Economic evaluation. Part 1: Introduction to the concepts of economic evaluation in health care

Economic principlesCentral to the discipline of economics are the concepts of scarcity, choice and opportunity cost.Resources are scarce, thus every time we choose to use them in one way we give up the opportunity of using them in other ways, with the implication that priorities have to be set to guide resource allocation.Economic evaluation can be seen as a framework to assist in the optimal allocation of our scarce health care resources in order to maximise the health of society, by analysing the costs and benefits of alternative health care interventions. 2 Economic evaluation methods should therefore be seen as a 'decision-aiding' instrument but not the only instrument to guide allocation of scarce health care resources.It should also be noted that society may have other goals when allocating resources 3 such as equity or ethical issues, not only the goal of efficiency.This article begins by outlining the key issues arising in the identification and valuation of costs.The aim is to introduce the reader to the important concepts in costing, such as opportunity cost, discounting and sensitivity analysis.This is followed by a section outlining important concepts in the measurement and valuation of benefits or 'outcomes' in health care.Box 1 provides a glossary of the economic evaluation terms used in this article.The second article in this two-part mini-series will outline the frameworks used to bring these costs and benefits together.