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Health economics

Economic evaluations are used in the health care sector to evaluate the consequences of using alternative treatments in terms of costs and health gains. The purpose is to make informed decisions on which treatments to use, in order to achieve maximum health benefit given a constrained health care budget.

Cost effectiveness

In economic evaluations, two or more alternative treatments are compared in order to assess their cost effectiveness. The evaluations may for instance describe whether a new treatment that is more effective than an existing treatment is cost effective. The results are often presented as a cost per quality adjusted life year (QALY) gained (see the box on the right hand side). If the cost per QALY gained is below a certain threshold value, the new treatment is deemed cost effective.

A societal perspective is applied

Economic evaluations can be performed from various perspectives. In a health care perspective, only costs and effects directly linked to the health care system are taken into account.  A societal perspective also includes costs and effects outside the health care sector. In TLV´s health economic evaluations a societal perspective is applied.

Cost-effectiveness is weighted together with other principles

In Sweden, priority-setting decisions in the healthcare sector are based on an ethical platform with three basic principles. The three principles are:

  • The human dignity principle:  All individuals have equal value and rights regardless of their personal characteristics s and social function.
  • The needs-solidarity principle:  Health care resources should be allocated according to need (first be utilized where the needs are the largest).
  • The cost-effectiveness principle:  In choosing between different services or treatments one needs to strive for a reasonable relationship between costs and effects, measured in terms of improved health and quality of life.

Quality Adjusted Life Years (QALYs)

Quality Adjusted Life Years (QALYs) is a summary measure of health outcomes for economic evaluations, which incorporates the impact on both survival and quality of life. Since QALYs are a generic measure of health outcomes, it enables comparisons across different disease areas and populations.

QALYs are calculated by multiplying the duration of time spent in a health state by a quality of life weight (utility) associated with that health state. For instance, if an individual is in a health state for 5 years, where the health state has an associated utility of 0.5, this would generate 2.5 undiscounted QALYs (i.e. 0.5 QALYs multiplied by 5 years).