Introduction to Economic Evaluation - Key Terms (Week 1)

Vocabulary flashcards covering key terms and concepts from Week 1 of Introduction to Economic Evaluation.

Economic evaluation

A systematic and explicit method to weigh up the costs and benefits of health interventions to inform decision‑making, aiming to maximise benefits from scarce health care resources.

Health Technology Assessment (HTA)

A process that evaluates the clinical effectiveness, safety, and cost‑effectiveness of health technologies to inform policy decisions.

PBAC

Pharmaceutical Benefits Advisory Committee; recommends new medicines for listing on the Pharmaceutical Benefits Scheme (PBS) in Australia, considering condition, effectiveness, safety, cost‑effectiveness, and total cost.

MSAC

Medical Services Advisory Committee; appraises new medical services proposed for public funding, using safety, effectiveness, cost‑effectiveness, and total cost.

Opportunity cost

The value of the next best alternative forgone when a choice is made.

Fixed health budget

A non‑infinite health budget; resources must be allocated to maximise health within a set limit.

Allocative efficiency

Decisions about which programs to fund to maximise social welfare and health benefits.

Technical efficiency

The most efficient way to produce a given level of health outcomes (doing things right).

Welfare economics (Welfarism)

Theoretical framework where social welfare is the sum of individual utilities and informed by consumer preferences.

Extra‑welfarism

An approach that adds health outcomes, equity, and social goals to welfare considerations; supports the idea of merit goods funded by government.

Incremental analysis

Comparison of a new program with a relevant comparator to assess additional costs and benefits.

Incremental Cost Effectiveness Ratio (ICER)

ICER = (Cost of new treatment − Cost of standard treatment) / (Health benefit with new treatment − Health benefit with standard treatment).

Cost‑effectiveness plane

A graphical plot of incremental costs (vertical axis) against incremental effects (horizontal axis) to interpret cost‑effectiveness.

Dominance

A new treatment dominates if it is more effective and less costly; is dominated if it is less effective and more costly.

Cost‑minimisation analysis (CMA)

An economic analysis used when outcomes are equivalent; compare costs only.

Cost‑effectiveness analysis (CEA)

An economic evaluation measuring outcomes in natural units (e.g., life years gained).

Cost‑utility analysis (CUA)

A type of CEA where outcomes are adjusted for quality of life using QALYs or DALYs.

Cost‑benefit analysis (CBA)

An analysis that values costs and benefits in monetary terms to calculate net benefits; uses willingness‑to‑pay values.

Cost‑consequence analysis (CCA)

An economic evaluation that lists costs and outcomes separately without aggregating into a single metric.

Budget impact analysis (BIA)

Assesses the financial consequences of adopting a new intervention for a budget holder over a short‑ to medium‑term horizon (3–6 years).

QALY

Quality‑adjusted life year; one year of perfect health equals 1 QALY; combines length and quality of life on a 0–1 scale (0 = dead, 1 = perfect health).

DALY

Disability‑adjusted life year; a measure of overall disease burden representing years lost to ill health, disability, or death (higher DALYs = worse health).

Life years gained

Additional years of life provided by an intervention.

Karnofsky scale

A health status measure of functional impairment; not generally interval‑level, so interpretation in some analyses is limited.

SF‑36

A 36‑item health survey assessing health‑related quality of life across multiple domains; not always interval‑level for all analyses.

interval properties

A property of measurement scales where equal changes have equal impact; important for meaningful comparisons in health measures.

Health‑related quality of life measures

Tools (e.g., SF‑36, Karnofsky) used to capture how health states affect quality of life in economic evaluations.

Cost of illness (COI)

Estimates the total economic burden of a disease; used as input for economic evaluations but has limitations in guiding decisions.

Human capital approach

Valuing health gains by the economic value of productivity, such as wages and future earnings.

Revealed preferences

Values inferred from observed behaviors (e.g., wage premiums for risky jobs) to value outcomes.

Stated preferences

Values derived from hypothetical willingness‑to‑pay questions to value outcomes.

Willingness‑to‑pay threshold

The maximum amount decision‑makers are willing to pay per unit of health gain; used to judge ICERs.

Merit good

A good or service that the government provides beyond what the free market would supply, often for equity reasons.

League table

Ranking of interventions by cost‑effectiveness to aid decision‑making and prioritisation.