Cost‐Effectiveness Analysis

Abstract In a resource‐limited environment, it is important to determine whether a proposed health program represents a good use of scarce resources (money, labor, land, capital, etc.). Economic evaluation provides a framework to approach and inform difficult decisions about the best use of limited resources, through an assessment of both the costs and outcomes associated with a proposed program. This article first examines the foundations of economic evaluation in welfare economic theory and cost‐benefit analysis. The article then moves quickly on to a presentation of cost‐effectiveness analysis incorporating a discussion of incremental cost‐effectiveness decision rules, methods for handling uncertainty, and the use of value of information for decision making. The article focuses on the requirements of a health care policy maker attempting to determine whether to reimburse a health care technology given the information and uncertainty surrounding the decision. In addition, the article examines how the policy maker might approach the choice about whether to request further research to inform the decision. A stylized case study is used to illustrate the concepts and approach. The article links with those on decision analysis, uncertainty analysis, and value of information analysis.