Cost Effective

How to do cost-effectiveness calculations in a nutshell:

Noncompeting choice
Noncompeting choice cost effectiveness is when you have many possible options to choose from that are NOT mutually exclusive. Noncompeting choice cost effectiveness uses the average cost effectiveness. This means you simply divide the cost of the intervention by the benefit of the intervention.

For example:
Intervention QALY Gained (~DALY eliminated) Net Cost
A 50 $1000
B 3 $300
C 40 $1200

The average cost effectiveness = Net Cost/ Net Health Benefit = $/QALY (gained) or $/DALY (eliminated)

The average cost effectiveness of intervention A = Net Cost/ Net Health Benefit = $1000/50 QALYs = $20/QALY

Using this same means of calculation, the average cost effectiveness for intervention B is $100/QALY and the average cost effectiveness for intervention C is $30/QALY.

If we only have $2500 to spend on health interventions, which one of these health interventions which you fund first?

First, let's put them in order of average cost effectiveness:

Intervention QALY Gained (~DALY eliminated) Net Cost Average CE ($/QALY)
A 50 $1000 $20/QALY
C 40 $1200 $30/QALY
B 3 $300 $100/QALY

It looks like A should be covered first because it has the best (lowest) cost-effectiveness ratio compared to the other interventions (i.e. $20/QALY vs $30/QALY or $100/QALY). This would be a more efficient way of spending your money rather than starting with one of the other interventions that has a higher average cost-effectiveness ratio. What would come next if we still have money left over? C would be the next best intervention to cover followed by B if we still had any money left over.

Competing choice
However, in many instances, noncompeting choice is not the right way to compare interventions. Instead we may be faced with a situation where we have several alternatives but we can only choose one. This means our interventions are mutually exclusive (i.e. you can choose A