Cost-Effective Analysis

Background: What is cost-effective analysis?

As vast disparities in global health continue to exist, cost-effective analysis is a necessary tool to ensure that resources are being used as wisely as possible.  Determining which interventions are the most cost-effective requires an understanding of which programs have worked, how much they cost, and how they were executed.  Cost-effective analysis is imperative because it assists in finding interventions that are relatively inexpensive, yet have the ability to significantly reduce poverty and disease.  For example, more than 1 million children die from diarrhea every year, and oral rehydration therapy has been found to alleviate some of the harmful effects (although it does not diminish the diarrhea).  Cost-effective analysis revealed that by spending only $2 to $4 per life year, significant results could be achieved.  After countries observed how they could direct their resources to get the most “bang for their buck”, millions of lives were saved. (1)

The basic concept of the calculation is simple: divide the monetary cost of the intervention by the expected health gain.  Cost-effective analysis provides a way to consider the gains of an intervention versus the costs and risks, straightforwardly comparing the economic and scientific consequences of any given program.(2)

What are the pros and cons of cost-effective methodology as a way to evaluate programs and direct funds?

Benefits of Cost-Effective Analysis

Cost-effective analysis can be extremely beneficial when comparing interventions with one another, in particular when researchers want to:

The cost-effectiveness calculation is particularly useful when relating different programs that are focusing on the same disease or goal.  However, it is also advantageous when looking at interventions that address differing diseases and risk factors.  When resources are limited, it is critical that they are used in the most cost-effective interventions possible.  For example, imagine that you have one million dollars and two options on how to spend it: you can either invest the money to increase Hib vaccinations for children and save 10 – 800 lives, or invest the same amount to increase measles vaccinations for children and save 800 – 66,000 lives.  Cost-effective analysis highlights that the second option is the best allocation of resources: if the number of lives saved is the measure of health gain in the analysis calculation, then the best intervention is the one that averts the most deaths.(3)

In order to use information about cost-effectiveness of past interventions in the most valuable way possible, it is important to:

Reviewing evidence in this way will tremendously assist countries and organizations to improve individuals’ health, as the expenses and results of the different options will be clearly demonstrated.(4)

Limitations and Drawbacks of Cost Effective Analysis

There are, however, drawbacks to cost effective analysis. Organizations often differ in their ways of performing the calculation.  Some studies place the same value on every life regardless of age (i.e., an infant and a middle-aged adult are weighted equally), whereas other studies take into account how many years an individual has left to live (i.e., stopping infant diarrhea is considered largely more successful than rescuing someone older from stroke).  Prices also greatly influence cost estimates, which can differ substantially even within a single country.  Analysis also depends on the scope of the costs (narrow versus broad definition of “cost”), and additional costs that the researcher has selected to take into account, such as dedication of time and transportation value.  Differences in choices of these measurement units significantly impact the interpretation of the analyzed information.(5)

Disability-Adjusted Life Years (DALY): Pros and Cons

The DALY assists policy-makers in many countries by quantifying the impact of disease, program decisions, and subsequent following of what the programs accomplish.  It combines mortality and disease occurrence into a single variable, expanding the idea of potential years of life lost to also take into account the years that one must live with a disability.  In this modified equation, one DALY means one year of good health lost.(6)

This tool was created with intentions of determining the “burden of disease,” with four key goals, which will help in decisions regarding allocation of resources.:

While the DALY does take into account many factors necessary for evaluating the “burden of disease,” some also argue that it is flawed on a theoretical and technical basis.  The DALY does not differentiate between the acts of measuring the burden of disease and the allocation of resources.   Additional information could be added to the calculation, such as the amount of support the person is receiving from family and public services, or their financial status.  Also, there is a discrepancy between the choice of variables that should be used depending on what is being measured.  For example, a person’s pre-existing disability separate from the disease would not necessarily guarantee them higher priority for public assistance.(8)


In summary, cost-effective analysis is an extremely useful tool for comparing interventions and ensuring that valuable resources are being allocated in the best possible way.  However, because limitations and flaws can arise, it is important to carefully review all of the factors that were included in the calculation and to consider other possibly influential factors.

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(1) Jamison, D. T., Breman, J. G., Measham, A. R., Alleyne, G., Claeson, M., Evans, D. B., ... & Musgrove, P. (Eds.). (2006). "Cost–Effectiveness Analysis." 2006. Priorities in Health,ed., 39-58. New York: Oxford University Press.

(2) Ibid.

(3) Ibid.

(4) Jamison, D. T., Breman, J. G., Measham, A. R., Alleyne, G., Claeson, M., Evans, D. B., ... & Musgrove, P. (Eds.). (2006). Disease control priorities in developing countries. The World Bank.

(5) Ibid.

(6) World Health Organization, “WHO Disease and Injury estimates.” (2009). 

(7) Murray, C. Quantifying the burden of disease: the technical basis for disability-adjusted life years. Bulletin of the World Health Organization. 72:429-445.

(8) Anand, S., & Hanson, K. (1997). Disability-adjusted life years: a critical review. Journal of health economics16(6).