Foundations of Cost-Effectiveness Analysis for Health and Medical Practices

Limits on health-care resources mandate that resource-allocation decisions be guided by considerations of cost in relation to expected benefits. In cost-effectiveness analysis, the ratio of net health-care costs to net health benefits provides an index by which priorities may be set. Quality-of-life concerns, including both adverse and beneficial effects of therapy, may be incorporated in the calculation of health benefits as adjustments to life expectancy. The timing of future benefits and costs may be accounted for by the appropriate use of discounting. Current decisions must inevitably be based on imperfect information, but sensitivity analysis can increase the level of confidence in some decisions while suggesting areas where further research may be valuable in guiding others. Analyses should be adaptable to the needs of various health-care decision makers, including planners, administrators and providers.