Question

health outcomes in a cost-effectiveness methodology.

Answer 1

Human health improved dramatically during the last century, yet grave inequities in health persist. To make further progress in health, meet new challenges, and redress inequities, resources must be deployed effectively. This requires knowledge about which interventions actually work, information about how much they cost, and experience with their implementation and delivery

Cost-effectiveness analysis helps identify neglected opportunities by highlighting interventions that are relatively inexpensive, yet have the potential to reduce the disease burden substantially. For example, each year more than a million young children die from dehydration when they become ill with diarrhea. Oral rehydration therapy (ORT) does not diminish the incidence of diarrhea, but dramatically reduces its severity and the associated mortality rate. The scientific evidence that ORT can save lives was an important step in identifying this as a neglected opportunity for improving health.

Cost-effectiveness analysis helps identify ways to redirect resources to achieve more. It demonstrates not only the utility of allocating resources from ineffective to effective interventions, but also the utility of allocating resources from less to more cost-effective interventions.

Cost-effectiveness analysis is a method for assessing the gains in health relative to the costs of different health interventions. It is not the only criterion for deciding how to allocate resources, but it is an important one, because it directly relates the financial and scientific implications of different interventions. The basic calculation involves dividing the cost of an intervention in monetary units by the expected health gain measured in natural units such as number of lives saved.

For example, using volunteer paramedics and trained lay people as first responders to accidents costs about US$128 per life saved in South Asia and US$283 in the Middle East and North Africa, whereas using a community-based ambulance costs about US$1,100 and US$3,500 per life saved in the same two regions, respectively. By measuring cost-effectiveness in terms of lives saved, all lives are treated equally regardless of whether the person is an infant who might live another 80 years or a middle-aged person who can expect only another 40 years of life.

Because the future is uncertain, common (but not universal) practice is to discount both health gains and costs in distant years. DCP2 uses a discount rate of 3 percent per year, which has the effect of making 80 years of life expectancy at birth worth about 30 discounted years. With discounting, saving an infant's life still gains more years than saving that of a middle-aged person, but the difference shrinks considerably. Interventions that incur costs now but provide gains only years later look less cost-effective under discounting than when gains accrue immediately, but interventions whose costs and health benefits follow the same time pattern are all affected equally and their relative cost-effectiveness is unchanged.

One of the advantages of using cost-effectiveness ratios is that they avoid some ethical dilemmas and analytical difficulties that arise when attempting cost-benefit analyses. Applying the alternative analytical technique of cost-benefit analysis requires assigning a monetary value to each year of life. By foregoing this step, cost-effectiveness analysis draws attention exclusively to health benefits, which are not monetized. When an intervention leads to health savings, the costs should be subtracted from intervention costs when compared to health outcomes. Many health interventions yield benefits beyond the immediate improvement of health status. For example, healthier parents will be able to provide better care for their children, healthier workers will be more productive in the workplace, and healthier families may avoid falling into poverty. Some health interventions can induce virtuous cycles. For instance, preventing the death of a parent may mean that a family has more income to provide nourishment for growing children. Other health interventions provide important ancillary benefits that are valued independently. For example, the cost-effectiveness of water and sanitation services in reducing gastrointestinal diseases is low, but piped water and sanitation services are valued in and of themselves as a convenience and an environmental improvement.

Cost-effectiveness analysis also requires comparable units for measuring costs. For domestic studies, the cost units in domestic currency will have a clear meaning. In the absence of unit prices of the inputs into interventions, for comparison across countries, DCP2 authors were provided costs for each World Bank region in a widely used currency, usually U.S. dollars. The main question involves whether to use market foreign exchange rates to convert domestic currency costs and compare them to the value of imported and importable inputs expressed in dollars, or whether to use a different conversion factor based on studies of the relative purchasing power of the domestic currency. Because market exchange rates are easier to understand and correspond better to actual financial constraints, DCP2 has used such rates for such conversions.

To provide good policy guidance, cost-effectiveness must be complemented with essential information about the larger context, in particular, the prevailing burden of diseases, the existing coverage of health interventions, and the overall capacity of the health system.