Search type


What is Cost Benefit and Cost Effectiveness Analysis?

Professor Katherine Payne, Centre for Biostatistics

New healthcare technologies must be funded from a constrained healthcare budget, which is generally set each year for a defined jurisdiction and population of current and future patients. Within this setting of scarcity, the introduction of a new technology will displace health-care technologies currently being used by patients in the health service.

It is, therefore, important to identify and value both the benefits and costs of new technologies. Only by doing so, can decision-makers judge whether the use of scarce resources is appropriate.

Economic evaluation

The process of generating information on the relative costs and benefits of a specific technology is called economic evaluation. Health economists increasingly use these evaluative frameworks to make clear statements about what decision makers should do.

In practice, all economic evaluations require the identification and quantification of the costs and benefits of competing uses of resources in the health service. However, some economists disagree on the underlying value-judgements such as what constitutes a benefit and how practical these benefits are in terms of informing decision making.

To understand the application of economic evaluation in healthcare it is important to know something about the underlying normative principles which strongly influence the applied analytical methods used (or not used) to inform resource allocation decisions.

Types of evaluation

Broadly, there are two types of economic evaluation: cost benefit analysis (CBA) and cost effectiveness analysis (CEA). This talk will describe these methods of economic evaluation together with the underlying economic principles and value judgements which underpin CBA and CEA, respectively.

Health economists at Manchester

Health Economics is one of the key disciplines underpinning the Institute of Population Health’s methodological research. There are 22 health economists at the University of Manchester, including four Professors, six Research Fellows, six Research Associates, two NIHR Research Methods Fellows and four PhD students based in the Manchester Centre for Health Economics.

Relevant projects

The TARGET study

The aim of this study was to evaluate the clinical and cost effectiveness of TPMT testing for azathioprine.

Newman W, Payne K, Tricker K, Roberts SA, Fargher EA, Pushkapom S, Alder JE, Sidgwick GP, Payne D, Elliott RA, Elles R, Ramsden SC, Andrews J, Houston JB, Qasim F, Shaffer J, Griffiths CE, Ray D, Bruce I, TARGET study recruitment team, Ollier WE. A pragmatic randomised controlled trial of thiopurine methyltransferase (TPMT) genotyping in the management of patients, prior to azathioprine treatment: The TARGET study. Pharmacogenomics 2011; Jun;12(6):815-26

Publication in preparation: Thompson A, Newman WG, Elliott RA, Roberts SA, Payne K. Quantifying the cost-effectiveness of a stratified medicine: a trial-based economic evaluation of TPMT testing for azathioprine. Value in Health (submitted).

The REGARD study

The aim of this study is to understand the benefits of genetic testing for an inherited eye condition using cost benefit analysis.

Publication in preparation: Eden M, Payne K, Combs R, Hall G, McAllister M, Black G. Valuing the benefits of genetic testing for Retinitis Pigmentosa: a pilot application of the contingent valuation method. British Journal of Ophthalmology (under review)

Key references

  • Brazier J, Ratcliffe J, Salomon J, Tsuchiya A. Measuring and Valuing Health Benefits for Economic Evaluation. Oxford University Press, 2009
  • Drummond MF, Schulpher MJ, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. Oxford University Press, 2005
  • Elliott K & Payne K. Essentials of economic evaluation in health care. The Pharmaceutical Press, 2005.
  • Morris S, Devin N, Parkin D. Economic analysis in health care. John Wiley & Sons, 2007

Online resources

PDF slides

Download PDF slides of the presentation 'What is Cost Benefit and Cost Effectiveness Analysis?'