The application of economic evaluation techniques in the health sector: The state of the art

Economic evaluation techniques were originally developed to assess the efficiency of public, rather than private, investment decisions. They are particularly relevant to the health sector where there is general agreement that free markets fail to produce efficient and equitable solutions, and government intervention can improve both equity and efficiency. In this paper, the four evaluation techniques most commonly applied to the health sector—cost‐minimization, cost‐effectiveness, cost‐utility and cost‐benefit analysis—are reviewed in turn. The purpose is not to provide a step by step guide to their use. Rather, the aim is to explain the context in which they are used, their relative strengths and weaknesses, and to highlight a number of methodological issues and controversies surrounding their application. The discussion shows that no technique is without problems, and none can be recommended as being better than the others in all situations. The review concludes that, despite the sophistication of the academic debate surrounding the techniques, the type of economic evaluation which will influence health policy must remain pragmatic. For the time being, a full description of the costs and benefits of competing alternatives is likely to be more useful to decision makers than attempts to incorporate all possible costs and benefits into a single efficiency ratio.