Cost-effectiveness analysis (CEA) informs decisions about the allocation of limited resources across the healthcare system. It is used to make justifiable choices based on the best evidence available.

Generally, through economic modelling, CEA compares the costs and effects of alternative interventions. For example, a new health intervention is compared to the current intervention of choice. Outcomes are estimated using generic measures of health, such as quality-adjusted life years.

Figure 1. Cost-effectiveness grid to support cost-effectiveness analyses in healthcare

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Figure 1 shows a cost-effectiveness grid illustrating how CEA informs choices among mutually exclusive alternatives provided to the same patient or group of patients. Comparisons are not always straightforward, because alternatives offer different costs and effects. For example, a treatment in the lower right quadrant is clearly an optimal choice because it is less costly and more effective than the alternatives. Simultaneously, a treatment in the upper left quadrant is clearly an inferior alternative because it is more costly and less effective than the alternatives. However, further analysis would be needed to determine whether treatments in the lower left or upper right quadrant can be recommended.

In the United Kingdom, the cost-effectiveness of a proposed treatment must be analysed, along with clinical efficiency, quality, and safety, before the treatment can be considered for market access or for reimbursement by the National Institute for Health and Care Excellence (NICE).

See cost-benefit analysis for an example of economic evaluation that can be used outside of the healthcare system.