Interpretation Guide – Health Economics
March 2024
On this page
- Preamble
- Opportunity cost
- Economic evaluation
- Cost-utility analysis
- Quality-adjusted life year (QALY)
- Cost-effectiveness plane
- Cost-effectiveness thresholds
- Sequential analysis
- Cost-effectiveness frontier
- Further readings
- Abbreviations
- References
- Version history
- Acknowledgements
Preamble
The National Advisory Committee on Immunization (NACI) Interpretation Guide – Health Economics is a document that outlines how to interpret common concepts related to cost-utility analysis (CUA). The audiences of this Interpretation Guide are NACI and federal, provincial and territorial immunization program planners and decision-makers.
Opportunity cost
In the context of a fixed budget in the health system, opportunity cost is the benefits foregone as a consequence of adopting a new intervention and displacing an existing one.
Economic evaluation
Health economic analyses evaluate the inputs (called costs) required to create and sustain health programs, and the outcomes (health) of these programs. Outcomes can be valued in a few different ways. Depending on which outcomes are used, the economic evaluation is classified differently:
- Cost-utility analysis (CUA): Health outcomes are valued in quality-adjusted life years (QALYs) or another generic measure of health-related utility
- Cost-effectiveness analysis (CEA): Health outcomes are measured in natural units (e.g., cases averted)
- Cost-benefit analysis (CBA): Health outcomes are valued in monetary units.
CUA is the form of economic evaluation recommended by NACI as the reference case ("standard"), as outlined in the NACI Guidelines for the Economic Evaluation of Vaccination Programs in Canada.Footnote 1 CUA uses a generic outcome measure (QALYs) allowing decision-makers to make comparisons across different conditions and interventions.
Cost-utility analysis
- Assesses cost-effectiveness (or value for money)
- Does not assess budget constraints. An intervention may be assessed to be cost-effective but not adopted because it is too expensive.
- Generates a summary measure called an incremental cost-effectiveness ratio (ICER), sometimes called an incremental cost-utility ratio (ICUR) (Figure 1)
- The ICER provides an estimate of the additional (incremental) cost for one additional unit of health outcome
Quality-adjusted life year (QALY)
- QALY is a function of health-related quality of life (HRQoL) and quantity of life
- HRQoL is measured in health utilities, which:
- Represent the strength of individuals' preferences for different health states
- Are anchored at 0 and 1, representing HRQoL equivalent to being dead and equivalent to having perfect health, respectively
- See example in Figure 2, where both individuals A and B live an equivalent of one year in "perfect health" (i.e., 1 QALY)
Cost-effectiveness plane
- The ICER formula can be represented graphically in a cost-effectiveness plane (Figure 3):
- y-axis (vertical axis) = incremental costs (in dollars)
- x-axis (horizontal axis) = incremental effects (often in QALYs)
- Points on plane = interventions (A, B, C, D) or comparator (O), which is often the standard of care; the coordinates of the interventions (A, B, C, D) show the incremental costs and incremental effects compared to (O)
- Slopes connecting interventions (A, B, C, D) to comparator (O) = ICERs comparing intervention (A to D) and comparator (O) (see Figure 4 for interpretations of ICERs falling in each quadrant)
- Quadrants of plane can be labelled as I to IV, or by the directions of a compass.
- Note that the terms "cost-saving" and "dominant" are often incorrectly used interchangeably. Cost-saving refers to an intervention costing less than the comparator (hence, refers to quadrants III and IV collectively); whereas dominant refers to an intervention being less costly and more effective (hence, refers to quadrant IV exclusively).
- Quadrants III and I can both be used to calculate ICERs: cost (saved) per QALY (lost) in Quadrant III, and cost (expended) per QALY (gained) in Quadrant I (see section on "Cost-effectiveness thresholds"). While these ICERs should theoretically be treated similarly, the context of diminishing health to save money is quite different from the context of spending money to add health. This relates to opportunity costs, as the money saved would be used to invest in other interventions to, in theory, improve health. Similarly, the money spent would displace other interventions, but would, in theory, improve efficiency and resource allocation assuming the correct decision was made to adopt the intervention (see section on "Opportunity Costs").
Cost-effectiveness thresholds
- Some international decision-makers use cost-effectiveness thresholds to support their value judgments of ICERs falling in quadrants I (NE) and III (SW) – that is, decision-makers compare if the ICERs are above or below a threshold (interpretations are opposite for quadrants I and III as noted in Figure 3).
- Canada and many other National Immunization Technical Advisory Groups (NITAGs) do not use explicit thresholds
- In Canada, decisions to adopt or reject an intervention is not based on cost-effectiveness alone. NACI's decision framework accounts for efficacy, effectiveness, burden of disease, equity, ethics and other key public health decision criteria.
- Figure 5 is a graphical representation of a cost-effectiveness threshold on a cost-effectiveness plane
- If decision-makers adopt interventions that are not cost-effective relative to the threshold, more cost-effective expenditures will be displaced
- There are theoretical challenges of determining a threshold when using a societal perspective in an economic evaluation (which is one of the two perspectives that NACI recommends, the other being the publicly funded health system perspective)
- The opportunity cost for the societal perspective is not known and there are no estimates in the literature
- It is not appropriate to compare ICERs generated from a societal perspective to commonly used thresholds from a healthcare payer perspective.
- There are theoretical challenges of adopting or rejecting interventions with ICERs that fall in quadrant III (SW)
- Challenges include ethical considerations of accepting less effective interventions to save money, as well as inefficiency in resource allocation
- Decision-makers may consider a steeper cost-effectiveness threshold in Quadrant III (SW) to account for people valuing health loss greater than the equivalent health gain.
For the UK NICE threshold empirical evidence suggests threshold should be lower (best estimate: £12,936 per QALY).Footnote 6 For the UK JCVI threshold, the Consultation on the Cost-Effectiveness Methodology for Vaccination Programmes and Procurement Report recommended a lower threshold (£15,000),Footnote 7 which the UK government rejected.Footnote 8
Sequential analysis
- When comparing three or more interventions, a sequential analysis is recommended
- Compares an intervention with the next most costly intervention in sequence
- Recall: ICERs compare two interventions (see Figure 1 formula)
- Figure 6 describes the steps to calculate sequential ICERs
- Tables 1 – 3 show the steps to calculate sequential ICERs with an example (adapted from CADTH 2017 Table 3)Footnote 9
Figure 6: Steps to a sequential analysis when comparing three or more interventions
- Step 1: Order interventions (3 or more) from least costly to most costly in table
- Step 2: Calculate delta cost and delta effect, comparing to intervention listed directly above
- Step 3: Remove any intervention that is more costly and less effective (i.e., dominated) than one directly above
- Step 4: Calculate ratios, delta cost divided by delta effect, after the dominated interventions have been removed
- Step 5: Remove any intervention whose sequential ICER is greater than the sequential ICER of the subsequent pair (i.e., intervention subjected to extended dominance, meaning the intervention will never be the optimal strategy regardless of the cost-effectiveness threshold)
- Step 6: Recalculate ratios, delta cost divided by delta effect, after interventions subjected dominance have been removed to finalize sequential ICERs
Implication for decision-makers: The most cost-effective strategy is the intervention with the highest ICER that lies below the threshold, which is a different interpretation compared to quadrants I and III in the cost-effectiveness plane
Costs | QALYs | ∆Costs | ∆QALYs | Sequential ICER | Comment | |
---|---|---|---|---|---|---|
Vaccine A | $3,000 | 4.00 | n/a | n/a | n/a | n/a |
Vaccine B | $4,500 | 4.10 | $1,500 | 0.10 | 15,000 | n/a |
Vaccine C | $5,000 | 5.00 | $500 | 0.90 | 556 | n/a |
Vaccine D | $7,900 | 4.30 | $2,900 | -0.70 | -4,143 | Remove Vaccine D from analysis because it is more costly and less effective than C (i.e., D is dominated by C) |
Vaccine E | $8,000 | 6.00 | $100 | 1.70 | 59 | n/a |
Vaccine F | $12,000 | 6.05 | $4,000 | 0.05 | 80,000 | n/a |
Vaccine G | $50,000 | 6.01 | $38,000 | -0.04 | -950,000 | Remove Vaccine G from analysis because it is more costly and less effective than F (i.e., G is dominated by F) |
Costs | QALYs | ∆Costs | ∆QALYs | Sequential ICER | Comment | |
---|---|---|---|---|---|---|
Vaccine A | $3,000 | 4.00 | n/a | n/a | n/a | n/a |
Vaccine B | $4,500 | 4.10 | $1,500 | 0.10 | 15,000 | Remove Vaccine B from analysis because its sequential ICER is greater than that of the next row (i.e., Vaccine B is subjected to extended dominanceFootnote * through interventions A and C) |
Vaccine C | $5,000 | 5.00 | $500 | 0.90 | 556 | n/a |
Vaccine E | $8,000 | 6.00 | $3,000 | 1.00 | 3,000 | n/a |
Vaccine F | $12,000 | 6.05 | $4,000 | 0.05 | 80,000 | n/a |
Footnotes
|
Costs | QALYs | ∆Costs | ∆QALYs | Sequential ICER | Comment | |
---|---|---|---|---|---|---|
Vaccine A | $3,000 | 4.00 | n/a | n/a | n/a | Implication: If the decision-maker uses an explicit cost-effectiveness threshold of $50,000 per QALY, then the most cost-effective intervention is E. If the threshold is $100,000 per QALY, then the most cost-effective intervention is F. |
Vaccine C | $5,000 | 5.00 | $2,000 | 1.00 | 2,000 | |
Vaccine E | $8,000 | 6.00 | $3,000 | 1.00 | 3,000 | |
Vaccine F | $12,000 | 6.05 | $4,000 | 0.05 | 80,000 |
Cost-effectiveness frontier
- A sequential analysis comparing three or more interventions can be graphically represented by a cost-effectiveness frontier (Figure 7)
- y-axis (vertical axis) = mean costs
- x-axis (horizontal axis) = mean effects
- Note that the axes are mean effects and costs, not incremental effects and costs like in the cost-effectiveness plane in Figure 3
- Point = intervention
- Frontier = line linking the interventions that are not dominated
- Interpretation:
- Any interventions above and to the left of the frontier are more costly and less effective than existing interventions (i.e., Vaccines D and G in Figure 7)
- Any interventions below and to the right of the frontier are less costly and more effective than existing intervention; hence, the new intervention would redefine the frontier
- Implication for decision-maker: Interventions above and to the left of the frontier can be rejected; interventions located on the frontier can be considered efficient, existing interventions; interventions below and to the right of the frontier can be favoured (and should subsequently redefine the frontier with its inclusion).
Further readings
- Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. (2015). Methods for the Economic Evaluation of Health Care Programmes. (4th ed.) Oxford University Press.
- Government of Canada. (2023). National Advisory Committee on Immunization (NACI): Guidelines for the economic evaluation of vaccination programs in Canada. (1st ed.)
- Cape, JD, Beca, JM, Hoch, JS. Introduction to Cost-Effectiveness Analysis for Clinicians. Health Policy and Economics. 2013; 90(3):103–105.
- Neumann PJ, Cohen JT. QALYs in 2018—Advantages and Concerns. JAMA. 2018; 319(24):2473–2474. doi:10.1001/jama.2018.6072.
- Postma MJ, de Vries R, Welte R, Edmunds WJ. Health economic methodology illustrated with recent work on Chlamydia screening: the concept of extended dominance. Sex Transm Infect. 2008; 84(2):152-4. doi: 10.1136/sti.2007.028043.
Abbreviations
- ACIP
- Advisory Committee on Immunization Practices
- CADTH
- Canadian Agency for Drugs and Technologies in Health
- CUA
- Cost-utility analysis
- CBA
- Cost-benefit analysis
- CEA
- Cost-effectiveness analysis
- CUA
- Cost-utility analysis
- HRQoL
- Health-related quality of life
- ICER
- Incremental cost-effectiveness ratio
- JCVI
- Joint Committee on Vaccination and Immunisation
- NACI
- National Advisory Committee on Immunization
- NICE
- National Institute for Health and Clinical Excellence
- NITAG
- National Immunization Technical Advisory Group
- QALY
- Quality-adjusted life year
- STIKO
- Standing Committee on Vaccination
- WHO
- World Health Organization
References
- Footnote 1
-
Government of Canada. National Advisory Committee on Immunization (NACI): Guidelines for the economic evaluation of vaccination programs in Canada 2023
- Footnote 2
-
Leidner A, Meltzer M, Messonnier M, et al. Guidance for health economics studies presented to the Advisory Committee on Immunization Practices (ACIP), 2019 update: Centers for Disease Control and Prevention, 2019.
- Footnote 3
-
STIKO. Modelling methods for predicting epidemiological and health economic effects of vaccinations - guidance for analyses to be presented to the German Standing Committee on Vaccination (STIKO). Berlin, 2016.
- Footnote 4
-
Joint Committee on Vaccination and Immunisation. Code of practice June 2013, 2013.
- Footnote 5
-
Claxton K, Martin S, Soares M, et al. Methods for the estimation of the National Institute for Health and Care Excellence cost-effectiveness threshold. Health Technol Assess 2015;19(14):1-503, v-vi. doi: 10.3310/hta19140
- Footnote 6
-
Immunisation and High Consequence Infectious Diseases Team, Global and Public Health Group. Consultation on the cost-effectiveness methodology for vaccination programmes and procurement (CEMIPP) report: Department of Health and Social Care, 2018.
- Footnote 7
-
Department of Health and Social Care. Cost-effectiveness methodology for immunisation programmes and procurements (CEMIPP): the government's decision and summary of consultation responses. In: Care DoHaS, ed., 2019.
- Footnote 8
-
Klok RM, Postma MJ. Four quadrants of the cost-effectiveness plane: some considerations on the south-west quadrant. Expert Rev Pharmacoecon Outcomes Res 2004;4(6):599-601. doi: 10.1586/14737167.4.6.599
- Footnote 9
-
CADTH. Guidelines for the economic evaluation of health technologies: Canada. 4th ed. ed. Ottawa, 2017.
Version history
Version | Date | Changes made |
---|---|---|
V1.0 | March 2024 | First edition |
Acknowledgements
This interpretation guide was prepared by: MW Yeung, A Tuite, R Ximenes, A Cernat, MC Tunis, and B Sander.
This interpretation guide was reviewed by: G Gebretekle, R N Miranda, A Sinilaite, O Baclic, E Tice, C Jensen, A Stevens, J Zafack, E Abrams, W Siu, S Pierre, in addition to the NACI Economics Task Group.
NACI gratefully acknowledges the contributions of: C Tremblay, J Daniel, C Mauviel, in addition to the Influenza Working Group (Members: J Papenburg (Chair), P De Wals, D Fell, I Gemmill, R Harrison, J Langley, A McGeer and D Moore; Liaison representatives: L Grohskopf (Centers for Disease Control and Prevention); Ex-officio representatives: C Bancej (Centre for Immunization and Respiratory Infectious Diseases, PHAC), J Reiter (First Nations and Inuit Health Branch, Indigenous Services Canada), and M Russell (Biologics and Genetic Therapies Directorate, Health Canada).
NACI members: S Deeks (Chair), R Harrison (Vice-Chair), V Dubey, M Andrew, J Bettinger, N Brousseau, H Decaluwe, P De Wals, E Dubé, K Hildebrand, K Klein, J Papenburg, A Pham-Huy, B Sander, S Smith, and S Wilson.
Liaison representatives: L Bill / M Nowgesic (Canadian Indigenous Nurses Association), LM Bucci (Canadian Public Health Association), E Castillo (Society of Obstetricians and Gynaecologists of Canada), A Cohn (Centers for Disease Control and Prevention, United States), L Dupuis (Canadian Nurses Association), D Fell (Canadian Association for Immunization Research and Evaluation), S Funnell (Indigenous Physicians Association of Canada), J Hu (College of Family Physicians of Canada), M Lavoie (Council of Chief Medical Officers of Health), D Moore (Canadian Paediatric Society), M Naus (Canadian Immunization Committee), and A Ung (Canadian Pharmacists Association).
Ex-officio representatives: V Beswick-Escanlar (National Defence and the Canadian Armed Forces), E Henry (Centre for Immunization and Respiratory Infectious Diseases (CIRID), PHAC), M Lacroix (Public Health Ethics Consultative Group, PHAC), C Lourenco (Biologic and Radiopharmaceutical Drugs Directorate, Health Canada), D MacDonald (COVID-19 Epidemiology and Surveillance, PHAC), S Ogunnaike-Cooke (CIRID, PHAC), K Robinson (Marketed Health Products Directorate, HC), G Poliquin (National Microbiology Laboratory, PHAC), and T Wong (First Nations and Inuit Health Branch, Indigenous Services Canada).
NACI Economics Task Group
Members: BH Sander (Chair), E Rafferty, D Fisman, B Tsoi, P De Wals, J Langley, M Naus, and K Klein.
PHAC participants: MW Yeung, A Tuite, and MC Tunis.
Page details
- Date modified: