Cost-Effectiveness Analysis

Cost-Effectiveness Analysis

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Human health improved dramatically during the last century, yet
grave inequities in health persist. To make further progress in health,
meet new challenges, and redress inequities, resources must be deployed
effectively. This requires knowledge about which interventions actually
work, information about how much they cost, and experience with their
implementation and delivery (DCP2, chapters 14 and 15).

WHY USE COST-EFFECTIVENESS ANALYSIS?

The 1993 edition of Disease Control Priorities in Developing Countries
(Jamison and others 1993) was among the first efforts to guide choices
about public health policies in developing countries by systematically
combining information about effective interventions with information
about their costs. It was motivated, in part, by a sense that developing
countries were neglecting numerous opportunities for improving
health and that better allocation of scarce resources could achieve
better health outcomes. The publication presented cost-effectiveness
analysis as an important tool for identifying these neglected opportu-
nities and redirecting resources to better use.

Cost-effectiveness analysis helps identify neglected opportunities by
highlighting interventions that are relatively inexpensive, yet have the
potential to reduce the disease burden substantially. For example, each
year more than a million young children die from dehydration when they
become ill with diarrhea. Oral rehydration therapy (ORT) does not
diminish the incidence of diarrhea, but dramatically reduces its severity
and the associated mortality rate. The scientific evidence that ORT can
save lives was an important step in identifying this as a neglected
opportunity for improving health. Demonstrating that it could cost only
US$2 to US$4 per life year saved helped make the case that this was some-
thing public policy should promote, and many countries responded by
promoting ORT, saving millions of lives (DCP2, chapters 8 and 19).
Cost-effectiveness analysis helps identify ways to redirect resources
to achieve more. It demonstrates not only the utility of allocating
resources from ineffective to effective interventions, but also the utility
of allocating resources from less to more cost-effective interventions.
For example, a study by the National Center for Policy Analysis at
Harvard University focused on 185 life-saving interventions that take
place in the United States each year, costing US$21.4 billion and saving
592,000 life years. The study investigated different ways of allocating
these funds and found that the number of life years saved could be
doubled if resources were reallocated to more cost-effective interven-
tions (DCP2, chapter 2, box 3).

DCP2 tells a similar story. It identifies dozens of interventions for a
wide range of diseases and risk factors that are costly relative to the
health gain they provide. These include hospital-based interventions,
such as surgery for recurrent stroke, and community-based interven-
tions for schizophrenia and bipolar disorder. Other interventions that
are not particularly cost-effective include treating latent TB infections
with isoniazid and regulations aimed at reducing alcohol abuse. If a
country were to reallocate funds and efforts from these kinds of inter-
ventions and instead apply them to relatively more cost-effective inter-
ventions, substantially more people would be able to live longer and
healthier lives. If reallocating funds from less cost-effective interventions
is not feasible or appropriate, perhaps future increases in spending can
be directed toward activities that will yield more health gains.
Studies of cost-effectiveness have multiplied since 1993, and the
techniques have become more widely disseminated.

DCP2 has bene-
fited from this expanding literature and has aimed for consistent com-
parisons across diseases and interventions. For example, wherever pos-
sible, the cost-effectiveness analyses in DCP2 have used the same price
units, health indicators, and definitions of included costs (box 3.1).
This chapter introduces the basic concepts and methods of cost-
effectiveness analysis, considers some of its limitations, and explains
how it has been and can be put to use. The chapter also considers some
of the other contextual factors that must complement cost-effectiveness
analysis in the decision-making process if policy makers are to make
the best use of the findings provided in DCP2.