What is a cost-effectiveness analysis?

A cost-effectiveness analysis compares the costs and health outcomes of alternative approaches to care. It asks what additional health benefit an innovation produces, and what resources are needed to achieve it.

The comparison might involve a diagnostic test, medicine, medical device or change in a clinical pathway.

Start with the decision

Define the patient population, innovation and relevant comparator. Then specify the perspective and time horizon. A hospital perspective captures different costs from a societal perspective; a short horizon may miss downstream outcomes.

For diagnostics, value depends on what happens after the test. A more accurate result matters when it changes treatment, avoids unnecessary procedures or improves outcomes. The analysis should represent that pathway.

Compare costs and outcomes

Estimate expected costs and health outcomes for each strategy. Calculate the differences between them. A cost-utility analysis expresses health in quality-adjusted life years.

If an innovation is more effective and more costly, the ICER describes the additional cost per unit of benefit. If it improves outcomes and reduces costs, it dominates its comparator.

Explore uncertainty and local context

Evidence, assumptions, patient mix and resource use can change the conclusion. Sensitivity and scenario analyses help identify which inputs matter most and where additional evidence would be useful.

Cost-effectiveness is one part of an adoption decision. Budget impact, workforce capacity, equity and feasibility need separate consideration. A cost-effective innovation can still be difficult to fund or implement.

Further reading

Dutch guideline for economic evaluations in healthcare.