Cost-utility analysis

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

CUA in health economics
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, than 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. A threshold value is often set by policy makers, who may decide that only interventions with an ICER below the threshold are cost effective (and therefore should be funded).

In the United Kingdom, as of January 2005, the National Institute for Health and Clinical Excellence (NICE) is believed to have a threshold of about £30,000 per QALY, although a formal figure has never been made public. Thus, any health intervention which has an incremental cost of more than £30,000 per additional QALY gained is likely to be rejected and any intervention which has an incremental cost of less than or equal to £30,000 per extra QALY gained is likely to be accepted as cost-effective.

In North America, US$50000 per QALY is often suggested as a threshold ICER for a cost-effective intervention.

A complete compilation of cost-utility analyses in the peer reviewed medical literature is available at the CEA Registry Website