Clinical Review & Education
JAMA Guide to Statistics and Methods
Overview of Cost-effectiveness Analysis
Gillian D. Sanders, PhD; Matthew L. Maciejewski, PhD; Anirban Basu, PhD
Health care decision makers, including patients, clinicians, hospi-
tals, private health systems, and public payers (eg, Medicare), are
often challenged with choosing among several new or existing in-
terventions or programs to commit their limited resources to. This
choice is ideally based on a comparison of health benefits, harms,
and costs associated with each alternative. How best to determine
the optimal intervention is a challenging task because benefits,
harms, and costs must be weighed for a given option and com-
pared with alternatives.
One way to inform such decisions is to perform a cost-
effectiveness analysis. A cost-effectiveness analysis is an analytic
method for quantifying the relative benefits and costs among 2 or
more alternative interventions in a consistent framework. In a 2018
study published in JAMA Oncology, Moss et al1 examined the cost-
effectiveness of multimodal ovarian cancer screening with serum
cancer antigen 125 compared with no screening in the United States,
based on findings from the large United Kingdom Collaborative Trial
of Ovarian Cancer Screening (UKCTOCS). The UKCTOCS evaluated
the effect of screening on ovarian cancer mortality2 and demon-
strated that multimodal screening reduced mortality among women
without prevalent ovarian cancer.
The Use of Cost-effectiveness Analysis
Choosing among alternative treatments or programs is complicated
because benefits, harms, and costs vary in the following ways: (1) ben-
efitsmaybereflectedinvaryingpatternsofreducedmorbidityormor-
tality in patients; (2) interventions vary in price and also in costs of
acquiringorprovidingthem(eg,timecosts);and(3)benefitsandcosts
accrue differently to different constituents (patients, caregivers, cli-
nicians, health systems, and society). A cost-effectiveness analysis
is designed to allow decision makers to clearly understand the
tradeoffs of costs, harms, and benefits between alternative treat-
ments and to combine those considerations into a single metric, the
incremental cost-effectiveness ratio (ICER), that can be used to in-
form decision making when limited resources are available.
Description of Cost-effectiveness Analysis
Cost-effectiveness analysis is an analytic tool in which the costs and
harms and benefits of an intervention (intervention A) and at least 1
alternative (intervention B) are calculated and presented as a ratio of
the incremental cost (cost of intervention A − cost of intervention B)
and the incremental effect (effectiveness of intervention A − effec-
tiveness of intervention B). This ratio is known as the ICER.
The incremental cost in the numerator represents the additional
resources (eg, medical care costs, costs from productivity changes)
incurred from the use of intervention A over intervention B. The in-
cremental effect in the denominator of the ICER represents the ad-
ditional health outcomes (eg, the number of cases of a disease pre-
vented or the quality-adjusted life-years [QALYs] gained) through the
use of intervention A over intervention B.3
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QALYs are the most commonly used benefit measure in cost-
effectiveness analyses, in which the length of life is left unchanged
or adjusted downward to reflect the health-related quality of life.
Specifically, a quality weight of 1 indicates optimal health, 0 indi-
cates the equivalent of death, and weights between 0 and 1 indi-
cate less-than-optimal health. The weight for each period is multi-
plied by the length of the period to yield the QALYs for that period.
A primary rationale for using QALYs as a standard effective-
ness outcome in cost-effectiveness analyses is the ability for policy
makers to compare ICERs for various interventions across different
diseases when allocating scarce resources to the intervention(s) that
provide the greatest value for money. ICER values that are low sug-
gest that intervention A improves health at a small additional cost
per unit of health, assuming that A is both more costly and effec-
tive than B. If the ICER is negative, interpretation is more complex
because negative ICERs can result from negative incremental costs
(ie, the new treatment is less costly than the existing treatment) or
from negative incremental benefits (ie, the new treatment is less ef-
fective than the existing treatment). A new treatment is said to be
“dominant” if it is lower in cost and more effective than the com-
parator and is clearly of better value for money. However, the new
treatment is said to be “dominated” if it is higher in cost and less ef-
fective than the comparator and is not of good value for money.
Limitation in the Use of Cost-effectiveness Analysis
There are important qualifications to consider when reviewing a cost-
effectiveness analysis. What is considered cost-effective depends
on comparing the ICER to the threshold value (eg, $50 000 or
$100 000 per additional QALY) of the decision maker, which rep-
resents the willingness to pay for a unit of increased effectiveness
(eg, 1 QALY). The threshold helps to determine which interven-
tions merit investment. This willingness to pay is often repre-
sented by the largest ICER among all the interventions that were ad-
opted before current resources were exhausted, because adoption
of any new intervention would require removal of an existing inter-
vention to free up resources. There is no fixed threshold for cost per
QALY to determine what is cost-effective. Most decision makers do
not rely on a single threshold to determine investment decisions.
Cost-effectiveness analyses have numerous limitations, includ-
ing that available data may be drawn from heterogeneous popula-
tions, data on important outcomes may be unavailable, and that only
short-term outcomes may be available and long-term outcomes must
be extrapolated. Further, simplifying assumptions often must be
made about how to represent the health states associated with the
disease being studied that may not accurately represent the nu-
ance and complexities of the clinical setting.
In 2016, the Second Panel on Cost-Effectiveness in Health and
Medicine 4 recommended that all cost-effectiveness analyses
should include a discussion of relevant limitations and efforts to
compensate for the shortcomings of cost-effectiveness analyses.
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 Clinical Review & Education JAMA Guide to Statistics and Methods

The Second Panel also recommended that all cost-effectiveness
analyses should provide their findings from a health care sector
perspective, which would incorporate the costs, benefits, and
harms that are incurred by a payer, and from a societal perspective,
which would incorporate all costs and health effects regardless of
who incurs the costs or experiences the effects. To ensure that all
consequences to patients, caregivers, social services, and others
outside the health care sector are considered, the Second Panel
recommended use of an “Impact Inventory” that lists the health-
and non–health-related effects of an intervention. This tool allows
analysts to evaluate categories of effects that may be most impor-
tant to diverse stakeholders. Checklists for the various items that
should be included when reporting cost-effectiveness analysis
results were provided by the Second Panel.4
How Was the Cost-effectiveness Analysis Performed
in This Study
Moss et al evaluated the cost-effectiveness of a multimodal screen-
ing(MMS)programforovariancancerintheUnitedStatesfromahealth
care sector perspective (eg, Medicare).1 In a health care sector per-
spective, only costs, health benefits, and harms that were observed
by the health care sector are considered, and other costs, benefits,
and harms that may affect patients or their caregivers are ignored.4
The authors developed a Markov simulation model using data
from the UKCTOCS to compare MMS with no screening for women
beginning at 50 years of age in the general population. The model,
which involved a mathematical simulation that evaluated the
benefits of the screening strategies in hypothetical cohorts of
patients as they moved from one health state to the next, accord-
ing to transition probabilities, demonstrated that MMS was both
more expensive and more effective in reducing ovarian cancer mor-
tality than no screening.
Clinical effectiveness was estimated from the UKCTOCS trial es-
timates of the effects of MMS on ovarian cancer mortality, with ex-
trapolation of the long-term effects beyond the 11-year follow-up pe-
riod. Direct medical costs were estimated based on Medicare claims
data. Quality of life–related weights were included for the health
states of being cancer free, undergoing MMS screening, and hav-
ing ovarian cancer (incorporating lower weights for the chemo-
therapy and cancer stage).
How Should the Cost-effectiveness Analysis
Be Interpreted in This Study
In the main, base-case analysis, MMS screening with a risk algo-
rithm cost estimate of $100 reduced ovarian cancer mortality by 15%,
resulting in an incremental cost-effectiveness ratio of $106 187 per
QALY gained (95% CI, $97 496-$127 793). The authors explored the
uncertainty in the underlying parameters and found that screening
women starting at 50 years of age with MMS was cost-effective in
70% of the simulations at a willingness to pay of $150 000 per QALY.
If the willingness to pay were $100 000 per QALY, then screening
was cost-effective 47% of the time.
A cost-effectiveness analysis does not make the decision for pa-
tients, clinicians, health care systems, or policy makers, but rather
provides information that they can use to facilitate decision mak-
ing. A cost-effectiveness analysis is also not designed for cost con-
tainment. These analyses do not set the level of resources to be spent
on health care, but rather they provide information that can be used
to ensure that those resources, whatever the level available, are used
as effectively as possible to improve health. When reviewing cost-
effectiveness analyses, readers should examine the study and use
the recommendations from the Second Panel on Cost-Effective-
ness in Health and Medicine4 to help understand the implications
of cost-effectiveness analysis research.

ARTICLE INFORMATION
Author Affiliations: Department of Population
Health Sciences, Duke University School of
Medicine, Durham, North Carolina (Sanders,
Maciejewski); Duke Clinical Research Institute,
Duke University, Durham, North Carolina (Sanders);
Duke-Margolis Center for Health Policy, Duke
University, Durham, North Carolina (Sanders);
Center for Health Services Research in Primary
Care, Durham Veterans Affairs Medical Center,
Durham, North Carolina (Maciejewski); Division of
General Internal Medicine, Department of
Medicine, Duke University School of Medicine,
Durham, North Carolina (Maciejewski); The
Comparative Health Outcomes, Policy, and
Economics (CHOICE) Institute, Departments of
Pharmacy, Health, Services and Economics,
University of Washington, Seattle (Basu).
Corresponding Author: Gillian D. Sanders, PhD,
Duke University Medical Center, 100 Fuqua Dr,
Box 90120, Durham, NC 27710 (gillian.sanders@
duke.edu).
Section Editors: Roger J. Lewis, MD, PhD,
Department of Emergency Medicine, Harbor-UCLA
Medical Center and David Geffen School of
Medicine at UCLA; and Edward H. Livingston, MD,
Deputy Editor, JAMA.
Published Online: March 11, 2019.
doi:10.1001/jama.2019.1265
Conflict of Interest Disclosures: Dr Maciejewski
reported receiving research and center funding
(CIN 13-410) from the VA Health Services Research
and Development Service, receiving a contract for
research from the National Committee for Quality
Assurance, receiving research funding from the
National Institute on Drug Abuse (RCS 10-391),
and that his spouse owns stock in Amgen.
Dr Basu reported consulting for Merck, Pfizer,
GlaxoSmithKline, Janssen, and AstraZeneca as
an expert on issues related to cost-effectiveness
analysis. No other disclosures were reported.
REFERENCES
1. Moss HA, Berchuck A, Neely ML, Myers ER,
Havrilesky LJ. Estimating cost-effectiveness of a
multimodal ovarian cancer screening program in
the united states: secondary analysis of the UK
Collaborative Trial of Ovarian Cancer Screening
(UKCTOCS). JAMA Oncol. 2018;4(2):190-195. doi:
10.1001/jamaoncol.2017.4211
2. Jacobs IJ, Menon U, Ryan A, et al. Ovarian cancer
screening and mortality in the UK Collaborative Trial
of Ovarian Cancer Screening (UKCTOCS):
a randomised controlled trial. Lancet. 2016;387
(10022):945-956. doi:10.1016/S0140-6736(15)
01224-6
3. Neumann PJ, Cohen JT. QALYs in
2018–advantages and Concerns. JAMA. 2018;319
(24):2473-2474. doi:10.1001/jama.2018.6072
4. Sanders GD, Neumann PJ, Basu A, et al.
Recommendations for conduct, methodological
practices, and reporting of cost-effectiveness
analyses: Second Panel on Cost-effectiveness in
Health and Medicine. JAMA. 2016;316(10):1093-1103.
doi:10.1001/jama.2016.12195

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