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Economic evaluation in health
An economic evaluation compares at least two alternatives on both cost and benefit, and its key result is the incremental ratio – how much each additional unit of benefit (for example a quality-adjusted life year, QALY) costs when moving from the current alternative to the new one.
Why it matters in the exam
Items on this topic ask which type of evaluation is described: cost-minimization analysis when outcomes are identical, cost-effectiveness analysis in natural units (life years, cases prevented), cost-utility analysis in QALYs, and cost-benefit analysis in which benefit is also measured in money. Other items ask you to compute an incremental cost-effectiveness ratio (ICER) – the difference in costs divided by the difference in benefit – or to identify a "dominant" alternative, cheaper and more effective. The QALY and DALY measures are tested too: a QALY multiplies life years by a quality weight between 0 and 1, and a DALY is the sum of years of life lost to early death and years lived with disability. Practical items deal with the work of the health basket committee: cost-effectiveness estimates are one consideration among several, alongside disease severity, lack of an alternative and social considerations, and not a binding threshold. Also tested are health technology assessment (HTA), rationing – allocating limited resources between competing needs – and sensitivity analysis, which checks how stable the conclusion is when assumptions change. Remember also the perspective of the analysis – the insurer, the health system or society as a whole – because it decides which costs are counted, and the discounting of future costs and benefits.
Key points
- An economic evaluation compares the cost and benefit of at least two alternatives.
- The ICER is the difference in costs divided by the difference in benefit.
- The QALY combines length and quality of life; the DALY measures disease burden.
- A cheaper and more effective alternative dominates.
- In the basket committee, cost-effectiveness is one consideration alongside social and clinical ones.
Summary table
| Type of evaluation | How benefit is measured | Question answered | Example |
|---|---|---|---|
| Cost-minimization | Outcomes are identical, only cost is compared | Which alternative is cheaper? | Day surgery versus a regular admission |
| Cost-effectiveness | Natural units | How much does a life year or a case prevented cost? | Two screening programmes |
| Cost-utility (QALY) | Quality-adjusted life years | How much does an extra QALY cost? | A new cancer drug |
| Cost-benefit | Benefit is converted into money | Does the benefit exceed the cost? | A road safety programme |
| ICER | The difference in costs divided by the difference in benefit | How much does each extra unit cost? | 300,000 shekels per extra QALY |
| DALY | Years of life lost and years with disability | What is the burden of disease? | Comparing burden between diseases |
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Sources
- Drummond et al., Methods for the Economic Evaluation of Health Care Programmes, 4th ed., 2015 — Types of economic evaluation; Cost-utility analysis
- WHO, Making choices in health: WHO guide to cost-effectiveness analysis, 2003 — Generalized cost-effectiveness analysis
- Murray & Lopez, The Global Burden of Disease, 1996 — The disability-adjusted life year
Sources are given for further reading; the text is written afresh and not copied from them.
Reviewed by the Examqo AI Professor · 2026-11-06. The text may contain errors; when in doubt, check the source.