Can delivery systems use cost-effectiveness analysis to reduce healthcare costs and improve value?

Understanding costs and ensuring that we demonstrate value in healthcare is a foundational presumption as we transform the way we deliver and pay for healthcare in the U.S. With a focus on population health and payment reforms underway, there is increased pressure to examine cost-effectiveness in healthcare delivery. Cost-effectiveness analysis (CEA) is a type of economic analysis comparing the costs and effects (i.e. health outcomes) of two or more treatment options. The result is expressed as a ratio where the denominator is the gain in health from a measure (e.g. years of life or quality-adjusted years of life) and the numerator is the incremental cost associated with that health gain. For higher cost interventions, the lower the ratio of costs to effects, the higher the value. While CEA is not new, the approach continues to be refined with enhanced statistical techniques and standardized methods. This article describes the CEA approach and also contrasts it to optional approaches, in order for readers to fully appreciate caveats and concerns. CEA as an economic evaluation tool can be easily misused owing to inappropriate assumptions, over reliance, and misapplication. Twelve issues to be considered in using CEA results to drive healthcare delivery decision-making are summarized. Appropriately recognizing both the strengths and the limitations of CEA is necessary for informed resource allocation in achieving the maximum value for healthcare services provided.