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Cochrane Corner: Economics and health care

Have you ever wanted to have a description of health economics that made some sort of sense to you? Bandolier has found a sensible description that is really helpful to people trying to get their brains around how clinical effectiveness and economic effectiveness can be brought together.

It comes from the Cochrane Collaboration handbook - and we found it on-line on the Internet, though it is also found in the printed version [1]. It is designed to help reviewers and economists to work together.

Making decisions

Decisions about health care often entail making trade-offs between the estimated benefits and the estimated harms and costs of the intervention. This can occur if the benefits and costs are both either higher or lower for one form of health care than for another.

Resources will always be limited. They should be used to provide equitably those forms of health care that have been shown in properly designed evaluations to be effective. The need for efficiency in health care, and other activities, arises from the fact that there will never be enough resources to satisfy human wants completely.


Given this notion of scarcity , if follows that use of resources for a given form of health care inevitably involves a sacrifice. That is, the health care system forgoes the opportunity to use the same resources in other beneficial activities. Consequently the economist measures cost in terms of the benefit that would be derived from using resources in their best alternative use.

Hence the economist's term, opportunity cost . This concept should be contrasted with a strictly financial concept of cost, which relates to the cash outlays for units of the resource. It is important for reviewers to bear in mind this important distinction when considering what data to collect about cost from trials. While economic and financial estimates of cost will sometimes coincide, this is frequently not the case.

Cost effectiveness

The cost-effectiveness of a particular form of health care can be defined as the ratio of the net change in health care costs to the net change in health outcomes. Following these definitions of cost and cost-effectiveness, it is possible to state what information economists require in order to perform cost-effectiveness analyses or other types of economic evaluations:
  • identification of all main event pathways that have distinct resource implications or outcome values associated with them
  • estimation of the probabilities associated with the main event pathways
  • descriptive data to enable the resource consequences associated with each pathway to be measured
  • descriptive data to enable the outcomes associated with each pathway to be valued

Event pathways

Event pathways represent substantively different health outcomes or processes. They consist of a clinical event, how that event is managed, the resources used to manage that event, subsequent events associated with either the event or how it is managed, and the cost of those resources.


These pages in the Cochrane handbook go on to give a straightforward account of how reviewers or others can construct simple clinical event pathways to enable them to perform an economic evaluation. It indicates which are the important events to be identified and the time scales to be examined, especially in follow up.

Great practical information, readable, and above all interesting. The main feature that shines through is that the economic analysis follows the clinical event - which is the way it should be.


  1. Preparing and maintaining systematic reviews (editor Andy Oxman). The Cochrane Collaboration handbook, 1994 VI 43-49.
  2. Also on the Internet at:

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