Theoretical Foundations of Cost-Effectiveness Analysis in Health and Medicine

Abstract

This chapter considers the foundations of cost-effectiveness analysis in constrained optimization, highlighting questions that this framework raises about objectives to be maximized, constraints to be considered, resources consumed, and opportunities foregone. Even when the objective is to maximize health, there are multiple questions to consider: how to measure and combine effects on survival and health-related quality of life; how to measure costs, including situations in which budget impacts may not reflect opportunity costs from a societal perspective; and how to treat effects that are uncertain or that occur over time. Other topics covered include theoretical issues that arise in the qualited adjusted life-year (QALY) model and their links to individual utility; metrics for valuing health consequences; differences between individual and social values; optimization with multiple budget constraints; measuring time costs; discounting; and research prioritization.