Research Article| Volume 17, ISSUE 1, P109-125, January 1995

Methods of cost-effectiveness analysis: areas of consensus and debate

      This paper is only available as a PDF. To read, Please Download here.


      Methods of evaluating socioeconomic relationships have evolved over many years, and a number of specific approaches have been developed. Among the techniques available, cost-effectiveness analysis (CEA) has emerged as the most widely used and accepted method. Yet, despite considerable effort by the analytical community to refine this technique into one more useful for making health policy decisions, much debate and confusion still persist among analyst, readers, and policymakers concerning methods standards and the overall usefulness of CEA in resource allocation decision making. Thus the purpose of this paper is to summarize, critically examine, and commment on existing recommended methods for socioeconomic evaluation of health care interventions. In particular, we examine an exhaustive set of component methods within the general area of cost-effectiveness and comment on areas of apparent consensus and debate. Our review reveals many areas of agreement and many yet to be resolved. Analysts generally agree on the components of the overall framework for an analysis; basic methodologic principles; the general treatment of costs; the principle of marginal analysis; the need for and general approach to discounting; the use of sensitivity analysis; the extent to which ethical issues can be incorporated; and the importance of choosing appropriate alternatives for comparison. The principal areas in which disagreement still persists are choice of study design, measurement and valuation of health outcomes including conversion of health outcomes to economic values, transformation of efficacy results into effectiveness outcomes, and the empirical measurement of costs.
      To read this article in full you will need to make a payment

      Purchase one-time access:

      Academic & Personal: 24 hour online accessCorporate R&D Professionals: 24 hour online access
      One-time access price info
      • For academic or personal research use, select 'Academic and Personal'
      • For corporate R&D use, select 'Corporate R&D Professionals'


      Subscribe to Clinical Therapeutics
      Already a print subscriber? Claim online access
      Already an online subscriber? Sign in
      Institutional Access: Sign in to ScienceDirect


        • Kamlet MS
        A Framework for Cost-Utility Analysis of Government Health Care Programs: The Comparative Benefits Modeling Project. US Department of Health and Human Services, US Public Health Service, Washington, DC1992
        • Steiner P
        Public expenditure budgeting.
        in: Binder A The Economics of Public Financing. Studies of Government and Finance. Brookings Institution, Washington, DC1974: 241-360
        • Elixhauser A
        • Luce B
        Cost-benefit and cost-effectiveness analysis from 1979 to 1990: A bibliography.
        Med Care. 1993; 31 (Suppl): S1-S11
        • Drummond MF
        Current concerns about economic evaluation.
        Pharm Times. 1990; X: 18-19
        • Drummond M
        • Brandt A
        • Luce B
        • Rovira J
        Standardizing economic evaluation methodologies in health care.
        Int J Technol Assess Health Care. 1993; 9: 26-36
        • Hillman A
        • Eisenberg J
        • Pauly M
        • et al.
        Sounding board: Avoiding bias in the conduct and reporting of cost-effectiveness research sponsored by pharmaceutical companies.
        NEJM. 1991; 324: 1362-1365
        • Commonwealth of Australia
        Guidelines for the pharmaceutical industry on preparation of submissions to the Pharmaceutical Benefits Advisory Committee: Including submissions involving economic analysis. Department of Health, Housing and Community Services, Canberra, Australia1990
        • Henry D
        Economic analysis as an aid to subsidization decisions: The development of Australian guidelines for pharmaceuticals.
        PharmacoEconomics. 1992; 1: 54-67
      1. Canadian Coordinating Office for Health Technology Assessment.
        in: 1st ed. Guidelines for Economic Evaluation of Pharmaceuticals: Canada. CCOHTA, Ottawa1994
        • Ministry of Health
        Memorandum: “Status Report on Ontario's Draft Guidelines for Economic Analysis of Drugs”. 71992; (Drug Programs Branch, Toronto, Ontario, Canada)
      2. Medicare new medical technology coverage determination methods, establishment: Health Care Financing Administration.
        Federal Register. 1989; 54: 4023
      3. Public Law 102–410, Agency for Health Care Policy and Research, Reauthorization Act of 1992. October 13, 1992, Section 4.
        • Haddix A
        • Teutsch S
        • Schaffer P
        Centers for Disease Control and Prevention.
        A Practical Guide To Prevention Effectiveness: Decision and Economic Analysis. Centers for Disease Control and Prevention, Atlanta1994
      4. Office of Technology Assessment.
        The Implications of Cost-Effectiveness Analysis of Medical Technology. Office of Technology Assessment, Washington, DC1980
        • Maynard A
        The design of future cost-benefit studies.
        Am Heart J. 1990; 119 (Part 2): 761-765
        • Detsky A
        • Naylor C
        • O'Rourke K
        Incorporating variations in the quality of individual randomized trials into meta-analysis.
        J Clin Epidemiol. 1992; 45: 255-265
        • Birch S
        • Gafni A
        Cost effectiveness/utility analysis: Do current decision rules lead us to where we want to be?.
        J Health Econ. 1992; 11: 279-296
        • Emery D
        • Schneiderman L
        Cost-effectiveness analysis in health care.
        Hastings Cent Rep. 1989; 19: 8-13
        • Warner K
        Issues in cost effectiveness in health care.
        J Public Health Dent. 1989; 49: 272-278
        • Weinstein M
        Principles of cost-effective resource allocation in health care organization.
        Int J Technol Assess Health Care. 1990; 6: 93-103
        • Udvarhelyi SI
        • Colditz GA
        • Rai A
        • Epstein AM
        Cost-effectiveness and cost-benefit analyses in the medical literature: Are the methods being used correctly?.
        Ann Intern Med. 1992; 116: 238-244
        • Eisenberg J
        Readers' guide for clinical economics articles: Research on value-for-money in medical care.
        ACP Journal Club. 1991; 115 (Suppl 3): A12-A13
        • Luce B
        • Elixhauser A
        Standards for the Socioeconomic Evaluation of Health Care Products and Services. Springer-Verlag, Berlin1990
        • Drummond MF
        • Stoddart GL
        • Torrance GW
        Methods for the Economic Evaluation of Health Care Programmes. Oxford University Press, New York1987
        • Warner K
        • Luce B
        Cost-Benefit and Cost-Effectiveness Analysis in Health Care: Principles, Practice and Potential. Health Administration Press, Ann Arbor, Mich1982
        • Office of Technology Assessment
        The Implications of Cost-Effectiveness Analysis of Medical Technology. Background Paper #1: Methodological Issues and Literature Review. Office of Technology Assessment, Washington, DC1980
        • Weinstein M
        • Stason W
        Foundations of cost-effectiveness analysis for health and medical practices.
        NEJM. 1977; 296: 716-721
        • Chrischilles E
        Cost effectiveness analysis, principles of CEA.
        in: Bootman J Townsend R McGhan W Principles of Pharmacoeconomics. Harvey Whitney Brooks Co, Cincinnati1991
        • Laupcis A
        • Feeny D
        • Detsky A
        • et al.
        How attractive does a new technology have to be to warrant adoption and utilization? Tentative guidelines for using clinical and economic evaluations.
        Can Med Assoc J. 1992; 146: 473-481
        • Banta HD
        • Luce B
        Health Care Technology and Its Assessment. Oxford University Press, Oxford1993: 181-186
        • Drummond MF
        Economic evaluation of pharmaceuticals: Science or marketing?.
        PharmacoEconomics. 1992; 1: 8-13
        • Neuhauser D
        • Lewicki A
        What do we gain from the sixth stool guaiac?.
        NEJM. 1975; 293: 226-228
        • Eisenberg J
        Clinical economics: A guide to the economic analysis of clinical practices.
        JAMA. 1989; 262: 2879-2886
        • Blades C
        • Culyer A
        • Walker A
        Health service efficiency: Appraising the appraisers—a critical review of economic appraisal in practice.
        Soc Sci Med. 1981; 24: 461-472
        • Sabatani J
        Ethics and economic appraisals in health care.
        Soc Sci Med. 1985; 21: 1199-1202
        • Spackman M
        Discount rates and rates of return in the public sector: Economic issues. Government Economic Service, London1991 (Working paper 113)
        • Cairns J
        Discounting and health benefits: Another perspective.
        Health Economics. 1992; 1: 76-79
        • Drummond MF
        Economic evaluation and the rational diffusion and use of health technology.
        Health Policy. 1987; 7: 309-324
      5. Alternative methods for assessing technology, Part 1. Special Section.
        in: Eddy D Int J Technol Assess Health Care. 5. 1989: 483-578 (4)
        • Revicki DA
        Health care technology assessment and health-related quality of life.
        in: Banta HD Luce BR Health Care Technology and Its Assessment. Oxford University Press, Oxford1993: 114-130
        • Revicki D
        • Rothman M
        • Luce B
        Health-related quality of life assessment and the pharmaceutical industry.
        PharmacoEconomics. 1992; 1: 394-408
        • Torrance G
        • Feeny D
        Utilities and quality-adjusted life years.
        Int J Technol Assess Health Care. 1989; 5: 559-575
        • Revicki D
        Relationship between health utility and psychometric health status measures.
        Med Care. 1992; 30 (Suppl): MS274-MS282
        • Guyatt G
        • Van Zante SJ
        • Feeny D
        • Patrick D
        Measuring quality of life in clinical trials: A taxonomy and review.
        Can Med Assoc J. 1989; 140: 1441-1448
        • Mehrez A
        • Gafni A
        Preference based outcome measures for economic evaluation of drug interventions: Quality adjusted life years (QALYs) versus healthy years equivalents (HYEs).
        PharmacoEconomics. 1992; 1: 338-345
        • Bulpitt C
        • Fletcher A
        Measuring costs and financial benefits: Another perspective.
        Health Economics. 1992; 1: 76-79
        • Freud D
        • Dittus R
        Principles of pharmaco-economics analysis of drug therapy.
        PharmacoEconomics. 1992; 1: 20-29
        • Kawachi I
        • Bethwaite P
        • Bethwaite J
        The use of quality-adjusted life years (QALYs) in the economic appraisal of health care.
        New Zealand Med J. 1990; 103: 46-48
        • Spilker B
        Standardization of quality of life trials: An industry perspective.
        PharmacoEconomics. 1992; 1: 73-75
        • Jaeschke R
        • Guyatt G
        • Cook D
        Quality of life instruments in the evaluation of new drugs.
        PharmacoEconomics. 1992; 1: 84-93
        • Eddy D
        Cost-effectiveness analysis: Is it up to the task?.
        JAMA. 1992; 267: 3342-3348
        • Jones-Grizzel AJ
        • Bootman J
        Pharmacoeconomics of genetically engineered drugs.
        PharmacoEconomics. 1992; 1: 45-47
        • Schulman K
        • Lynn L
        • Glick H
        • Eisenberg J
        Cost-effectiveness of low-dose zidovudine therapy for asymptomatic patients with HIV infection.
        Ann Intern Med. 1991; 114: 798-802
        • Simes R
        • Glasziou P
        Meta-analysis and quality of evidence in the economic evaluation of drug trials.
        PharmacoEconomics. 1992; 1: 282-292
        • Luce B
        • Elixhauser A
        Estimating costs in the economic evaluation of medical technologies.
        Int J Technol Assess Health Care. 1990; 6: 57-75
        • Oster G
        • Epstein A
        Cost effectiveness of antihyperlipemic therapy in the prevention of coronary heart disease: The case of cholestyramine.
        JAMA. 1987; 258: 1381-1387
        • Eisenberg JM
        • Koffer H
        • Finkler SA
        Economic analysis of a new drug: Potential savings in hospital operating cost from the use of a once-daily regimen of parenteral cephalosporin.
        Rev Infect Dis. 1984; 6 (Suppl 4): S909-S923
        • Drummond M
        • Davies L
        Economic analysis alongside clinical trials: Revisiting the methodological issues.
        Int J Technol Assess Health Care. 1991; 7: 561-573
        • Hlatky M
        • Lipscomb J
        • Nelson C
        • et al.
        Resource use and cost of initial coronary revascularization. Coronary angioplasty versus coronary bypass surgery.
        Circulation. 1990; 82 (Suppl 4): 208-213
        • Office of Management and Budget
        Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs. 1992; (Washington, DC: Circular No. A-94)
        • Watts C
        • Jackson M
        Cost effectiveness analysis: Some problems of implementation.
        Med Care. 1979; 7: 430-434
        • Drummond MF
        Health economics: An introduction for clinicians.
        Ann Intern Med. 1987; 107: 88-92
        • Parsonage M
        • Neuberger H
        Discounting and health benefits.
        Health Economics. 1992; 1: 71-79
        • Johannesson J
        Research notes; on the discounting of gained life-years in cost-effectiveness analysis.
        Int J Technol Assess Health Care. 1992; 8: 359-364
        • Russell L
        Is prevention better than care? The Brookings Institution, Washington, DC1986
        • Lipscomb J
        Time preference for health in cost-effectiveness analysis.
        Med Care. 1989; 27 (Suppl 3): S233-S253
        • O'Brien B
        • Drummond M
        • Labelle R
        In search of power and significance: Issues in the design and analysis of stochastic cost-effectiveness studies in health care.
        Med Care. 1994; 32: 150-163
        • Heyse J
        • Cook J
        A New Measure of Cost Effectiveness in Comparative Clinical Economic Trials. Society for Medical Decision Making, Boston1991
        • Luce B
        Cost effectiveness analysis: Obstacles to standardization and its use in regulating pharmaceuticals.
        PharmacoEconomics. 1993; 3: 1-9