A Cost–Benefit Approach
Chapter 30: Cost-Effectiveness Theory
30. Cost-effectiveness theory When there is more than one alternative way of undertaking an intervention and not only the costs differ by alternative, but the quantities produced by the alternatives also differ, then the evaluation method switches from being cost minimization to becoming cost-effectiveness analysis (CEA). In principle, the quantity produced could be any outcome that results from an intervention that one is evaluating, such as the number of HIV tests undertaken or ARVs administered. However, we will concentrate on the most general of the health care outcomes, that is, the disability adjusted life year (DALY), which was the outcome measure we used to measure the effects of malnutrition in Chapter 12, and the effect we used to apply the threshold method to estimating the benefits of avoiding HIV in Chapter 24. Strictly, a CEA that uses a DALY as the only outcome measure can be called a “cost-utility analysis”. But, this distinction is not always adhered to in the health care evaluation literature, so we shall simply stick to the term CEA to refer to this method where effects and costs vary. CARRYING OUT A COST-EFFECTIVENESS ANALYSIS There are a number of steps that have to be undertaken to carry out a CEA. The main steps are: 1. 2. Establish the sum of money that is going to be spent on the possible interventions. Say the sum available is $500. Identify a series of interventions, measure the costs and DALYs they generate, calculate the cost per DALY (the cost-effectiveness...
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