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This chapter reviews the role of cost-effective analysis (CEA) in treatment coverage determinations in the United States and discusses two important shortcomings of CEA. First, CEA can fail to allocate scarce resources in a way that is economically efficient because treatments that are equally valuable to society may have similar prices and yet cost society very different amounts to produce. Treatments of equal effectiveness and price will appear equally cost effective to insurers and government payers, even if from the perspective of society they are not. Companies therefore respond to the CEA by charging prices that maximize their profits, and health care spending rises. Second, basing coverage decisions only on a treatment's CEA can stifle innovation. Coverage policies based on cost effectiveness closely resemble price controls, which reduce incentives for innovation. Case studies from HIV/AIDS and cancer illustrate this. The chapter concludes by emphasizing the important role that the United States plays in determining global innovation incentives.

Organizations worldwide are struggling to cope with the HIV pandemic. They are confronted by a scarcity of resources that is particularly acute in Africa and other developing countries. This chapter focuses on the extent to which economic evaluations can help these organizations deal with fundamental economic constraint. Its discussions draw heavily on experiences in sub-Saharan Africa, as it is the region where the prevalence and impact of HIV have been greatest, and it is where almost all cost-effectiveness research in the less-developed world has been conducted. Nevertheless, the ideas advanced here are relevant for decision makers everywhere concerned about HIV, particularly those in lower-income settings.

This chapter argues that resistance to CEA, in part, reflects American cultural conventions, which lean toward market-based solutions and away from government policies that examine returns on investment in medical interventions from the public's perspective. Another challenge involves the evidence base. Cost-effectiveness data often are unavailable at the time of a technology's diffusion into practice. Existing CEAs may ignore the practical needs of decision makers by excluding implementation costs for programs or the fidelity of implementation in actual practice.

This introductory chapter describes the motivation for the book. It notes that the book is motivated by the thought that an inquiry into the uses and non-uses of CEA will yield important lessons about the nature of the resistance, and about ways to advance the field. It also states that a secondary impetus is the idea that how a nation uses CEA offers a prism through which to understand the collective values underlying its health care system.

Traumatic brain injury (TBI) is a major health problem worldwide and is often referred to as the ‘silent epidemic’. The uncertainty faced by clinicians in treating children with severe brain injuries is controversial with important clinical and social implications. This chapter weighs the costs and consequences of aggressive treatment of pediatric TBI. It is organized into three sections. First, the physiology and treatment of TBI in children is described. Second, a cost-effectiveness analysis evaluating technology improvement in the treatment of pediatric TBI is presented. This analysis incorporates quality-adjusted life years (QALYs) using published data on preference-weighted health outcomes for children with TBI. Finally, the implications and clinical policy relevance of the analysis are discussed and additional research that could inform clinical policy is outlined.

Dengue is a mosquito-borne viral disease which threatens half the world's population. This chapter first briefly examines an existing technology, larviciding, to control the mosquito which transmits dengue. It then presents a detailed examination of a new technology for dengue prevention, a potential dengue vaccine, based on previous work. The economic analysis estimates the health benefits of offering dengue vaccination to annual child cohorts in Southeast Asia (a region that has witnessed the highest incidence), determines the annual cost of that strategy, and projects potential revenues to vaccine producers. The economic analysis is conducted using standard approaches to cost-effectiveness analysis to derive the cost per disability-adjusted life year (DALY) averted. Finally, the chapter highlights some methodological challenges that are specific to child health.

This chapter begins by introducing the social welfare function (SWF) approach. It then goes on to criticize the competing approaches to policy analysis that are currently dominant. Although SWFs are in fact used by some scholars for purposes of evaluating actual government policies—particularly within the scholarly field of optimal tax policy—other approaches are currently much more widespread, both among scholars and in governmental practice. The dominant frameworks are: cost-benefit analysis; inequality metrics, such as the well-known “Gini coefficient”; other equity metrics, in particular poverty metrics, social-gradient metrics, and tax incidence metrics; and QALY-based cost-effectiveness analysis. The chapter critically examines these various frameworks from the perspective of welfarism. It argues that each framework either fails to furnish an attractive basis for constructing an impartial, Pareto-respecting, quasi-ordering of an outcome set, or achieves this goal only by functioning as a variation on the SWF approach.

This chapter describes legal, political, and ethical concerns surrounding the use of cost-effectiveness analysis. It argues that each of these factors explains some of the resistance to CEA but also has shortcomings. Nothing in federal statute explicitly bars Medicare from using CEA. Similarly, nothing prevents private health insurers from writing contracts that specify covered services as those that are deemed “medically necessary and cost-effective.” Plans may fear lawsuits if they use cost-effectiveness openly. But there are also plausible reasons to believe that health plans could withstand these challenges, as they have withstood challenges to other cost containment initiatives. There are ethical challenges but other countries have managed to overcome them.

After twenty-five years of cost-effectiveness analysis in health and medicine, it is a good time to reassess its impact. Has cost-effectiveness analysis had any influence? The short answer is, “of course.” Cost-effectiveness analyses have become a ubiquitous presence in health and medical journals, and an important component of evidence-based medicine. By its sheer existence, CEA changes the nature of conversations about the impact of investments in health care. It forces and focuses discussions about the value of health and medical services within a clear theoretical framework. The thousands of articles in the peer-reviewed literature over the years attest to its currency among researchers and thought leaders. It exerts an influence over decisions large and small—of formulary committees, technology assessment panels, guideline developers, and public health agencies.

This chapter discusses the potential of cost-effectiveness analysis (CEA) in health and medicine and the ways in which the technique has been applied. Since the original Panel’s work, CEA has become a more common feature on the healthcare landscape. Researchers have investigated the cost-effectiveness of a wide range of interventions in diverse applications. In the United States and abroad, public and private health organizations have funded, conducted, and used CEAs, though the technique has also encountered resistance. Decision makers involved in resource allocation decisions have given the greatest weight and deepest consideration to the clinical evidence underlying interventions. They have generally viewed CEA as one input, alongside other considerations, including ethical, legal, and political concerns.

There are logistical and analytical challenges when conducting economic evaluations in the developing world, ranging from lack of data on costs to determining generalizability. This chapter describes the WHO-CHOICE approach, a generalized form of cost-effectiveness analysis. By using the ‘null’ scenario which assumes an absence of interventions for treating or preventing a condition of interest, this method allows existing and new interventions to be analysed at the same time. Cost-effectiveness analysis for child health interventions are presented including oral rehydration therapy, case management for pneumonia, Vitamin A and zinc supplementation and fortification, provision of supplementary food during weaning with nutrition counseling, and measles vaccination using the WHO-CHOICE approach. Methods for costing interventions and assessing the population impact of the interventions are presented. Results are expressed in terms of cost per disability-adjusted life year (DALY) averted. The chapter concludes with a discussion of the value of the WHO-CHOICE approach to inform resource allocation.

Increasingly, both private and public health care institutions in the United States are looking toward medical cost-effectiveness analysis as they consider complex resource allocation decisions concerning medical technologies. This chapter investigates the connection between the methods used in the most common form of medical cost-effectiveness analysis — that which utilizes quality-adjusted life years (QALYs) — and principles of welfare economics. It addresses two key issues concerning the link between welfare economics and cost-effectiveness analysis: the measurement of benefits and the measurement of costs, especially future costs, of medical interventions. After reviewing the historical origins and development of cost-effectiveness analysis based on QALYs, the chapter explores the use of revealed preference measures to assess the extent to which QALYs reflect patient preferences.