Cost effectiveness -FINAL EXAM 2

What is Cost Effectiveness Analysis (CEA)?

CEA is a method used in healthcare to compare costs and health results of two or more treatments/programs.

👉 It helps answer:
“Which treatment gives better results for the money spent?”

Main Idea of CEA

It compares:

1. Cost = How much money is spent

2. Effectiveness = How well it works

Examples of effectiveness:

• Cases prevented

• Life years gained

• Symptom-free days

• Patients cured

Why Do We Use CEA?

1. Compare two or more programs/treatments with same outcome

Example: Compare Drug A vs Drug B for ulcer treatment.

2. Decide if expanding a program is worth the cost

Example: Should hospital vaccinate more people?

Formula of Cost Effectiveness Ratio

Cost / effectiveness

Example:

If Drug costs $100 and cures 10 patients:

= 100 / 10 = $10 per patient cured

👉 Lower ratio = Better value

CEA vs CUA

CEA:

Measures cost compared with health outcomes.

Examples:

• Cost per case prevented

• Cost per life year gained

CUA (Cost Utility Analysis):

Special type of CEA that also includes quality of life.

Uses QALY = Quality Adjusted Life Year

👉 Measures both longer life + better quality life.

Advantages of CEA

Easy to understand
✅ Uses results already measured in clinical trials
✅ Helpful for doctors and policymakers

Disadvantages of CEA

Cannot compare very different diseases easily

Example:

You cannot compare:

• Blood pressure drug
  with

• Asthma inhaler

Because outcomes are different.

What is ICER?

CER = Incremental Cost Effectiveness Ratio

Used to compare new treatment vs old treatment

Shows:

👉 Extra cost for extra benefit

ICER= ( C2-C1)/ ( E2-E1)

• C₂ = Cost of new treatment

• C₁ = Cost of old treatment

• E₂ = Effectiveness of new treatment

• E₁ = Effectiveness of old treatment

EXAMPLE:

ICER of C compared with B:

( 530-210)/(250-200)= 6.40

= $6.40 per extra symptom-free day

Meaning:

Drug C costs $6.40 more for each extra symptom-free day compared to B.

Dominant vs Dominated

Dominant Treatment:

✅ Cheaper
✅ More effective

Best choice.

Dominated Treatment:

❌ More expensive
❌ Less effective

Bad choice.

If ICER gives negative values, often one option is dominant.

How to Interpret ICER?

Ask:

👉 Is the extra benefit worth the extra cost?

If yes = choose new treatment
If no = keep old treatment