{"id":30,"date":"2025-08-19T07:06:03","date_gmt":"2025-08-19T07:06:03","guid":{"rendered":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/chapter\/chapter-3-economic-evaluation-a-core-tool\/"},"modified":"2025-10-09T07:05:06","modified_gmt":"2025-10-09T07:05:06","slug":"chapter-3-economic-evaluation-a-core-tool","status":"publish","type":"chapter","link":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/chapter\/chapter-3-economic-evaluation-a-core-tool\/","title":{"raw":"Chapter 3: Economic Evaluation \u2013 A Core Tool","rendered":"Chapter 3: Economic Evaluation \u2013 A Core Tool"},"content":{"raw":"<div class=\"chapter-3:-economic-evaluation-\u2013-a-core-tool\">\r\n<p style=\"font-weight: 400;text-align: justify\">This chapter explains how economic evaluation helps decision-makers compare healthcare interventions. It introduces the main approaches which are cost-effectiveness, cost-utility, cost-benefit, and cost-minimization analysis and shows how each method guides choices about which interventions provide the greatest value for money. The focus is on practical understanding rather than complex math.<\/p>\r\n\r\n<h2>3.1 What is Economic Evaluation?<\/h2>\r\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">Economic evaluation is the formal<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">comparative analysis of alternative interventions in terms of both costs (resources used) and consequences (outcomes achieved).<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>It enables decision-makers to judge the \u201cvalue for money\u201d of healthcare options and to allocate limited resources more efficiently.<\/p>\r\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">There are four main approaches to economic evaluation, each differing in how outcomes are measured:<\/p>\r\n\r\n<ul>\r\n \t<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Cost-Minimization Analysis (CMA):<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>Applied only when outcomes are proven to be equivalent across interventions. The analysis focuses solely on identifying the least costly option.<\/li>\r\n \t<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Cost-Benefit Analysis (CBA):<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>Measures both costs and outcomes in monetary units. While theoretically useful, it is less common in healthcare due to difficulties in assigning monetary values to health outcomes such as life-years gained. Results may be expressed as a<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">net present value<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>or a<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">benefit-to-cost ratio<\/strong>.<\/li>\r\n \t<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Cost-Effectiveness Analysis (CEA):<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>Evaluates outcomes in natural health units, such as symptom-free days, cases averted, or life-years gained. Results are often presented as an<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">Incremental Cost-Effectiveness Ratio (ICER)<\/strong>.<\/li>\r\n \t<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Cost-Utility Analysis (CUA):<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>The most widely accepted approach, particularly by health technology assessment (HTA) agencies. It measures outcomes in<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">Quality-Adjusted Life Years (QALYs)<\/strong>, which combine survival length with quality of life (scored 0 = death, 1 = perfect health). QALYs allow comparisons across different interventions.<\/li>\r\n \t<li><strong>Cost-Consequence Analysis (CCA):<\/strong> CCA presents costs and a range of outcomes in a disaggregated format without combining them into a single ratio like ICER. This allows decision-makers to weigh trade-offs explicitly.<\/li>\r\n<\/ul>\r\n<h2>3.2 Understanding Costs in Healthcare<\/h2>\r\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">In healthcare economics, \u201ccost\u201d refers to the value of resources consumed in delivering services or interventions. Costs are generally grouped into three categories:<\/p>\r\n\r\n<ul>\r\n \t<li class=\"import-NormalWeb\"><strong class=\"import-Strong\">Direct Medical Costs<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>\u2013 Expenses directly associated with patient care.\r\n<div class=\"textbox textbox--examples\"><header class=\"textbox__header\">\r\n<p class=\"textbox__title\">Examples<\/p>\r\n\r\n<\/header>\r\n<div class=\"textbox__content\">\r\n\r\n<em class=\"import-Emphasis\">hospital stays, diagnostic tests, medications.<\/em>\r\n\r\n<\/div>\r\n<\/div><\/li>\r\n \t<li><strong>Direct Non-Medical Costs<\/strong> - \u00a0Expenses incurred by patients and families that are directly related to receiving healthcare but are not medical in nature.\r\n<div class=\"textbox textbox--examples\"><header class=\"textbox__header\">\r\n<p class=\"textbox__title\">Examples<\/p>\r\n\r\n<\/header>\r\n<div class=\"textbox__content\">transportation to health facilities, accommodation for long-distance treatments, meals during hospital stays, and caregiving expenses.<\/div>\r\n<\/div><\/li>\r\n \t<li class=\"import-NormalWeb\"><strong class=\"import-Strong\">Indirect Costs<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>\u2013 Productivity losses due to illness, disability, or premature death.\r\n<div class=\"textbox textbox--examples\"><header class=\"textbox__header\">\r\n<p class=\"textbox__title\">Examples<\/p>\r\n\r\n<\/header>\r\n<div class=\"textbox__content\">\r\n\r\n<em class=\"import-Emphasis\">missed workdays, reduced earning capacity.<\/em>\r\n\r\n<\/div>\r\n<\/div><\/li>\r\n \t<li class=\"import-NormalWeb\"><strong class=\"import-Strong\">Intangible Costs<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>\u2013 Hard-to-measure impacts such as pain, distress, or reduced quality of life.\r\n<div class=\"textbox textbox--examples\"><header class=\"textbox__header\">\r\n<p class=\"textbox__title\">Examples<\/p>\r\n\r\n<\/header>\r\n<div class=\"textbox__content\">\r\n\r\n<em class=\"import-Emphasis\">anxiety from chronic illness, emotional burden on families.<\/em>\r\n\r\n<\/div>\r\n<\/div><\/li>\r\n<\/ul>\r\n<h2>3.3 What is Effectiveness?<\/h2>\r\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">Effectiveness describes the extent to which an intervention achieves its intended outcome<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">in real-world conditions.<\/strong><\/p>\r\n\r\n<div class=\"textbox textbox--examples\"><header class=\"textbox__header\">\r\n<p class=\"textbox__title\">Examples<\/p>\r\n\r\n<\/header>\r\n<div class=\"textbox__content\">\r\n\r\n<em class=\"import-Emphasis\">A flu vaccine that prevents 80% of cases in the community is considered highly effective.<\/em>\r\n\r\n<\/div>\r\n<\/div>\r\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">This differs from<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">efficacy<\/strong>, which is measured in controlled clinical trials under ideal conditions. Policymakers prioritize effectiveness since it reflects practical results in population-level health systems.<\/p>\r\n\r\n<h2 style=\"text-align: justify\">3.4 Applying Cost and Effectiveness in Decision-Making<\/h2>\r\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">Because healthcare resources are finite, decision-makers must evaluate trade-offs between cost and effectiveness:<\/p>\r\n\r\n<ul style=\"text-align: justify\">\r\n \t<li class=\"import-NormalWeb\">A treatment that costs less while providing equal or better health outcomes is<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">more cost-effective<\/strong>.<\/li>\r\n \t<li class=\"import-NormalWeb\">Economic evaluation ensures that<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">the greatest possible health benefits are achieved within budget constraints.<\/strong><\/li>\r\n<\/ul>\r\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">This process supports transparent and rational policy choices, guiding governments and institutions toward investments that improve population health at sustainable costs.<\/p>\r\n\r\n<h2>3.5 Understanding the Incremental Cost-Effectiveness Ratio (ICER)<\/h2>\r\n<p class=\"import-NormalWeb\">The ICER is a central concept in economic evaluation. It is calculated as:<\/p>\r\n<p class=\"import-NormalWeb\"><img src=\"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-content\/uploads\/sites\/250\/2025\/08\/image1.png\" alt=\"image\" width=\"601.733333333333px\" height=\"78.8666666666667px\" \/><\/p>\r\n<p class=\"import-NormalWeb\">It expresses the additional cost required to gain one extra unit of health outcome (e.g., one QALY gained).<\/p>\r\n\r\n<h3>Interpretation:<\/h3>\r\n<ul>\r\n \t<li class=\"import-NormalWeb\" style=\"text-align: justify\">If the ICER is<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">below the willingness-to-pay (WTP) threshold<\/strong>, the intervention is considered<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">cost-effective<\/strong>.<\/li>\r\n \t<li class=\"import-NormalWeb\" style=\"text-align: justify\">If the ICER is<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">above the threshold<\/strong>, it is not considered a good investment.<\/li>\r\n \t<li class=\"import-NormalWeb\" style=\"text-align: justify\">Importantly, cost-effective \u2260 cost-saving. Some interventions may cost more but still provide value worth paying for.<\/li>\r\n<\/ul>\r\n<h2 style=\"text-align: justify\">3.6 <strong data-start=\"433\" data-end=\"501\">Interpreting ICER: The Role of Cost-Effectiveness Thresholds<\/strong><\/h2>\r\n<p data-start=\"503\" data-end=\"867\">Once the ICER (Incremental Cost-Effectiveness Ratio) is calculated, it must be compared to a <strong data-start=\"596\" data-end=\"628\">cost-effectiveness threshold<\/strong> to determine whether an intervention offers good value for money.<br data-start=\"694\" data-end=\"697\" \/>The threshold represents the <strong data-start=\"726\" data-end=\"778\">maximum amount a society is willing to pay (WTP)<\/strong> for one additional unit of health gain, such as a <strong data-start=\"829\" data-end=\"866\">Quality-Adjusted Life Year (QALY)<\/strong>.<\/p>\r\n\r\n<h4 data-start=\"874\" data-end=\"917\"><strong data-start=\"879\" data-end=\"917\">WHO-Recommended Threshold Approach<\/strong><\/h4>\r\n<p data-start=\"918\" data-end=\"971\">According to the <strong data-start=\"935\" data-end=\"970\">World Health Organization (WHO)<\/strong>:<\/p>\r\n\r\n<ul data-start=\"972\" data-end=\"1224\">\r\n \t<li data-start=\"972\" data-end=\"1062\">\r\n<p data-start=\"974\" data-end=\"1062\"><strong data-start=\"974\" data-end=\"1002\">ICER &lt; 1\u00d7 GDP per capita<\/strong> \u2192 The intervention is considered <strong data-start=\"1036\" data-end=\"1059\">very cost-effective<\/strong>.<\/p>\r\n<\/li>\r\n \t<li data-start=\"1063\" data-end=\"1145\">\r\n<p data-start=\"1065\" data-end=\"1145\"><strong data-start=\"1065\" data-end=\"1101\">ICER between 1\u20133\u00d7 GDP per capita<\/strong> \u2192 The intervention is <strong data-start=\"1124\" data-end=\"1142\">cost-effective<\/strong>.<\/p>\r\n<\/li>\r\n \t<li data-start=\"1146\" data-end=\"1224\">\r\n<p data-start=\"1148\" data-end=\"1224\"><strong data-start=\"1148\" data-end=\"1176\">ICER &gt; 3\u00d7 GDP per capita<\/strong> \u2192 The intervention is <strong data-start=\"1199\" data-end=\"1221\">not cost-effective<\/strong>.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<p data-start=\"1226\" data-end=\"1308\"><em data-start=\"1226\" data-end=\"1240\">For Malaysia<\/em>, with a GDP per capita of approximately <strong data-start=\"1281\" data-end=\"1295\">RM 120,000<\/strong>, this means:<\/p>\r\n\r\n<ul data-start=\"1309\" data-end=\"1575\">\r\n \t<li data-start=\"1309\" data-end=\"1409\">\r\n<p data-start=\"1311\" data-end=\"1409\">Interventions with an ICER <strong data-start=\"1338\" data-end=\"1367\">below RM 120,000 per QALY<\/strong> are considered <strong data-start=\"1383\" data-end=\"1406\">very cost-effective<\/strong>.<\/p>\r\n<\/li>\r\n \t<li data-start=\"1410\" data-end=\"1490\">\r\n<p data-start=\"1412\" data-end=\"1490\">Those <strong data-start=\"1418\" data-end=\"1464\">between RM 120,000 and RM 360,000 per QALY<\/strong> are <strong data-start=\"1469\" data-end=\"1487\">cost-effective<\/strong>.<\/p>\r\n<\/li>\r\n \t<li data-start=\"1491\" data-end=\"1575\">\r\n<p data-start=\"1493\" data-end=\"1575\">Above <strong data-start=\"1499\" data-end=\"1522\">RM 360,000 per QALY<\/strong>, interventions are generally <strong data-start=\"1552\" data-end=\"1574\">not cost-effective<\/strong>.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<div class=\"textbox textbox--examples\"><header class=\"textbox__header\">\r\n<p class=\"textbox__title\">Examples<\/p>\r\n\r\n<\/header>\r\n<div class=\"textbox__content\">Malaysia may adopt a <strong data-start=\"1957\" data-end=\"1997\">WTP threshold of RM 120,000 per QALY<\/strong> \u2014 roughly equivalent to its GDP per capita \u2014 as a <strong data-start=\"2048\" data-end=\"2079\">benchmark for affordability<\/strong>.<\/div>\r\n<\/div>\r\n<h2 style=\"text-align: justify\"><strong data-start=\"1587\" data-end=\"1638\">Willingness-to-Pay (WTP) Threshold<\/strong><\/h2>\r\n<p data-start=\"1639\" data-end=\"1921\">Some countries use a <strong data-start=\"1660\" data-end=\"1692\">Willingness-to-Pay threshold<\/strong> instead of a GDP-based one. This approach reflects what the public or decision-makers are realistically willing to invest for a health gain, based on <strong data-start=\"1845\" data-end=\"1918\">local budget constraints, equity priorities, and societal preferences<\/strong>.<\/p>\r\n\r\n<div class=\"textbox textbox--examples\"><header class=\"textbox__header\">\r\n<p class=\"textbox__title\">Examples<\/p>\r\n\r\n<\/header>\r\n<div class=\"textbox__content\">If an intervention\u2019s ICER = <strong data-start=\"2133\" data-end=\"2155\">RM 85,000 per QALY<\/strong>,<br data-start=\"2156\" data-end=\"2159\" \/>and Malaysia\u2019s threshold = <strong data-start=\"2186\" data-end=\"2209\">RM 120,000 per QALY<\/strong>,<br data-start=\"2210\" data-end=\"2213\" \/>then the intervention is considered <strong data-start=\"2249\" data-end=\"2267\">cost-effective<\/strong>, as it provides health gains at a cost society is willing to pay.<\/div>\r\n<\/div>\r\n<h2 style=\"text-align: justify\">3.7 Cost-Effectiveness Plane<\/h2>\r\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">A graphical representation of costs (y-axis) against effects (x-axis):<\/p>\r\n\r\n<ul>\r\n \t<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Southeast quadrant:<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>Less costly, more effective \u2192<span class=\"import-apple-converted-space\">\u00a0<\/span><em class=\"import-Emphasis\">Dominant (best choice)<\/em><\/li>\r\n \t<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Northeast quadrant:<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>More costly, more effective \u2192<span class=\"import-apple-converted-space\">\u00a0<\/span><em class=\"import-Emphasis\">Cost-effective if below WTP threshold<\/em><\/li>\r\n \t<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Northwest quadrant:<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>More costly, less effective \u2192<span class=\"import-apple-converted-space\">\u00a0<\/span><em class=\"import-Emphasis\">Dominated (not recommended)<\/em><\/li>\r\n \t<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Southwest quadrant:<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>Less costly, less effective \u2192<span class=\"import-apple-converted-space\">\u00a0<\/span><em class=\"import-Emphasis\">Context-dependent<\/em><\/li>\r\n<\/ul>\r\n<p class=\"import-NormalWeb\"><img src=\"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-content\/uploads\/sites\/250\/2025\/08\/image2.jpg\" alt=\"image\" width=\"426.666666666667px\" height=\"350.666666666667px\" \/><\/p>\r\n<p class=\"import-NormalWeb\">adopted from Briggs, A., &amp; Tambour, M. (2001). The design and analysis of stochastic cost-effectiveness studies for the evaluation of health care interventions.<\/p>\r\n\r\n<div class=\"textbox textbox--examples\"><header class=\"textbox__header\">\r\n<p class=\"textbox__title\">Examples<\/p>\r\n\r\n<\/header>\r\n<div class=\"textbox__content\">\r\n<p class=\"import-NormalWeb\">In Canada, the informal WTP threshold ranges between<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">CAD $50,000\u2013$100,000 per QALY gained.<\/strong><\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<h2>3.8 Summary<\/h2>\r\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">Economic evaluation is an indispensable tool for health system decision-making. By balancing costs with outcomes, it ensures the<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">best use of limited resources<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>to maximize health gains. For health professionals, understanding these principles allows for evidence-based clinical and policy decisions that improve population well-being.<\/p>\r\n[h5p id=\"5\"]\r\n\r\n<\/div>","rendered":"<div class=\"chapter-3:-economic-evaluation-\u2013-a-core-tool\">\n<p style=\"font-weight: 400;text-align: justify\">This chapter explains how economic evaluation helps decision-makers compare healthcare interventions. It introduces the main approaches which are cost-effectiveness, cost-utility, cost-benefit, and cost-minimization analysis and shows how each method guides choices about which interventions provide the greatest value for money. The focus is on practical understanding rather than complex math.<\/p>\n<h2>3.1 What is Economic Evaluation?<\/h2>\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">Economic evaluation is the formal<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">comparative analysis of alternative interventions in terms of both costs (resources used) and consequences (outcomes achieved).<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>It enables decision-makers to judge the \u201cvalue for money\u201d of healthcare options and to allocate limited resources more efficiently.<\/p>\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">There are four main approaches to economic evaluation, each differing in how outcomes are measured:<\/p>\n<ul>\n<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Cost-Minimization Analysis (CMA):<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>Applied only when outcomes are proven to be equivalent across interventions. The analysis focuses solely on identifying the least costly option.<\/li>\n<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Cost-Benefit Analysis (CBA):<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>Measures both costs and outcomes in monetary units. While theoretically useful, it is less common in healthcare due to difficulties in assigning monetary values to health outcomes such as life-years gained. Results may be expressed as a<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">net present value<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>or a<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">benefit-to-cost ratio<\/strong>.<\/li>\n<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Cost-Effectiveness Analysis (CEA):<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>Evaluates outcomes in natural health units, such as symptom-free days, cases averted, or life-years gained. Results are often presented as an<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">Incremental Cost-Effectiveness Ratio (ICER)<\/strong>.<\/li>\n<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Cost-Utility Analysis (CUA):<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>The most widely accepted approach, particularly by health technology assessment (HTA) agencies. It measures outcomes in<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">Quality-Adjusted Life Years (QALYs)<\/strong>, which combine survival length with quality of life (scored 0 = death, 1 = perfect health). QALYs allow comparisons across different interventions.<\/li>\n<li><strong>Cost-Consequence Analysis (CCA):<\/strong> CCA presents costs and a range of outcomes in a disaggregated format without combining them into a single ratio like ICER. This allows decision-makers to weigh trade-offs explicitly.<\/li>\n<\/ul>\n<h2>3.2 Understanding Costs in Healthcare<\/h2>\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">In healthcare economics, \u201ccost\u201d refers to the value of resources consumed in delivering services or interventions. Costs are generally grouped into three categories:<\/p>\n<ul>\n<li class=\"import-NormalWeb\"><strong class=\"import-Strong\">Direct Medical Costs<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>\u2013 Expenses directly associated with patient care.\n<div class=\"textbox textbox--examples\">\n<header class=\"textbox__header\">\n<p class=\"textbox__title\">Examples<\/p>\n<\/header>\n<div class=\"textbox__content\">\n<p><em class=\"import-Emphasis\">hospital stays, diagnostic tests, medications.<\/em><\/p>\n<\/div>\n<\/div>\n<\/li>\n<li><strong>Direct Non-Medical Costs<\/strong> &#8211; \u00a0Expenses incurred by patients and families that are directly related to receiving healthcare but are not medical in nature.\n<div class=\"textbox textbox--examples\">\n<header class=\"textbox__header\">\n<p class=\"textbox__title\">Examples<\/p>\n<\/header>\n<div class=\"textbox__content\">transportation to health facilities, accommodation for long-distance treatments, meals during hospital stays, and caregiving expenses.<\/div>\n<\/div>\n<\/li>\n<li class=\"import-NormalWeb\"><strong class=\"import-Strong\">Indirect Costs<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>\u2013 Productivity losses due to illness, disability, or premature death.\n<div class=\"textbox textbox--examples\">\n<header class=\"textbox__header\">\n<p class=\"textbox__title\">Examples<\/p>\n<\/header>\n<div class=\"textbox__content\">\n<p><em class=\"import-Emphasis\">missed workdays, reduced earning capacity.<\/em><\/p>\n<\/div>\n<\/div>\n<\/li>\n<li class=\"import-NormalWeb\"><strong class=\"import-Strong\">Intangible Costs<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>\u2013 Hard-to-measure impacts such as pain, distress, or reduced quality of life.\n<div class=\"textbox textbox--examples\">\n<header class=\"textbox__header\">\n<p class=\"textbox__title\">Examples<\/p>\n<\/header>\n<div class=\"textbox__content\">\n<p><em class=\"import-Emphasis\">anxiety from chronic illness, emotional burden on families.<\/em><\/p>\n<\/div>\n<\/div>\n<\/li>\n<\/ul>\n<h2>3.3 What is Effectiveness?<\/h2>\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">Effectiveness describes the extent to which an intervention achieves its intended outcome<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">in real-world conditions.<\/strong><\/p>\n<div class=\"textbox textbox--examples\">\n<header class=\"textbox__header\">\n<p class=\"textbox__title\">Examples<\/p>\n<\/header>\n<div class=\"textbox__content\">\n<p><em class=\"import-Emphasis\">A flu vaccine that prevents 80% of cases in the community is considered highly effective.<\/em><\/p>\n<\/div>\n<\/div>\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">This differs from<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">efficacy<\/strong>, which is measured in controlled clinical trials under ideal conditions. Policymakers prioritize effectiveness since it reflects practical results in population-level health systems.<\/p>\n<h2 style=\"text-align: justify\">3.4 Applying Cost and Effectiveness in Decision-Making<\/h2>\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">Because healthcare resources are finite, decision-makers must evaluate trade-offs between cost and effectiveness:<\/p>\n<ul style=\"text-align: justify\">\n<li class=\"import-NormalWeb\">A treatment that costs less while providing equal or better health outcomes is<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">more cost-effective<\/strong>.<\/li>\n<li class=\"import-NormalWeb\">Economic evaluation ensures that<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">the greatest possible health benefits are achieved within budget constraints.<\/strong><\/li>\n<\/ul>\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">This process supports transparent and rational policy choices, guiding governments and institutions toward investments that improve population health at sustainable costs.<\/p>\n<h2>3.5 Understanding the Incremental Cost-Effectiveness Ratio (ICER)<\/h2>\n<p class=\"import-NormalWeb\">The ICER is a central concept in economic evaluation. It is calculated as:<\/p>\n<p class=\"import-NormalWeb\"><img decoding=\"async\" src=\"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-content\/uploads\/sites\/250\/2025\/08\/image1.png\" alt=\"image\" width=\"601.733333333333px\" height=\"78.8666666666667px\" \/><\/p>\n<p class=\"import-NormalWeb\">It expresses the additional cost required to gain one extra unit of health outcome (e.g., one QALY gained).<\/p>\n<h3>Interpretation:<\/h3>\n<ul>\n<li class=\"import-NormalWeb\" style=\"text-align: justify\">If the ICER is<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">below the willingness-to-pay (WTP) threshold<\/strong>, the intervention is considered<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">cost-effective<\/strong>.<\/li>\n<li class=\"import-NormalWeb\" style=\"text-align: justify\">If the ICER is<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">above the threshold<\/strong>, it is not considered a good investment.<\/li>\n<li class=\"import-NormalWeb\" style=\"text-align: justify\">Importantly, cost-effective \u2260 cost-saving. Some interventions may cost more but still provide value worth paying for.<\/li>\n<\/ul>\n<h2 style=\"text-align: justify\">3.6 <strong data-start=\"433\" data-end=\"501\">Interpreting ICER: The Role of Cost-Effectiveness Thresholds<\/strong><\/h2>\n<p data-start=\"503\" data-end=\"867\">Once the ICER (Incremental Cost-Effectiveness Ratio) is calculated, it must be compared to a <strong data-start=\"596\" data-end=\"628\">cost-effectiveness threshold<\/strong> to determine whether an intervention offers good value for money.<br data-start=\"694\" data-end=\"697\" \/>The threshold represents the <strong data-start=\"726\" data-end=\"778\">maximum amount a society is willing to pay (WTP)<\/strong> for one additional unit of health gain, such as a <strong data-start=\"829\" data-end=\"866\">Quality-Adjusted Life Year (QALY)<\/strong>.<\/p>\n<h4 data-start=\"874\" data-end=\"917\"><strong data-start=\"879\" data-end=\"917\">WHO-Recommended Threshold Approach<\/strong><\/h4>\n<p data-start=\"918\" data-end=\"971\">According to the <strong data-start=\"935\" data-end=\"970\">World Health Organization (WHO)<\/strong>:<\/p>\n<ul data-start=\"972\" data-end=\"1224\">\n<li data-start=\"972\" data-end=\"1062\">\n<p data-start=\"974\" data-end=\"1062\"><strong data-start=\"974\" data-end=\"1002\">ICER &lt; 1\u00d7 GDP per capita<\/strong> \u2192 The intervention is considered <strong data-start=\"1036\" data-end=\"1059\">very cost-effective<\/strong>.<\/p>\n<\/li>\n<li data-start=\"1063\" data-end=\"1145\">\n<p data-start=\"1065\" data-end=\"1145\"><strong data-start=\"1065\" data-end=\"1101\">ICER between 1\u20133\u00d7 GDP per capita<\/strong> \u2192 The intervention is <strong data-start=\"1124\" data-end=\"1142\">cost-effective<\/strong>.<\/p>\n<\/li>\n<li data-start=\"1146\" data-end=\"1224\">\n<p data-start=\"1148\" data-end=\"1224\"><strong data-start=\"1148\" data-end=\"1176\">ICER &gt; 3\u00d7 GDP per capita<\/strong> \u2192 The intervention is <strong data-start=\"1199\" data-end=\"1221\">not cost-effective<\/strong>.<\/p>\n<\/li>\n<\/ul>\n<p data-start=\"1226\" data-end=\"1308\"><em data-start=\"1226\" data-end=\"1240\">For Malaysia<\/em>, with a GDP per capita of approximately <strong data-start=\"1281\" data-end=\"1295\">RM 120,000<\/strong>, this means:<\/p>\n<ul data-start=\"1309\" data-end=\"1575\">\n<li data-start=\"1309\" data-end=\"1409\">\n<p data-start=\"1311\" data-end=\"1409\">Interventions with an ICER <strong data-start=\"1338\" data-end=\"1367\">below RM 120,000 per QALY<\/strong> are considered <strong data-start=\"1383\" data-end=\"1406\">very cost-effective<\/strong>.<\/p>\n<\/li>\n<li data-start=\"1410\" data-end=\"1490\">\n<p data-start=\"1412\" data-end=\"1490\">Those <strong data-start=\"1418\" data-end=\"1464\">between RM 120,000 and RM 360,000 per QALY<\/strong> are <strong data-start=\"1469\" data-end=\"1487\">cost-effective<\/strong>.<\/p>\n<\/li>\n<li data-start=\"1491\" data-end=\"1575\">\n<p data-start=\"1493\" data-end=\"1575\">Above <strong data-start=\"1499\" data-end=\"1522\">RM 360,000 per QALY<\/strong>, interventions are generally <strong data-start=\"1552\" data-end=\"1574\">not cost-effective<\/strong>.<\/p>\n<\/li>\n<\/ul>\n<div class=\"textbox textbox--examples\">\n<header class=\"textbox__header\">\n<p class=\"textbox__title\">Examples<\/p>\n<\/header>\n<div class=\"textbox__content\">Malaysia may adopt a <strong data-start=\"1957\" data-end=\"1997\">WTP threshold of RM 120,000 per QALY<\/strong> \u2014 roughly equivalent to its GDP per capita \u2014 as a <strong data-start=\"2048\" data-end=\"2079\">benchmark for affordability<\/strong>.<\/div>\n<\/div>\n<h2 style=\"text-align: justify\"><strong data-start=\"1587\" data-end=\"1638\">Willingness-to-Pay (WTP) Threshold<\/strong><\/h2>\n<p data-start=\"1639\" data-end=\"1921\">Some countries use a <strong data-start=\"1660\" data-end=\"1692\">Willingness-to-Pay threshold<\/strong> instead of a GDP-based one. This approach reflects what the public or decision-makers are realistically willing to invest for a health gain, based on <strong data-start=\"1845\" data-end=\"1918\">local budget constraints, equity priorities, and societal preferences<\/strong>.<\/p>\n<div class=\"textbox textbox--examples\">\n<header class=\"textbox__header\">\n<p class=\"textbox__title\">Examples<\/p>\n<\/header>\n<div class=\"textbox__content\">If an intervention\u2019s ICER = <strong data-start=\"2133\" data-end=\"2155\">RM 85,000 per QALY<\/strong>,<br data-start=\"2156\" data-end=\"2159\" \/>and Malaysia\u2019s threshold = <strong data-start=\"2186\" data-end=\"2209\">RM 120,000 per QALY<\/strong>,<br data-start=\"2210\" data-end=\"2213\" \/>then the intervention is considered <strong data-start=\"2249\" data-end=\"2267\">cost-effective<\/strong>, as it provides health gains at a cost society is willing to pay.<\/div>\n<\/div>\n<h2 style=\"text-align: justify\">3.7 Cost-Effectiveness Plane<\/h2>\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">A graphical representation of costs (y-axis) against effects (x-axis):<\/p>\n<ul>\n<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Southeast quadrant:<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>Less costly, more effective \u2192<span class=\"import-apple-converted-space\">\u00a0<\/span><em class=\"import-Emphasis\">Dominant (best choice)<\/em><\/li>\n<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Northeast quadrant:<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>More costly, more effective \u2192<span class=\"import-apple-converted-space\">\u00a0<\/span><em class=\"import-Emphasis\">Cost-effective if below WTP threshold<\/em><\/li>\n<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Northwest quadrant:<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>More costly, less effective \u2192<span class=\"import-apple-converted-space\">\u00a0<\/span><em class=\"import-Emphasis\">Dominated (not recommended)<\/em><\/li>\n<li class=\"import-NormalWeb\" style=\"text-align: justify\"><strong class=\"import-Strong\">Southwest quadrant:<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>Less costly, less effective \u2192<span class=\"import-apple-converted-space\">\u00a0<\/span><em class=\"import-Emphasis\">Context-dependent<\/em><\/li>\n<\/ul>\n<p class=\"import-NormalWeb\"><img decoding=\"async\" src=\"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-content\/uploads\/sites\/250\/2025\/08\/image2.jpg\" alt=\"image\" width=\"426.666666666667px\" height=\"350.666666666667px\" \/><\/p>\n<p class=\"import-NormalWeb\">adopted from Briggs, A., &amp; Tambour, M. (2001). The design and analysis of stochastic cost-effectiveness studies for the evaluation of health care interventions.<\/p>\n<div class=\"textbox textbox--examples\">\n<header class=\"textbox__header\">\n<p class=\"textbox__title\">Examples<\/p>\n<\/header>\n<div class=\"textbox__content\">\n<p class=\"import-NormalWeb\">In Canada, the informal WTP threshold ranges between<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">CAD $50,000\u2013$100,000 per QALY gained.<\/strong><\/p>\n<\/div>\n<\/div>\n<h2>3.8 Summary<\/h2>\n<p class=\"import-NormalWeb\" style=\"text-align: justify\">Economic evaluation is an indispensable tool for health system decision-making. By balancing costs with outcomes, it ensures the<span class=\"import-apple-converted-space\">\u00a0<\/span><strong class=\"import-Strong\">best use of limited resources<\/strong><span class=\"import-apple-converted-space\">\u00a0<\/span>to maximize health gains. For health professionals, understanding these principles allows for evidence-based clinical and policy decisions that improve population well-being.<\/p>\n<div id=\"h5p-5\">\n<div class=\"h5p-iframe-wrapper\"><iframe id=\"h5p-iframe-5\" class=\"h5p-iframe\" data-content-id=\"5\" style=\"height:1px\" src=\"about:blank\" frameBorder=\"0\" scrolling=\"no\" title=\"Choose the Best Option \u2013 Cost vs Effectiveness.\"><\/iframe><\/div>\n<\/div>\n<\/div>\n","protected":false},"author":124,"menu_order":3,"template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-30","chapter","type-chapter","status-publish","hentry"],"part":3,"_links":{"self":[{"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/pressbooks\/v2\/chapters\/30","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/wp\/v2\/users\/124"}],"version-history":[{"count":13,"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/pressbooks\/v2\/chapters\/30\/revisions"}],"predecessor-version":[{"id":100,"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/pressbooks\/v2\/chapters\/30\/revisions\/100"}],"part":[{"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/pressbooks\/v2\/parts\/3"}],"metadata":[{"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/pressbooks\/v2\/chapters\/30\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/wp\/v2\/media?parent=30"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/pressbooks\/v2\/chapter-type?post=30"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/wp\/v2\/contributor?post=30"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/openbook.ums.edu.my\/introtohealtheconomics\/wp-json\/wp\/v2\/license?post=30"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}