What is health economic evaluation?

Health economic evaluation is a method to compare alternative courses of action in terms of both costs and consequences (valuation of health). Health economic evaluation deals with both the inputs and outputs, also called costs and consequences of activities (health benefits). Secondly, it concerns itself with choices: resource scarcity, and inability to produce all desired outputs:

1. Is this health procedure, service, or programme worth doing compared with other things we could do with these same resources?
2. Are we satisfied that the health care resources (required to make the procedure, service, or programme available to those who could benefit from it) should be spend in this way rather than some other way?

There are different types of health economic evaluations, such as a cost-effectiveness (cost per life-year gained) analysis, cost-utility (cost per QALY (quality-adjusted life year) gained) analysis and cost-benefit (measurement of costs and consequences in monetary units) analysis. The most frequently used are cost-effectiveness and cost-utility analysis.

Why is this important?

• Systematic analysis clearly identifies the relevant treatment or programme alternatives. 
• Without some attempt at measurement, the uncertainty surrounding orders of magnitude can be critical. The real cost of any treatment or programme is not the money in the budget, but rather the value of the achievable benefits in some other programme that has been forgone by using the resources in question to the first treatment or programme. It is this “opportunity cost” that economic evaluation seeks to estimate and to compare with treatment or programme benefits.