An Introduction to Economic Evaluation: What's in a Name?

By Hoch, Jeffrey S.; Dewa, Carolyn S. | Canadian Journal of Psychiatry, March 2005 | Go to article overview
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An Introduction to Economic Evaluation: What's in a Name?


Hoch, Jeffrey S., Dewa, Carolyn S., Canadian Journal of Psychiatry


Objective: This paper describes the main types of economic evaluation techniques.

Method: To examine the strengths and limitations of different types of economic evaluations, we used a hypothetical example to review the reasoning underlying each method and to illustrate when it is appropriate to use each method.

Results: The choice of economic evaluation method reflects a decision about what should represent "success" and how success should be valued. Measures of benefit and cost must be considered systematically and simultaneously. Claiming that a new treatment is cost-effective requires making a value judgment based on the personal beliefs of the claimant. Even when cost and effect data are objective, a verdict of cost-effective is subjective. The conclusions of an economic study can change significantly, depending on which patient outcome is used to measure success.

Conclusions: Clinicians must be sure that important patient outcomes are not excluded from economic evaluations. Economic evaluation is a process designed to produce an estimate rather than a decision. New treatment can be more costly and still be cost-effective (if the extra benefit is valued more than the extra cost to produce it). However, since economic evaluation does not explicitly consider a decision maker's available budget, a new treatment can be deemed cost-effective but too expensive to approve.

(Can J Psychiatry 2005;50:159-166)

Key Words: cost-effectiveness, cost-benefit, teaching economic evaluation, health economics

There has been unprecedented progress in health care during the past few decades. However, as Clare Booth Luce once quipped, "No good deed goes unpunished." We face the myriad innovations before us with scarce resources (such as money, time, and personnel). Thus progress has also left us with difficult choices. Insatiable demands for new treatments and services compel society to make difficult choices.

How should the choices be made? It has been suggested that "methods such as 'what we did last time,' 'gut feelings,' and even 'educated guesses' are not always better than organized consideration of the factors involved in a decision to commit resources to one use instead of another" (1). As a result, economic evaluation methods have been developed to help inform difficult choices by simultaneously considering costs and consequences of treatment interventions.

Many of the methods' names have become familiarcost-benefit analysis (CBA), cost-effectiveness analysis (CEA), and cost-utility analysis (CUA). Unfortunately, their meanings have not. When is CUA preferred to CBA? Can something be more costly and still be cost-effective? It is clear from the names of these economic evaluations that cost plays a prominent role. However, it is not as widely appreciated that the defining aspect of an economic evaluation has nothing to do with cost; it is how patient outcomes are treated that distinguishes one method from another.

This paper describes the main types of economic evaluation techniques. We examine their strengths and limitations from theoretical and applied perspectives. Using a hypothetical example, we also review the reasoning underlying each method and consider how this can be used to decide when it is appropriate to use each method.

The Relativity of it All

Once an investigator decides to incorporate an economic evaluation into a study, an appropriate comparator must be identified. To use a manufacturing metaphor, the new treatment or intervention under study and its comparator(s) are competing factories with different production processes. When measuring the economic efficiency of each "factory," costs must be compared, relative to some measure of "output." In health services, the "output" is patient outcome or treatment effectiveness.

We use a hypothetical case as a vehicle for our discussion. Suppose a research team has been asked to evaluate a novel program of assertive community treatment (PACT) for homeless people with severe and persistent mental illness.

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An Introduction to Economic Evaluation: What's in a Name?
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