Lesson 7: Types of Economic Analysis

Lesson 7: Types of Economic Analysis

“ Efficacy refers to the scientific basis for ‘ what works ’ in reducing adverse health outcomes.
It is the improvement in health outcome that a prevention strategy can produce” (Gorsky & Teutsch, 1995). Evaluations of efficacy attempt to discover the value of interventions, to show whether or not they are succeeding in their efforts to keep individuals healthy at a reasonable cost. Evaluating efficacy allows us to see whether there is evidence of improvement in health as a result of resources being allocated to a prevention strategy or intervention. There are several economic tools available to measure these improvements and rank them in some logical order of success. The major methods used in economic evaluation are cost analysis, cost – effectiveness analysis,
cost – utility analysis, and cost – benefit analysis.

Cost Analysis
Cost analysis (CA) looks at all the costs of an illness including both direct and indirect costs. As an economic evaluation technique it involves the systematic collection, categorization, and analysis of program costs. The results are a measure of the burden of disease for a defined period of time.
Cost – Effectiveness Analysis
Cost – effectiveness analysis (CEA) compares the costs of intervention with the resulting improvement in health. It can be used to compare the costs of alternative interventions that produce a common health effect.
According to the Partnership for Prevention study that discusses these findings, the three most cost – effective preventive health services that can be offered in medical practice are smoking cessation, aspirin therapy, and childhood immunizations. This study is a good example of using economics to assist in making decisions about the utilization of scarce health resources.

Cost – Utility Analysis
Cost – utility analysis (CUA) is a special type of cost – effectiveness analysis that uses years of life saved combined with quality of life during those years as a health outcome measure. These measures allow direct comparisons of interventions.
Nas (1996) points out that because of the difficulty in identifying and quantifying outcomes, research on health care services usually uses CEA or CUA when determining value in the use of health resources. CEA provides a good measurement tool for determining the efficiency of a particular procedure or program in meeting its goal. The outcome in CEA is usually represented by a single health outcome such as years
of life saved or improvement in health status.
Cost – Benefit Analysis
Cost – benefit analysis (CBA) is a type of economic analysis that compares both costs and benefits in dollar terms. They are adjusted to their present value through a process called discounting. If a program demonstrates a net benefit after the computations, the program is considered to provide good economic value and should be continued or perhaps expanded.
Gorsky & Teutsch (1995) point out that prevention – effectiveness analysis, a form of CBA, could be used to measure the effects of public health programs. In order to compare different prevention strategies and document which programs and activities provide the greatest benefit for the funds expended, an organization needs reliable and consistent cost and effectiveness data.


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