Cost-effectiveness analysis

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Cost-effectiveness analysis (CEA) is a simple way to compare what different actions cost and what results they produce. Unlike cost-benefit analysis, CEA does not assign money to the effects themselves; it looks at how much you pay for a unit of effect.

In health, CEA often uses a ratio that shows the cost per unit of health gained, such as years of life saved or quality-adjusted life years (QALYs). Cost-utility analysis is a special type of CEA that uses QALYs (or similar measures) as the effect. Effects can also be other health outcomes, like how much a blood pressure is reduced or how many symptom-free days a patient has.

Results are commonly shown on a cost-effectiveness plane, with cost on one axis and effectiveness on the other, creating four quadrants. Some analyses also consider how outcomes are distributed across a population, not just the average, which helps address health inequalities.

CEA isn’t limited to healthcare. It can guide decisions in many fields. For example, when choosing military equipment, designers compare not only price but also performance traits; a cheaper option with similar performance might be preferred, unless a more expensive model offers a major advantage. The same idea helps decide which medical interventions to use.

In pharmacoeconomics, the main idea is to compare the cost of a treatment to its health effect. Costs are usually the money spent on the intervention, but side effects, interactions with other medicines, and even convenience may matter. The key measure of effect should fit the intervention, such as cures, reductions in blood pressure, or symptom relief. The common summary is the incremental cost-effectiveness ratio (ICER): how much extra cost is needed to achieve an extra unit of effect when moving from one option to another.

CEAs also apply to energy efficiency, for example calculating the value of saved energy in dollars per kilowatt-hour saved. The savings are “real” because the energy isn’t used, which avoids guessing future energy prices and reduces uncertainty in evaluating energy-saving investments.