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Methods for the Economic
Evaluation of Health Care
Programmes
Methods for
the Economic
Evaluation of Health
Care Programmes
FOURTH EDITION

Michael F. Drummond
Professor, Centre for Health Economics,
University of York, UK

Mark J. Sculpher
Professor, Centre for Health Economics,
University of York, UK

Karl Claxton
Professor, Department of Economics and Related Studies and
Centre for Health Economics, University of York, UK

Greg L. Stoddart
Professor Emeritus, McMaster University, Hamilton, Canada

George W. Torrance
Professor Emeritus, McMaster University, Hamilton, Canada

1
1
Great Clarendon Street, Oxford, ox2 6dp,
United Kingdom
Oxford University Press is a department of the University of Oxford.
It furthers the University’s objective of excellence in research, scholarship,
and education by publishing worldwide. Oxford is a registered trade mark of
Oxford University Press in the UK and in certain other countries
© Oxford University Press 2015
The moral rights of the authors have been asserted
First edition published in 1987
Second edition published in 1997
Third edition published in 2005
Fourth edition published in 2015
Impression: 1
All rights reserved. No part of this publication may be reproduced, stored in
a retrieval system, or transmitted, in any form or by any means, without the
prior permission in writing of Oxford University Press, or as expressly permitted
by law, by licence or under terms agreed with the appropriate reprographics
rights organization. Enquiries concerning reproduction outside the scope of the
above should be sent to the Rights Department, Oxford University Press, at the
address above
You must not circulate this work in any other form
and you must impose this same condition on any acquirer
Published in the United States of America by Oxford University Press
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ISBN 978–0–19–966587–7 (hbk.)
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In memory of our friend and colleague, Bernie O’Brien
 Preface to the fourth edition

The first question in anyone’s mind reading the fourth edition of any book will be ‘What
has changed from previous editions?’ The most obvious change, in keeping with the
tradition we have maintained since the outset, is the addition of a new coauthor, Karl
Claxton. Like all those before him, Karl has questioned aspects of the work and pro-
voked changes which otherwise may not have been made.
The other change, of course, is that the field itself has moved on in the 10 years since
the last edition. The new edition reflects these changes. Chapters 5 and 6, on measuring
and valuing effects, reflect the growth in the literature on the measurement of health
gain and other benefits of health care. In addition, we include two new chapters (10 and
11) discussing the methods of evidence synthesis and characterizing uncertainty, given
their growing importance in economic evaluation.
However, considering the 28-year period since the original publication of the book,
the most fundamental change relates to the role of economic evaluation in health care
decision-making. Back in 1987 our emphasis was on explaining the methods used in
economic evaluations so that readers could critically appraise them and potentially
embark on their own studies. As the role of economic evaluation in decision-making
expanded we added a chapter on ‘Presentation and use of economic evaluation results’,
discussing the use of cost-effectiveness thresholds and the transferability of data from
one setting to another. However, in discussing the content of the fourth edition, we
realised that this was no longer sufficient because, owing to the international growth in
the use of economic evaluation, it has become apparent that the use of particular meth-
ods is best discussed in the context of the decision problem being faced.
Therefore, in this edition we have added two new chapters (2 and 4) which emphasize
that, in health care decision-making, it is important to be clear on what we are trying to
maximize (for example, health or welfare), the constraints that we face, and the import-
ance of opportunity cost. This enables us to give additional insights on the role of the
various analytic approaches, given the decision-making context. In essence, the choice
of methods and the use of study results are now integrated throughout the book, rather
than being discussed in separate chapters.
We hope that readers feel that the new edition represents an improvement on previ-
ous editions and that it leads to further advances in both methods and decision-making
processes in the future.
Michael F. Drummond Mark J. Sculpher
Karl Claxton George W. Torrance
Greg L. Stoddart
York, UK and Hamilton, Canada
 Acknowledgements

We would like to thank a number of people who have helped us in important ways
in developing the 4th edition of this book. The following individuals provided com-
ments and suggestions on draft chapters which greatly improved the book: Bernard
van den Berg, John Brazier, Tony Culyer, Catherine Claudius Cole, Richard Grieve,
Jonathan Karnon, Andrew Lloyd, Andrea Manca, Gavin Roberts, Marta Soares and
Beth Woods. Needless to say, none of the above are responsible for the final views
­expressed. Rita Faria and Sebastian Hinde helped develop the critical appraisal exer-
cises for Chapter 3. Gill Forder, Frances Sharp, and Gillian Robinson provided a range
of assistance in formatting and checking materials. We are grateful to all.
 Contents

List of abbreviations xii

1 Introduction to economic evaluation 1

1.1 Some basics 1
1.2 Why is economic evaluation important? 2
1.3 The features of economic evaluation 3
1.4 Do all economic evaluations use the same techniques? 5
1.5 Use of economic evaluation in health care decision-making 11
1.6 How to use this book 13
2 Making decisions in health care 19
2.1 Some basics 19
2.2 Informing health care choices 19
2.3 Requirements for economic evaluation 22
2.4 What is the purpose of health care interventions? 27
2.5 Concluding remarks 37
3 Critical assessment of economic evaluation 41
3.1 Some basics 41
3.2 Elements of a sound economic evaluation 41
3.3 Reporting guidelines for economic evaluation 61
3.4 Limitations of economic evaluation techniques 63
3.5 Conclusions 64
3.6 Critical appraisal of published articles 65
4 Principles of economic evaluation 77
4.1 Alternatives, costs, and benefits: some basics 77
4.2 Making decisions about health care 79
4.3 The cost-effectiveness threshold 83
4.4 Making decisions with multiple alternatives 98
4.5 Some methodological implications 106
4.6 Concluding remarks 116
5 Measuring and valuing effects: health gain 123
5.1 Some basics 123
5.2 Using health effects in economic evaluation 124
5.3 Measuring preferences for health states 133
x CONTENTS

5.4 Methods for measuring preferences 136

5.5 Multi-attribute health status classification systems with preference
scores 144
5.6 Mapping between non-preference-based measures of health and
generic preference-based measures 162
5.7 Whose values should be used to value health states? 164
5.8 Criticisms of QALYs 166
5.9 Further reading 170
6 Measuring and valuing effects: consumption benefits of health
care 181
6.1 Some basics 181
6.2 Assigning money values to the outcomes of health care
programmes 182
6.3 What might we mean by willingness to pay (WTP)? 187
6.4 Pragmatic measurement issues in willingness to pay (WTP) 194
6.5 Exercise: designing a willingness-to-pay (WTP) survey for a new
treatment for ovarian cancer 197
6.6 Other stated preference approaches: discrete choice experiments
(DCEs) 199
6.7 Valuation of health effects for health policy decisions 206
6.8 Further reading 211
7 Cost analysis 219
7.1 Some basics 219
7.2 Allowance for differential timing of costs (discounting and the
annuitization of capital expenditures) 241
7.3 Productivity changes 245
7.4 Exercise: costing alternative radiotherapy treatments 250
7.5 Concluding remarks 255
Annex 7.1 Tutorial on methods of measuring and valuing capital costs 258
Annex 7.2 Discount tables 262
8 Using clinical studies as vehicles for economic evaluation 267
8.1 Introduction to vehicles for economic evaluation 267
8.2 Alternative vehicles for economic evaluation 267
8.3 Analytical issues with individual patient data 288
8.4 Conclusions 305
8.5 Exercise 306
9 Economic evaluation using decision-analytic modelling 311
9.1 Some basics 311
9.2 The role of decision-analytic models for economic evaluation 312
9.3 Key elements of decision-analytic modelling 323
 CONTENTS xi

9.4 Stages in the development of a decision-analytic model 325

9.5 Critical appraisal of decision-analytic models 338
9.6 Conclusions 339
9.7 Exercise: developing a decision-analytic model 339
  Annex 9.1 Checklist for assessing quality in decision-analytic models 345
10 Identifying, synthesizing, and analysing evidence for economic
evaluation 353
10.1 Introduction to evidence in economic evaluation 353
10.2 Defining relevant evidence 353
10.3 Identifying and reviewing evidence 354
10.4 Synthesizing evidence 359
10.5 Estimating other parameters for economic evaluation 370
10.6 Conclusions 384
10.7 Exercise 384
11 Characterizing, reporting, and interpreting uncertainty 389
11.1 Some basics 389
11.2 Characterizing uncertainty 392
11.3 Is current evidence sufficient? 409
11.4 Implications for approval and research decisions 417
11.5 Uncertainty, heterogeneity, and individualized care 421
11.6 Concluding remarks 422
12 How to take matters further 427
12.1 Taking matters further 427
12.2 Further reading and key sources of literature 427
12.3 Planning and undertaking an economic evaluation 427
12.4 Expanding your network in economic evaluation 428
12.5 Looking to the future 429

Author index 431

Subject index 437
 List of abbreviations

AAA abdominal aortic aneurysm EDSS expanded disability status scale

AD Alzheimer’s disease ENBS expected net benefit of sample
AQoL Assessment of Quality of Life EORTC European Organisation for
(measure) Research and Treatment of
ARM age-related maculopathy Cancer
BSC best supportive care EVPI expected value of perfect
information
CABG coronary artery bypass grafting
EVSI expected value of sample
CCA cost consequences analysis; or
information
complete case analysis
GBD global burden of disease
CCyR complete cytogenetic response
GDP gross domestic product
CDR clinical dementia rating
GLM general linear models
CEA cost-effectiveness analysis
GORD gastro-oesophageal reflux
CEAC cost-effectiveness acceptability
disease
curve
HAQ health assessment questionnaire
CEAF cost-effectiveness acceptability
frontier HEED health economic evaluations
database
CER comparative effectiveness
research HMO health maintenance organization
CHEERS Consolidated Health HRQoL health-related quality of life
Economic Evaluation Reporting HTA Health Technology Assessment
Standards HTAi Health Technology Assessment
CI confidence interval International
CLT central limit theorem HUI health utilities index
CMA cost-minimization analysis HYE healthy-year equivalents
CRF case report forms ICD International Classification of
CRT cardiac resynchronization Diseases
therapy ICER incremental cost-effectiveness
CT computed tomography (scan) ratio
CUA cost­–utility analysis ISM individual sampling models
CV compensating variation ISPOR International Society for
Pharmacoeconomics and
DALY disability-adjusted life-year
Outcomes Research
DCE discrete choice experiment
IVF in vitro fertilization
DES discrete event simulation; or
MACE major adverse cardiac events
drug-eluting stent
MAR missing at random
DIRUM Database of Instruments for
Resource Use Measurement MCAR missing completely at random
DRG diagnosis-related group MCDA multi-criteria decision analysis
DVT deep vein thrombosis MEPS Medical Expenditure Panel
Survey
EC expected costs
 LIST OF ABBREVIATIONS xiii

MI multiple imputation PSA probabilistic sensitivity analysis

MI myocardial infarction PTO person trade-off
MMR major molecular response QALY quality-adjusted life-year
MNAR missing not at random QoL quality of life
NB net benefit RCT randomized controlled trial
NHB net health benefit SAVE saved young life equivalents
NHMS National Health Measurement SD standard deviation
Study SD strong dominance
NHS National Health Service (UK) SMDM Society of Medical Decision
NICE National Institute for Health and Making
Care Excellence (UK) SUIT stress urinary incontinence
NIHR National Institute for Health treatment
Research (UK) TAU treatment as usual
NMB net monetary benefit TTO time trade-off
NPV net present value UKPDS UK prospective diabetes study
OLS ordinary least squares VAS visual analogue scale
PBAC Pharmaceutical Benefits VPF value of a prevented fatality
Advisory Committee
WHO World Health Organization
PBC programme budget categories
WTA willingness to accept
PBS Pharmaceutical Benefits
WTP willingness to pay
Schedule
YHL years of healthy life
PRO patient-reported outcome
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