Cost-effectiveness analysis is a method for assessing the costs and health benefits of an intervention.

Assuming that health budgets cannot meet all of the possible demand, cost-effectiveness evaluation can assist decision-makers in allocating resources to maximize the net public health benefit when choosing among options in the care of patients.1

Monetary and health outcomes are measured separately and the relative value of an intervention is measured as the additional cost to achieve an incremental health benefit such as dollars to prevent a case. The effectiveness metric becomes life expectancy adjusted for the morbidity or quality of life associated with the alternative strategies.

Four outcomes are possible when comparing two alternatives (such as screening versus no screening) using cost-effectiveness analysis:

screening is either more expensive or less costly than no screening and in either case it may improve or worsen health outcomes.

If no screening costs more and leads to worse outcomes, screening is cost-saving and is preferred to no screening because it improves health outcomes at a lower cost.

The situation is more complex if screening costs more but also leads to health benefits, in which case the cost-effectiveness of screening can be determined [4]. Cost-effectiveness does not necessarily imply that an intervention is cost saving. Similarly, an intervention cannot be considered to be cost-effective merely because it is more effective.

The point of view of the analysis determines which costs and health effects are considered. As an example, patients, providers, health payers, and society may view antibiotic costs differently: patients may consider only out of pocket or co-payment costs; health payers may consider the antibiotic cost and whether it is generic or non-generic; and society may also consider the costs of emerging drug resistance from antibiotic overuse. Providers may consider the health benefit for an individual patient but weigh it against the public health implications of antibiotic overuse.

Cost-effectiveness analyses ideally apply a societal perspective to include costs, benefits, and harms that may extend beyond the payer or provider directly involved in the decision. The societal perspective represents the overall public interest by including social opportunity costs where the use of limited resources (such as personnel, hospital beds, donor organs, or budgets) results in the loss of opportunity to use those funds (or resources) for other purposes. The societal perspective allows cost-effectiveness results to be compared directly with other interventions from a public health vantage point.


Cost-identification or cost-minimization analysis simply examines costs of care, implicitly assuming equal health benefits for all of the alternative options and thus ignoring non-economic outcomes.

Cost-benefit analysis incorporates both costs and health outcomes, placing a monetary value on health outcomes so that the alternatives can be evaluated on a single outcome measure. However, because assigning a monetary value to a health outcome (or life) raises many ethical objections, cost-benefit analysis has generally not been accepted in healthcare.