Incremental cost-effectiveness ratio
The incremental cost-effectiveness ratio (ICER) is a fundamental metric in health economics that evaluates the relative efficiency of medical interventions by dividing the difference in costs between two alternatives by the difference in their health outcomes, yielding the additional cost required per unit of incremental benefit, often measured in quality-adjusted life years (QALYs).[1][2] This ratio facilitates comparisons across treatments, enabling policymakers and payers to determine whether the added expense of a new intervention justifies its marginal health gains, with lower ICER values indicating greater value for money.[3][4] ICERs are calculated as ICER = \frac{C_1 - C_0}{E_1 - E_0}, where C_1 and C_0 denote the costs of the new and comparator interventions, respectively, and E_1 and E_0 represent their corresponding effectiveness levels, typically derived from randomized trials or modeling studies that account for both efficacy and quality-of-life impacts.[4][5] In practice, agencies such as the UK's National Institute for Health and Care Excellence (NICE) apply ICER thresholds—commonly £20,000 to £30,000 per QALY—to guide reimbursement decisions, prioritizing interventions below these benchmarks while scrutinizing those exceeding them for exceptional circumstances like end-of-life care.[3] Despite its ubiquity, the ICER has drawn criticism for statistical vulnerabilities, particularly in generating unreliable confidence intervals when incremental effectiveness is small relative to its variability, potentially leading to misguided policy conclusions, and for prompting debates over alternatives like net monetary benefit that avoid ratio-specific paradoxes.[6][7]Definition and Formula
Core Definition and Interpretation
The incremental cost-effectiveness ratio (ICER) quantifies the additional cost per unit of additional health benefit when comparing two interventions, typically a new treatment against a standard or no intervention. It is computed as the ratio of the incremental cost (\Delta C = C_1 - C_0) to the incremental effectiveness (\Delta E = E_1 - E_0), where subscript 1 denotes the new intervention and 0 the comparator.[1][8] Effectiveness E is commonly expressed in quality-adjusted life years (QALYs), though other natural units like life years gained or cases averted may be used depending on the context.[2] Interpretation of the ICER hinges on its position relative to a cost-effectiveness threshold, which represents the maximum willingness-to-pay for an additional unit of health benefit, often derived from per capita GDP or healthcare budget constraints. A positive ICER in the northeast quadrant of the cost-effectiveness plane—indicating higher costs and greater effectiveness—suggests the intervention may be cost-effective if below the threshold; for instance, the UK's National Institute for Health and Care Excellence (NICE) deems interventions with ICERs under £20,000 per QALY generally cost-effective, with higher values up to £30,000 requiring additional justification such as substantial innovation or equity impacts.[9][10] In the United States, thresholds around $100,000–$150,000 per QALY have been proposed by organizations like the Institute for Clinical and Economic Review (ICER).[11] Interventions in the southeast quadrant (lower costs, higher effectiveness) are dominant and unambiguously preferable, while those in the northwest (higher costs, lower effectiveness) are dominated and typically rejected.[12] The ICER facilitates prioritization in resource-limited settings by enabling ordinal ranking of options, though it assumes linear trade-offs and may overlook budget impacts or equity considerations unless explicitly incorporated. Negative ICERs arise when incremental costs and effectiveness move oppositely, signaling either extended dominance (reject if more effective but cheaper alternative exists) or challenges in interpretation requiring sensitivity analyses.[2] Thresholds are not universal; they reflect jurisdictional values, with lower thresholds in systems like the UK's National Health Service emphasizing fiscal prudence.[13]
Mathematical Formulation
The incremental cost-effectiveness ratio (ICER) is mathematically expressed as the difference in costs between two alternatives divided by the difference in their effectiveness measures.[8] This standard formulation, ICER = \frac{C_1 - C_0}{E_1 - E_0}, quantifies the additional cost required per unit increase in effectiveness when comparing a new intervention (subscript 1) against a baseline or comparator (subscript 0).[14] Here, C_1 and C_0 represent the total expected costs, including direct medical expenses, while E_1 and E_0 denote the expected health outcomes, such as quality-adjusted life years (QALYs) or life years gained.[2] The denominator E_1 - E_0 must be positive for the ICER to yield a finite positive value, assuming the new intervention provides greater effectiveness; otherwise, if the intervention dominates (lower cost and higher effectiveness), the ICER is conventionally undefined or interpreted as negative infinity, indicating unequivocal efficiency.[8] Costs and effectiveness are typically derived from decision-analytic models, clinical trials, or observational data, discounted to present value using rates like 3% annually to reflect time preferences.[2] Variations in notation may appear, but the core ratio remains consistent across health economics applications.[5]