreted.

Importantly, the goal of such analyses is typically to determine if an intervention is justified in terms of increasing societal welfare and if the estimated economic benefits outweigh the cost of the intervention, not if it generates fiscal cost-savings.

Similarly, when a study reports that the economic benefits outweigh the costs of an intervention it can be referred to as having a positive return on investment. For example, a systematic review reported that the median return on investment for public health interventions was However, this is not the correct interpretation as not all of the economic benefits calculated will be fiscal cost-savings A further limitation is that there is no threshold marker or cut off point for when the perceived costs outweigh the perceived benefits for which an intervention is considered to be of good value in a particular setting.

The decision rule of whether to implement the intervention under consideration is based on whether the benefits outweigh the costs i. Typically, cost-benefit analyses do not account for issues surrounding fixed budget constraints for particular sectors e. Cost-benefit analyses involve placing an economic value on averted mortality and morbidity. However, this can have implicit equity and distributional concerns and many have argued that such evaluations will intrinsically favour health interventions benefiting richer over poorer populations 40 , 41 , In addition, the economic benefits of treating women for a condition who have a higher burden of unpaid work and on average lower salaries could easily be estimated to be lower than for treating men, implicitly implying that interventions targeting diseases in men have a higher value than for women 58 , A way around this issue is to assume the same value of time or life for everyone regardless of gender, social-economic status, and employment.

However, it could be argued that doing this means the estimated economic benefits are more hypothetical and have a less obvious meaning i. It should be noted that attempts have been made to adapt cost-benefit analyses to address these equity and distributional issues 33 , 34 , However, it is yet to been seen if these will become operationalised into policy-oriented cost-benefit analyses within global health.

They are a comparative analysis of the relative costs and outcomes of two or more alternative courses of action. Cost-effectiveness analyses measure the health consequences of an intervention in a single natural unit such as cases averted, or life-years saved. However, a limitation of this is that it is difficult to compare studies investigating interventions targeting different diseases or different stages of care, since their health consequences will be expressed in different units, limiting its potential use for informing policymakers.

To address, this a specific form of cost-effectiveness known as cost-utility analysis was developed. Cost-utility analyses measure the health consequences with a generic measure of health status, which can account for benefits on both reduced morbidity and mortality, such as DALYs and QALYs As these metrics can be used for a wide range of diseases, the cost-effectiveness estimates for different healthcare interventions can be directly compared to each other such as comparing the cost-effectiveness of a malaria intervention to a tuberculosis intervention.

In practise, there has been a blurring of the distinctions between cost-effectiveness and cost-utility analyses; as a result, literature on cost-effectiveness often encompasses both these approaches and cost-utility analyses are often referred to as a cost-effectiveness analysis Such thresholds can be determined using a variety of methods When this is done, the analysis can consider the allocative efficiency of resources within the healthcare sector Table 2 i.

As such, when looking at mutually exclusive policy options such as different treatment options for tuberculosis , the analysis considers the options incrementally and identifies the most effective option that is below the settings cost-effectiveness threshold which is not necessarily the same as the option that has the lowest cost per unit of effect.

In contrast, when a cost-effectiveness analysis uses a disease or programme specific outcome measure such as cases averted , it is rare to have a standardised cost-effectiveness threshold available to compare the results to and it is difficult to compare the results to other studies.

In this case, the goal of the analysis is often to identify the most efficient option in terms of the lowest cost per unit of effect i. In this context, cost-effectiveness analyses using disease or programme specific metrics are often only concerned with how to use healthcare resources in a way that maximises their output for the cost known as technical efficiency Table 2 16 , Figure 3. A schematic of the cost-effectiveness plane. Panel A indicates the four different quadrants.

Panel B illustrates the different decision rules in relation to a cost-effectiveness threshold within the different quadrants. It is also possible to express the outputs of cost-utility analyses in monetary terms such as net monetary benefit 20 , With net monetary benefit, the health outcomes are monetised based on a cost-effectiveness threshold which represents a societal valuation of a health metric, rather than an individuals' willingness to pay for health gains.

Hence, although this is similar to a cost-benefit analysis, it does not have the welfarist foundation and uses a different discussion rule Box 1. Note that there are other specific forms of cost-effectiveness analysis used for priority setting, such as distributional cost-effectiveness analysis and extended cost-effectiveness analysis. These are described in more detail in 20 , 65 — In addition, it avoids the difficulties in valuing social welfare that occur due to market failure in the health care market.

This makes it easier for policymakers to compare different studies and interventions, facilitating the decision-making process. The framework does not require assigning a monetary value on health gains. By foregoing this step, the analysis draws attention exclusively to health benefits and avoids the corresponding ethical and equity issues that can arise when monetizing them However, it could be argued that some of these ethical and equity issues still arise when setting the cost-effectiveness threshold.

A cost-effectiveness threshold is often used as a decision rule to class whether an intervention is cost-effective or not. Some countries have established their own cost-effectiveness thresholds 89 , 90 but this is rarer for low and lower-middle-income countries.

However, these are now considered to be too high and have become widely criticised 63 , 92 — They have argued that these thresholds have therefore not been used in the way they were originally intended However, unfortunately, these times GDP per capita thresholds are currently still being used within global health Although guidance exists, determining a country's cost-effectiveness threshold remains a complex area 93 , 97 , Depending on how it is calculated, the cost-effectiveness threshold can be a way of capturing how much health is expected to be foregone if the resources in question are used for an intervention the health opportunity cost.

However, in practise, the cost-effectiveness thresholds commonly used in LMICs do not account for this and are often only an expression of value by a specific party such as an international organisation or government , without consideration of health care system constraints 99 such as the 1 and 3 times GDP per capita thresholds previously mentioned. Revill et al. The use of DALYs or QALYs as outcomes within cost-utility analyses has been a notable improvement compared to only measuring the intervention's effect in terms of disease cases or deaths averted, and these measures permit comparison across different diseases or interventions.

However, these generic measures of health status have limitations Box 4. A general limitation of these generic summary measures is that they could be argued to be overly simplistic and reductionist and may not be capturing all of the health benefits of an intervention 80 , In addition, these metrics do not work well in certain situations, such as when health outcome metrics are not the most suitable. DALYs: The universal disability weights used within DALY calculations do not account for how the local context may influence the burden of a disease such as the impact of living in poverty 76 , Additionally, although the disability weights are meant to be standardised for a given disease, there is still variation in what weights are used in practise 27 , Furthermore, in comparison to preference-based health-related quality of life measures, DALYs may not fully capture the relative benefits of interventions that reduce the functional burden of a condition without curing it.

This can lead to variation in the utility weights being used by different studies. The generic instruments used to generate QALY utility weights are also insensitive to some medical conditions 84 and have also been critiqued for having insufficient sensitivity to measure small but clinically meaningful changes in health status There is also ongoing debate regarding who should value the health states patients with the condition or the general population 84 , 87 , and this variation in methodology can lead to inconsistencies in how QALY utility weights are estimated.

In addition, the financial barriers for accessing QALY weight estimation tools and databases disproportionately affect low- and middle-income countries LMICs Figure 5.

A hypothetical example showing the potential difference between the human capital approach or the friction cost approach when estimating productivity costs. However, many health interventions generate important additional benefits to other sectors, such as the environment or education 69 , In some cases, this restrictive perspective is linked to the mandate for the healthcare budget, such as for solely improving health.

Not capturing these non-health benefits could be undervaluing the broader benefits of many health interventions This limitation is particularly relevant for the evaluation of complex interventions such as those involving interlinked packages of care as the complexity means the intervention may not fit into one of the current appraisal systems, and maximising health may not be the intervention's only objective Using non-monetary metrics limits potential cross-sector comparisons, that is, it is hard to directly compare the estimated value of investing in a health intervention based on the cost per DALY averted or QALY gained to investing outside of the health sector, such as in education.

This makes it difficult to use this type of analysis to justify the reallocation of other government spending to the health sector such as adjusting tax policies and more difficult for decision-makers to compare the value of money for a broad range of potential activities, including those from non-health sectors.

There is variation regarding what types of productivity costs are included within cost-effectiveness ratio calculations Figure 4. Therefore, including these productivity gains within the cost part of the equation would potentially lead to the double-counting of the effectiveness of the health intervention Figure 4 However, this recommendation has been challenged with some arguing that the QALY measure does not capture these productivity gains 10 , — Guidelines regarding the inclusion of these productivity gains vary 72 , Figure 4.

Schematic surrounding the inclusion of productivity costs within cost-effectiveness ratios. Adapted from As previously highlighted, estimates of productivity costs are highly sensitive to the method used 48 and it is important to be aware of the potential variation in methodology when comparing studies Box 3. This variation could lead to potential biases in setting health policy and further guidance is needed.

However, this is still an area that needs attention regarding practical implementation with regards to informing resource allocation decisions in global health , The choice of which type of health economic analysis to use is a matter for the decision-maker s and will depend on the local context, including the values and interests of the stakeholders, the question being addressed, and the resources that are being considered for reallocation 18 , However, in the context of resource allocation within the healthcare sector, it is important that full economic evaluations are used which explicitly compare the costs and consequences of the interventions or health policies in question with a comparator scenario.

Analyses that do not do this, even if they are incorrectly referred to as a full economic evaluation, may ignore comparisons to relevant policy alternatives and can generate misleading conclusions to policymakers. There are also differences in how they consider the efficiency of resource allocation Table 2.

Our key messages are summarised in Box 5 and Table 3. Moving forward there needs to be greater awareness within the public health field of the foundations, advantages and limitations of the different types of economic evaluations used for informing resource allocation decisions.

However, there needs to be greater awareness of the current methods and variations in the approaches being used when placing a monetary value on health benefits Boxes 2 , 3 , and the potential for the results to be misinterpreted. These estimated economic benefits should not be misinterpreted as actual realisable or fiscal monetary benefits to payers or to society.

HT and YT conceived the manuscript. HT wrote the original draft. All authors read and approved the final draft. The findings, interpretations, and conclusions expressed in this article do not necessarily reflect the views of the funding agencies. The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article, or claim that may be made by its manufacturer, is not guaranteed or endorsed by the publisher. We thank the HITAP communications team for their assistance with developing the figures within this paper. Chisholm D, B Evans D. Economic evaluation in health: saving money or improving care?

J Med Econ. Simoens S. Health economic assessment: a methodological primer. Eddama O, Coast J. A systematic review of the use of economic evaluation in local decision-making. Health Policy. Scoping literature review on the basic health benefit package and its determinant criteria. Global Health. Identifying priority technical and context-specific issues in improving the conduct, reporting and use of health economic evaluation in low- and middle-income countries.

Health Res Policy Syst. Goodacre S, McCabe C. An introduction to economic evaluation. Emerg Med J. Oxford: Oxford Medical Publications Google Scholar. Economic evaluation of human papillomavirus vaccination in the United Kingdom. Cost-benefit analyses in the health-care literature: don't judge a study by its label. J Clin Epidemiol. Oxford: Oxford University Press Economic evaluation in global perspective: a bibliometric analysis of the recent literature.

Health Econ. These included resources needed for the delivery of the web-based multiple computer tailoring and the nurse counselling sessions. Costs of the digital component related to hosting and maintenance of the website. They excluded development and research-specific costs because those had been incurred before the relevant implementation period. The researchers used the updated Dutch manual for cost analysis in healthcare research to value healthcare resources.

Unit costs for informal care were based on estimated unpaid work rates. Time lost due to the intervention was costed using average earnings. The CUA found that multiple computer tailoring only was clearly not cost-effective because it cost more than usual care and provided fewer QALYs.

The study compared an internet-based cognitive behavioural therapy, an internet-based problem-solving therapy, and usual care. Check what you need to do. To help us improve GOV. It will take only 2 minutes to fill in. Cookies on GOV. UK We use some essential cookies to make this website work. Accept additional cookies Reject additional cookies View cookies. Hide this message. Home Health and social care Public health Health improvement.

Guidance Cost utility analysis: health economic studies. Print this page. There are also points that are particularly relevant to cost utility analysis CUA : Choosing your study perspective CUA studies aim to inform resource allocation to achieve maximum population health for a given health budget.

Measuring effects QALYs attempt to combine the effects of your product on both mortality how long people live for and morbidity how well people are. Reporting the results To summarise the relative cost-effectiveness of your product compared to alternative products, you should report an incremental cost effectiveness ratio ICER. The CUA took a societal perspective and considered costs to the healthcare system as well as to the patient: Intervention costs These included resources needed for the delivery of the web-based multiple computer tailoring and the nurse counselling sessions.

Although the methodology is appropriate to compare health economic issues of different mental disorders these studies are scarce, probably due to a complicated design.

It is much easier to conduct an outcome study with a single diagnostic category. On the other hand there were many studies that were comparing costs and other outcomes of different preventive and therapeutic interventions in a single diagnostic category.

The results of cost-utility analyses are useful in many situations: planning of service development, resource allocations, to find out the best available intervention for persons with a certain health status, etc. This chapter provides a short introduction to economic analysis giving a special emphasis to a cost-utility analysis and defining its place among other methods in health economics.

Beside theoretical considerations, several practical applications of cost-utility analysis using QALYs are discussed. Unable to display preview.

Download preview PDF. Skip to main content. This service is more advanced with JavaScript available. Advertisement Hide. Authors Authors and affiliations Mojca Z. This is a preview of subscription content, log in to check access.

Preliminary longitudinal assessment of quality of life in patients with major depression. Psychopharmacol Bull 33 23— PubMed Google Scholar. A conceptual model of quality of life in schizophrenia: description and preliminary clinical validation. Qual Life Res 6 21— Katschnig H. How useful is the concept of quality of life in Psychiatry?

Quality of Life in Mental Disorders. Chichester: Wiley; 3— Google Scholar. Wiklund I, Karlberg J. Evaluation of quality of life in clinical trials: selecting quality-of-life measures. Control Clin Trials ; Economic, clinical, and quality-of-life outcomes associated with olanzapine treatment in mania: results from a randomized controlled trial.

J Affect Disord 69 — A randomised controlled trial to compare the cost-effectiveness of tricyclic antidepressants, selective serotonin reuptake inhibitors and lofepramine. Health Technol Assess 9 1— Health Promotion. A discussion document on the concepts and principles. Weeks J. Taking quality of life into account in health economic analyses. J Natl Cancer Inst Monogr, 20 23— Methods for the economic evaluation of health care programmes. Oxford: Oxford Medical Publications; 1— Relationship between psychometric and utility-based approaches to the measurement of health-related quality of life.

Qual Life Res 2 —