Cost-effectiveness analysis of health sector interventions was first applied in the 1960s based on methods developed to analyse military investments (1). Since 1970, the number of published studies using cost-effectiveness analysis has been steadily rising, reflecting a growing concern for the appropriate use of scarce health sector resources (2). Initially, most cost-effectiveness studies reported results using indicators such as the cost per case diagnosed and treated of a particular disease or the cost per fully immunized child. These studies using outcome or benefit measures that are very disease or context specific have been gradually replaced by studies using more general measures of health outcome. With more widespread reporting of results in terms of costs per quality-adjusted life year (QALY) or other general health measure, comparisons of the cost-effectiveness of interventions targeting different health problems have become possible. League tables of the cost-effectiveness of different interventions are a natural consequence (3-8).
Two landmark policy analyses have provided an impetus to using cost-effectiveness to compare a wide range of health interventions. These exercises provide enough information so that cost-effectiveness analysis for the first time can be used to inform resource allocations across the entire health sector. First, the Oregon Health Services Commission (9-18) examined 714 condition-treatment pairs (called interventions in the rest of the following discussion) and calculated the cost per QALY. The valuation of outcomes from medical intervention and the rankings from cost-effectiveness analysis were then subject to extensive public review through a series of town meetings. The rank list of interventions from this process can then be used for selecting the interventions that Medicaid will finance in the State, which plans to fund (in order of the rank list) each intervention maximally until the budget runs out. This sectoral application of cost-effectiveness is now being implemented (18). The second major policy review was the Health Sector Priorities Review undertaken by the World Bank from 1987 to 1993 (7). Twenty-six major health problems of developing countries were reviewed by teams of economists, public health specialists and epidemiologists. The cost-effectiveness of more than 50 specific health interventions were evaluated using a standard methodology for costs and benefits.(a) These databases provide useful information on cost-effectiveness which will help determine resource allocations across the entire health sector.
Building largely on the Health Sector Priorities Review, the World Bank has promoted in the World development report 1993: investing in health (WDR) the concept of using cost-effectiveness of health sector interventions and the burden of disease of health problems to develop essential packages of clinical and preventive care (23). The WDR also proposes that cost-effectiveness analysis be used to determine the package of services covered by insurance schemes and to inform health research priorities. In this issue of the Bulletin, Bobadilla et al. (24) provide details on the method and rationale for selection and of interventions and their quantities in the proposed package. In brief, estimates of the current burden of disease are combined with a cost-effectiveness rank list of interventions, to derive packages of services that, for a given budget, will purchase the largest improvement in health as measured by DALYs (disability-adjusted life years). Given the considerable attention garnered by the WDR, it is important to examine carefully the implications of this new and more extensive application of cost-effectiveness analysis.
Limitations of sectoral cost-effectiveness
In recent years, the theoretical basis for using cost-effectiveness analysis to guide health sector resource allocations has been discussed: the validity of DALY or QALY maximization as a goal for the health sector (25-30), the nature of individual preferences for health states and how these preferences are incorporated into QALYs (31-35), the importance of marginal costs that change as a function of output (36, 37), the effect of intervention-specific fixed costs (36, 38), and the sensitivity of conclusions to abstract concepts such as discounting (39-51). …