Dying Too Soon: How Cost-Effectiveness Analysis Can Save Lives

Policy Reports | Health

No. 204
Saturday, June 01, 1996
by Tammy O. Tengs

Misconceptions About Cost-Effectiveness Analysis

Table II - Ten Life-Saving Interventions

"Cost-effective interventions do not necessarily affect large numbers of people."

Confusion often surrounds discussions of cost-effectiveness analysis. Some people wrongly believe that a health promotion intervention that is "cost-effective" actually saves money or is at least quite inexpensive. Others use the phrase "cost-effective" when they want to convey that an intervention is very effective or benefits a large number of people. Each of these uses leads to miscommunication and can result in bad health policy decisions.

The discussion below exposes four misconceptions related to cost-effectiveness analysis. It explains why cost-effective interventions do not necessarily affect large numbers of people, why they do not necessarily offer important survival benefits and why they are not necessarily low in cost. Further, it explains that, contrary to what common sense would suggest, we do not necessarily gravitate to the most cost-effective interventions. Some of the interventions referred to are summarized in Table II.4

Misconception #1: Cost-effective interventions affect large numbers of people. An intervention is not always more cost-effective simply because it affects large numbers of people. For example, compare the current practice of banning asbestos in brake blocks (the braking mechanism inside vehicle wheels) to protect exposed workers with the proposed policy of installating seat belts on school buses to protect children. Banning asbestos benefits only those few people exposed in the workplace, while school buses are ridden by millions of children each year. Yet at approximately $29,000/life-year saved, banning asbestos in brake blocks is far more cost-effective than installing seat belts at $2.8 million/life-year saved [see Table II]. This is, in part, because asbestos exposure is always hazardous, but fatal school bus accidents are quite rare.

Misconception #2: Cost-effective interventions are very effective. Cost-effective interventions are not necessarily those interventions which are most effective. For example, tripling the wind-resistance capabilities of new buildings to protect the occupants in the event of a hurricane would save an average of 4,616 life-years annually. Thus it could be said to be highly effective. However, because the $12 billion annual cost would be exorbitant, the cost per year of life saved would be $1.3 million. On the other hand, although sickle cell screening for black newborns saves fewer years of life -- 961 annually -- this intervention is much less costly and therefore relatively more cost-effective, at $236 per year of life saved.

"There is no relationship between what is cost-effective and what is implemented."

Misconception #3: Cost-effective interventions are low cost. Just as cost-effectiveness does not always imply that the benefits are high, it also does not always imply that the costs are low. For example, screening women for breast cancer every three years from the age of 50 to 65 and treating any cases discovered would consume $26.1 million in resources annually. Yet because mammography is relatively accurate in older women and treatment is effective when breast cancer is caught early, this intervention would save 9,764 years of life annually. Thus it is quite cost-effective at approximately $2,700 per year of life saved. In contrast, the cost of radionuclide emission control at surface uranium mines is much less at about $1 million annually. Yet the benefits are minuscule: only 0.24 years of life saved annually (or 1 year of life saved every 4 years). Thus the cost-effectiveness ratio is high at $3.9 million per year of life saved.

Misconception #4: Cost-effective interventions are more likely to be implemented. It seems reasonable to suppose that decision makers would implement those health promotion activities that yield the biggest bang for the buck. Yet for the 10 interventions in Table II, there appears to be no relationship between cost-effectiveness and implementation. Although the interventions in this table are arranged in order according to cost-effectiveness, the percent of people in the target population who actually receive the intervention (shown in the "Percent Implementation" column) reveals that there's no relationship. For example, when doctors counsel pregnant women to give up smoking, the counseling saves more money than it costs and improves the short- and long-term survival prospects of both mother and child. Of course a physician's time is expensive, and many smokers ignore their physicians' advice. But even taking these factors into account, cost savings occur because the lower cost of medical treatment for mother and child for those women who do quit successfully more than offsets the cost of physicians' time. Although this counseling saves money and has important health benefits, experts estimate that only 80 percent of pregnant women who smoke receive advice to stop smoking. In contrast, radionuclide emission control at elemental phosphorus plants has a cost-effectiveness ratio of $5.4 million per year of life saved. Despite the high cost-effectiveness ratio, this regulation is fully implemented.

Clearly, health promotion decisions are not currently based on cost-effectiveness. If they were, we could achieve a more economically efficient allocation of our limited health promotion resources, as described below.

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