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The theoretical basis of the use of incremental cost effectiveness ratios needs re-examination
These ratios have little to do with cost effectiveness, as they often imply a need for more resources, thus raising questions of broader resource allocation
Lack of recognition of this allocation aspect is likely to lead to disappointment with economic evaluation generally
Authors making economic evaluations should pay more attention to the type of efficiency question being considered and its implications for opportunity cost; they should not make recommendations if resource allocation issues are involved
Guidelines for economic evaluations should be revised to take account of concepts of efficiency
In economic evaluation of healthcare interventions, the dominant practice is to calculate an incremental cost effectiveness ratio, usually based on the comparison of a new intervention against current practice. Canadian and UK health economists question the economic foundations of such an approach
Who could resist implementing the results of a study showing that using alteplase (tPA; tissue plasminogen activator) rather than streptokinase in treatment of acute myocardial infarction costs $32 678 (21 340 [pounds sterling]; 33 330 [euro]) per life year gained, which the authors declare to be "cost effective by customary criteria"? (1) Despite similar claims from several such studies, the impact of economic evaluation on setting of priorities remains unclean. (2-4) Among the reasons given for this are that opportunities for reducing costs while maintaining quality still arise, and that cost effectiveness analyses do not take all factors into account. (3)
Achieving the same result more cheaply--a success for economics--represents a classic cost effectiveness approach. The possibility that not all factors have been considered suggests that other approaches may make economic, evaluation more relevant. We contend that, beyond the classic approach, many studies labelled as cost effectiveness analyses of health care are not really that at all. At best, this mislabelling is confusing: at worst, conclusions drawn by the studies' authors could be harmful to patients' health. Thus, there are contraindications to the use of cost effectiveness analysis in health care, and an alternative economic approach is required.
In this paper we revisit the basic economic principles. Then we make the case that lack of adherence to such principles, through current practice of reducing everything to incremental cost effectiveness ratios, leads to contraindications.
The basic principle of economic evaluations is opportunity cost: use of resources to meet a need incurs an opportunity cost, that being the benefit which could be obtained by next best use of those resources. Efficiency arises when benefits are maximised and opportunity costs minimised. To achieve efficiency, information on both resource use (costs) and benefits (often health gains) that would result from alternative approaches is needed. By deriving estimates of the costs and the effectiveness of a new procedure, and relating them to the status quo, it should be possible to determine whether the procedure is less costly and at least as effective as the status quo, in which case it would be judged to be better (more technically efficient); or more costly and more effective, in which case a judgment has to be made about whether the extra cost is worth the gains achieved (a question of allocative efficiency--if the number of patients treated remains the same, more resources would have to be allocated to tiffs area of care at the expense of another group of patients).
Our main point is that cost effectiveness analysis alone cannot handle questions of allocative efficiency, although it is currently being asked to do so, but …