Cost, Effectiveness, and Cost-Effectiveness

Abstract

Pluck the goose so as to obtain the most feathers with the least hissing . — —Jean-Baptiste Colbert, Minister of Finance to King Louis XIV of France Incremental or marginal cost-effectiveness ratios are founded on a number of assumptions that weaken their suitability as a way to balance competing economic and clinical priorities. We therefore propose a more relevant and responsible way to gauge the impact of clinical management strategies based on “consumer protection” principles—explicit disclosure of (1) the total magnitude of expected benefit in the target population (in life-years or quality-adjusted life-years), (2) the total monetary cost (in per capita inflation-adjusted dollars), and (3) a formal plan by which the added costs would be paid. Health policy decisions should therefore be based on the inherent trade-offs in the component measures of cost and effectiveness and not on a simple ratio of the two. Cost-effectiveness ratios are thereby rendered superfluous. Incremental or marginal cost-effectiveness ratios are widely viewed as rational ways to balance competing clinical and economic priorities that arise as a consequence of the inevitable disconnect between an individual’s wants and the society’s willingness to pay for those wants.1–5 The purpose of this essay is to question the practical relevance of these ratios with respect to strategic planning in health care, and offer a suitable alternative. In doing so, we will focus on the more pragmatic issues underlying cost-effectiveness analysis, and gloss over a variety of technical details such as the difference between a privately financed free market and the publicly financed healthcare market, between costs and charges, and between unadjusted and quality-adjusted outcomes. Our pragmatic perspective is not likely to be welcomed by orthodox experts in cost-effectiveness analysis. We believe, however, that any such criticisms can be blunted by recognizing the important distinctions between regulatory and clinical …