Cost–Benefit Analysis and Health Care Evaluations

Cost–Benefit Analysis and Health Care Evaluations

Robert J. Brent

Cost–benefit analysis is the only method of economic evaluation which can effectively indicate whether a health care treatment or intervention is worthwhile. This book attempts to build a bridge between cost–benefit analysis, as developed by economists, and the health care evaluation literature which relies on other evaluation approaches such as cost-minimization, cost-effectiveness analysis and cost–utility analysis.

Chapter 8: Fundamentals of Cost–Utility Analysis

Robert J. Brent

Subjects: economics and finance, health policy and economics, public finance, social policy and sociology, health policy and economics


8.1 INTRODUCTION In this chapter a general measure of effect is discussed, that is, a QALY. With this more general measure, it is now possible to compare across health care programs. We focus on how CUA widens the sphere of influence of CEA analysis and leave till the next chapter the technical details of how QALYs can be estimated. We compare and contrast CUA with both CEA (in the first section) and CBA (in the third section). In between these comparisons of evaluation methods, we explain how lists of CUA, called ‘league tables’ are, and should be, constructed. We also look at a US panel’s guidelines for making CUA studies comparable. We then outline a comprehensive actual CUA exercise – the Oregon plan – that tried to establish health care priorities in an explicit policy-making setting. The case studies concentrate on how comparisons are made in CUA in order to determine when a cost-per-QALY is worthwhile. 8.1.1 CUA versus CEA A cost–utility analysis can be viewed as a CEA analysis that has output measured in only one kind of dimension: a quality adjusted life year (QALY). The quality adjustment weight is a utility value (usually between 1 and 0), which can be measured, estimated, or taken from past studies. The CUA approach was developed as a response to the human capital approach to evaluation, which valued lives according to their expected lifetime earnings. The first use of a QALY was apparently by Klarman et al. (1968). Kaplan and Bush...

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