Cost-utility analysis

Cost–utility analysis (CUA) is a form of financial analysis used to guide procurement decisions. The most common and well-known application of this analysis is in pharmacoeconomics, especially health technology assessment (HTA).

In health economics the purpose of CUA is to estimate the ratio between the cost of a health-related intervention and the benefit it produces in terms of the number of years lived in full health by the beneficiaries. Hence it can be considered a special case of cost-effectiveness analysis, and the two terms are often used interchangeably.

Cost is measured in monetary units. Benefit needs to be expressed in a way that allows health states that are considered less preferable to full health to be given quantitative values. However, unlike cost–benefit analysis, the benefits do not have to be expressed in monetary terms. In HTAs it is usually expressed in quality-adjusted life years (QALYs).

If, for example, intervention A allows a patient to live for three additional years than if no intervention had taken place, but only with a quality of life weight of 0.6, then the intervention confers 3 * 0.6 = 1.8 QALYs to the patient. If intervention B confers two extra years of life at a quality of life weight of 0.75, then it confers an additional 1.5 QALYs to the patient. The net benefit of intervention A over intervention B is therefore 1.8 – 1.5 = 0.3 QALYs.

The incremental cost-effectiveness ratio (ICER) is the ratio between the difference in costs and the difference in benefits of two interventions. The ICER may be stated as (C1 – C0)/(E1 – E0) in a simple example where C0 and E0 represent the cost and gain, respectively, from taking no health intervention action. C1 and E1 would represent the cost and gain, respectively of taking a specific action. So, an example in which the costs and gains, respectively, are $140,000 and 3.5 QALYs, would yield a value of $40,000 per QALY. These values are often used by policy makers and hospital administrators to determine relative priorities when determining treatments for disease conditions. It is important to note that CUA measures relative patient or general population utility of a treatment or pharmacoeconomic intervention. Its results give no absolute indicator of the value of a certain treatment.

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