What is Generalized Cost-Effectiveness Analysis?
The increasing reliance on cost-effectiveness analysis (CEA) is shaping the evaluation of both costs and health outcomes associated with specific interventions, primarily focusing on prospective new interventions in comparison to existing practices.
This analysis lacks a sectoral perspective, failing to compare the costs and effectiveness of various interventions to determine the optimal mix for maximizing health within specific resource constraints Instead, it focuses on the cost-effectiveness of a single proposed intervention, comparing it either to existing interventions documented in the literature or to a predetermined price threshold reflecting society's willingness to pay for additional health benefits Notably, the assumption that necessary additional resources would be reallocated from other health interventions or sectors is seldom addressed.
The theoretical literature on cost-effectiveness emphasizes its role in optimizing health budgets by allocating resources among various interventions to maximize societal health, a concept known as sectoral cost-effectiveness analysis (CEA) Limited applications exist where a diverse array of preventive, curative, and rehabilitative interventions benefiting different population groups are compared to determine the optimal mix Notable examples include the Oregon Health Services Commission, the World Bank Health Sector Priorities Review, and the Harvard Life Saving Project, with the World Bank being the only organization to attempt international comparisons of sectoral cost-effectiveness.
The central idea of this expanded policy approach is that health resources must be distributed among various interventions and demographic groups to achieve the maximum overall population health.
The WHO Guide to Cost-Effectiveness Analysis highlights that certain current health interventions are cost-ineffective, while others, which are not fully utilized, demonstrate relative cost-effectiveness By reallocating resources from less effective interventions to those that yield better health outcomes, the health sector can significantly improve allocative efficiency This growing interest in optimizing health system efficiency has spurred analytical studies on the cost-effectiveness of various interventions across multiple countries.
The wider application of Cost-Effectiveness Analysis (CEA) faces several challenges, particularly regarding resource allocation in the health sector, which must consider social issues like prioritizing the sick and reducing health inequalities A notable example of this debate is the political discourse surrounding CEA's role in Medicaid resource prioritization in Oregon In response, two main approaches have emerged: completely abandoning CEA for resource allocation or gradually integrating social concerns into CEA methodologies Additionally, current CEA practices often overlook existing resource misallocations by concentrating on new technologies, suggesting that addressing these inefficiencies could lead to significant health improvements, potentially surpassing the benefits of identifying marginal advancements in health through new technologies.
For many countries, particularly low- and middle-income nations, the cost and time required to conduct cost-effectiveness analysis (CEA) for enhancing allocative efficiency can be prohibitively high Most CEA studies yield context-specific results that are not applicable to other populations, complicating policy debates and the use of league tables that aggregate diverse findings Despite the pressing need for affordable and timely information on intervention costs and effects, progress has been limited, and the challenge of generalizing CEA findings has been exacerbated by the existence of various national and subnational guidelines that employ differing methodologies To date, no comprehensive international guidelines for CEA practice have been established.
In this section, we outline some of the uses of CEA, the limitations of current methods, directions for revising these methods including the
W HAT IS GENERALIZED COST - EFFECTIVENESS ANALYSIS ? development of generalized cost-effectiveness analysis (hereafter called GCEA), and some of the remaining technical challenges facing this revision
The effectiveness of Cost-Effectiveness Analysis (CEA) hinges on its intended applications, which extend beyond health sector resource allocation decisions This section will concentrate on two specific applications of CEA, followed by an exploration of the strengths and weaknesses of current CEA methodologies in relation to these uses.
Cost-effectiveness analysis (CEA) can guide decision-makers facing specific resource constraints, commonly referred to as a budget, along with various ethical and political considerations The constraints influencing CEA in sectoral decision-making differ significantly across contexts Depending on their role, whether as a donor, health minister, district medical officer, or hospital director, a decision-maker may have the ability to reallocate an entire budget or only approve an increase.
Short- to medium-term choices may be restricted by existing physical infrastructure, human resources, and political factors In systems with significant public provision, the number of hospital beds is relatively fixed, making it challenging to adjust capacity quickly.
Decision-making can be limited by the existing combination of interventions, as certain political factors may prevent the reduction or elimination of specific interventions without offering alternatives for those health issues These constraints shape the decision space, outlining the range of options available for making informed choices.
Cost-effectiveness analysis (CEA) of various interventions offers valuable insights into the relative costs and health benefits of different technologies and strategies This analysis plays a crucial role in fostering a more informed discussion on resource allocation priorities by highlighting the diverse channels through which these interventions contribute to health outcomes.
General information serves as a valuable input in the policy debate regarding resource allocation priorities While it does not offer a definitive solution to these complex issues, it aids in assessing the cost-effectiveness of various interventions This broad perspective helps determine whether specific actions are highly cost-effective, highly cost-ineffective, or fall somewhere in between.
The WHO Guide to Cost-Effectiveness Analysis emphasizes that effective analysis can significantly influence policy formulation by shaping the options available for debate, without rigidly dictating resource allocation It presents a broader perspective on sectoral Cost-Effectiveness Analysis (CEA), suggesting that the findings can identify an optimal mix of health interventions, assuming only a finite resource constraint This health-maximizing combination serves as a valuable foundation for assessing how to improve allocative efficiency across diverse contexts.
The initial application of sectoral Cost-Effectiveness Analysis (CEA) tends to be more formulaic for resource allocation compared to subsequent uses This approach faces significant challenges in integrating broader social concerns, as incorporating context-specific issues, like equity weights, complicates communication with decision-makers and the public Additionally, these efforts can hinder the transferability of results Ultimately, the complexity involved may render it unfeasible to provide the necessary information to inform specific decision-makers due to the associated costs and time constraints.
Undertaking a study using GCEA
Before conducting Cost-Effectiveness Analysis (CEA), analysts must make critical decisions that affect the estimation of costs and health outcomes, shaping the overall framework of the analysis This section explores the theoretical foundation of the analysis, defines the interventions involved, clarifies the concept of the “null” or counterfactual scenario, and addresses the selection of the intervention implementation period.
Applied cost-effectiveness studies utilize various methods to estimate the costs and effects of interventions, making it challenging for policy-makers to determine if differences in reported outcomes stem from intervention efficiency or methodological discrepancies Efforts to standardize practices for cost-effectiveness analysis (CEA) have been made, yet controversies persist regarding the appropriate methodological approaches Key debates focus on which costs to include and their valuation, such as considering the impact of interventions on economic productivity, the time contributed by informal caregivers, and the costs associated with additional years of life gained through interventions.
While complete consensus among economists on cost-effectiveness analysis (CEA) is unlikely in the near future, achieving comparability in cost-effectiveness study results remains crucial for effective policy-making Engaging in discussions about the theoretical foundations of CEA can help distinguish between recommendations for standardization that are well-supported by theory and those that are more practical in nature.
WHO Guide to Cost-Effectiveness Analysis pragmatic considerations (18;39) This is the reason for briefly reviewing the theoretical foundations here
This guide on CEA emphasizes that we are not adopting a cost-benefit analysis approach, which defines social welfare as the sum of individual well-being, solely based on the consumption of goods and services.
In evaluating the value of additional consumption, including health and medical services, an individual's willingness to pay (WTP) serves as a key measure The decision to implement an intervention hinges on whether the aggregate WTP surpasses the associated costs Traditional cost-benefit analysis relies on several strong assumptions, particularly the notion that consumers possess perfect information regarding the outcomes of their consumption choices However, this article challenges that premise, especially in the context of health, where it is widely acknowledged that individuals often lack the necessary information and training to accurately assess the benefits of specific health services or interventions.
Health professionals are often consulted to assist in making treatment decisions, particularly in the context of Cost-Benefit Analysis (CBA) In CBA, potential Pareto improvements are identified, suggesting that those who benefit could theoretically compensate those who do not However, if such redistributions do not take place, selecting social decisions with a positive cost-benefit ratio may not enhance social welfare and could potentially diminish it CBA is frequently linked to the concept of money metric utility, where individuals' utility is quantified in monetary terms.
Willingness to pay (WTP) is not a practical method for valuing health intervention benefits, leading to the preference for cost-effectiveness analysis (CEA) CEA operates on the premise that health enhances social welfare independently of non-health goods and services Assuming a predetermined health budget, the analysis typically adopts the viewpoint of a benevolent decision-maker aiming to maximize population health within available resources This decision-maker concentrates on controllable resources and operates within a fixed time frame, considering only the costs covered by the established health budget.
The decision-maker’s approach is overly limited as it concentrates solely on the budget directly controlled by the decision-maker This perspective does not align with the World Health Organization's emphasis on the need for governments to act as stewards of the entire health system It is essential that all health resources, regardless of their management, are utilized to their fullest potential to contribute effectively to health outcomes.
Conducting a study using GCEA involves assessing key social goals, but measuring costs in this context can be challenging Economists define the costs associated with resource allocation for a specific activity as the opportunity cost, which refers to the benefits lost from not utilizing those resources for the next best alternative In this scenario, the opportunity cost specifically pertains to the health benefits sacrificed by choosing one health intervention over another Only under the strict assumption of perfectly functioning markets in both health and non-health sectors can monetary values, such as market wages, accurately reflect this opportunity cost.
Health improvements can significantly impact income, which in turn affects the budget for health expenditures It is crucial to determine how much of this additional income should be dedicated to health, considering the opportunity costs involved This involves recognizing that resources allocated to health could alternatively be utilized for non-health consumption.
Most Cost-Effectiveness Analysis (CEA) guides recommend adopting a "social perspective" for cost estimation, meaning that all costs should be considered, irrespective of the payer This approach values resources utilized or generated by health interventions based on the benefits that society forgoes when these resources are not allocated to their next best alternative use, which may pertain to health or non-health sectors.
The assumption of Cost-Effectiveness Analysis (CEA) acknowledges that both health and non-health consumption play vital roles in overall welfare While health holds intrinsic value, it is crucial to consider the opportunity costs associated with allocating resources to health interventions, as these resources could alternatively be utilized for non-health-related consumption.
All CEA requires the effect of an intervention to be measured against the counterfactual state of an alternative intervention being undertaken.
In GCEA, the null alternative represents a scenario where no intervention is present Cost-effectiveness analysis (CEA) must assess the intervention's impact on both health and non-health consumption, considering both effects regardless of the timing of their occurrence It is essential to include any alterations in non-health consumption that arise from changes in health status.
Distributional issues play a crucial role in applying a social perspective to welfare economics It is widely recognized that the marginal utility of consumption decreases as individuals consume more, which is illustrated by the concave shape of utility functions Consequently, the allocation of costs and benefits from interventions significantly affects overall social welfare For instance, a poorer individual inherently has lower consumption levels compared to a wealthier person, highlighting the importance of considering income disparities in welfare assessments.
WHO Guide to Cost-Effectiveness Analysis person, so would lose more well being by being asked to contribute $1 to the health system than would the rich person
Improved health enhances work capacity, leading to increased production and non-health consumption, with the value of this consumption differing between individuals, particularly benefiting poorer individuals more than wealthier ones Additionally, productivity varies among people, meaning that health improvements for one individual can result in greater increases in non-health consumption opportunities than for another To fully understand the total welfare impact of health interventions, it is essential to consider each person's marginal product, the beneficiaries of additional consumption, and their current levels of non-health goods and services consumption.
Estimating costs
In Section 2.1, it was emphasized that a rigorous societal perspective in Cost-Effectiveness Analysis (CEA) necessitates the inclusion of all welfare effects from an intervention, encompassing changes in both health and non-health consumption Moreover, it is essential to integrate distributional considerations by identifying contributors to the intervention's resources, those who experience enhanced productivity due to improved health, and the beneficiaries of this increased output.
The advantage of a health intervention lies in the welfare gains from improved health, while the cost reflects the welfare loss due to non-health consumption that is sacrificed to allocate resources for the intervention This section examines which changes in non-health consumption should be factored into the welfare calculations, how to appropriately value these changes, and how to incorporate these estimates into a cost-effectiveness analysis Utilizing the framework from Section 2.1, the theoretical approach is outlined, followed by a discussion of the practical considerations that necessitate adjustments to the ideal model.
3.1.1 D EFINING THE NULL WITH RESPECT TO COSTS
GCEA involves analyzing groups of related interventions against a counterfactual scenario where these interventions do not exist, theoretically resulting in zero costs for the analyzed interventions However, overhead costs associated with implementing these interventions, including the availability of trained staff and central administration functions such as auditing and budgeting, must also be considered.
Investing in basic training for health personnel often does not translate into higher salaries, especially in environments where government regulates public sector wages and the private sector lacks sufficient development for various health roles Additionally, it is impractical to distribute the costs of departments like auditing across all health interventions Therefore, it is recommended to assume that these costs will persist at a constant level, irrespective of the diverse mix of interventions provided The General Cost-Effectiveness Analysis (GCEA) should concentrate on resources that can realistically be reallocated during the analysis period.
Ongoing costs in health systems can be categorized into two main types The first type pertains to central administration expenses, which include the overall planning and management of the health system These costs are not directly linked to specific health interventions but are necessary for maintaining the operational framework of the ministry of health Such administrative functions and their staffing requirements exist independently of any particular health initiatives implemented within the country.
Ongoing costs in healthcare interventions often include the current education level of health professionals If the necessary skills for an intervention are not fully developed within the country, training costs must be factored into the overall intervention expenses Conversely, if health professionals already possess the required skills and no additional training is necessary, the costs associated with their prior education can be considered as already accounted for.
Certain administrative costs and expenses linked to the formal education of health professionals are excluded from the intervention costs for GCEA These exclusions establish the “starting point” for analysis, which can differ across various settings This variability is one reason for conducting the WHO-CHOICE analysis at a sub-regional level instead of a global scale.
3.1.2 C OSTS OF PROVIDING HEALTH INTERVENTIONS
The costs associated with health interventions, including outpatient visits, inpatient stays, and population-based programs, encompass various resources necessary for their implementation These resources consist of labor, capital investments like building space and equipment, consumables such as medical supplies and medications, and overhead expenses including utilities and maintenance Utilizing these resources for health improvement leads to a trade-off, as they cannot be allocated to the production of other goods and services, resulting in a welfare loss.
Health interventions can be funded through various mechanisms such as taxation, insurance, and direct out-of-pocket payments by households In near-perfect market conditions, out-of-pocket expenses can be quantified in monetary terms, reflecting the financial burden borne by consumers.
Estimating costs in healthcare reflects the perceived value of services within budget constraints, but markets often fail to align payments with this value This discrepancy is especially evident in tax payments and insurance contributions Additionally, as consumption of a product increases, the value of each additional unit decreases, a phenomenon known as diminishing marginal utility Consequently, the welfare loss incurred by a dollar contributed by a poorer individual is greater than that of a wealthier person Therefore, it is essential to assess the resources allocated for health interventions based on the welfare loss linked to funding methods, rather than merely considering monetary values.
Once health funding is secured, the allocation of expenditures for interventions may not necessarily correlate with payment mechanisms Consequently, the ranking of costs and cost-effectiveness might remain unaffected by varying contributions from different income groups within a country However, this assumption does not hold in cases with substantial co-payments and out-of-pocket expenses, where the theoretical estimation of welfare loss becomes essential.
Estimating the welfare loss for each contributor is challenging, which is why this type of analysis is rarely conducted We adhere to the conventional method of quantifying the costs associated with health interventions in monetary terms, while also acknowledging its limitations.
3.1.3 C OSTS OF ACCESSING HEALTH INTERVENTIONS
Accessing health interventions incurs costs beyond the payment for the intervention itself, encompassing resources spent by patients and their families These access costs comprise two main components: first, the tangible expenses associated with obtaining the intervention, such as transportation to a hospital or specialized dietary needs related to therapy; second, the time costs incurred while seeking the intervention, which represent an opportunity cost as this time could otherwise be spent on productive activities Therefore, it is essential to account for both types of costs when evaluating the overall impact of health interventions.
The treatment of resources utilized in obtaining care is akin to the costs associated with delivering an intervention Although theoretically essential to identify the welfare losses linked to each household's expenditure, this has been challenging for practical Cost-Effectiveness Analysis (CEA) Therefore, we adopt the conventional method of quantifying these costs in monetary terms, while time costs are connected to the gains and losses in production.
WHO Guide to Cost-Effectiveness Analysis
Health interventions, including rehabilitation, prevention, and life-saving programs, significantly influence individuals' work capabilities and, consequently, the overall resources accessible to society Within the social welfare framework, the productivity costs or gains from these interventions impact the consumption of goods and services, thereby affecting social welfare Therefore, it is essential to incorporate these factors into the analysis.