Clinicians and policy makers are often required to make difficult decisions regarding which health technologies they use. Increasingly, government bodies, such as the National Institute of Health and Clinical Excellence (NICE) in the UK, produce national clinical guidelines and technology assessments to direct practice.1 These assessments often consider not only the benefits conferred by alternate treatment choices but also the costs.

It is vital that clinical practitioners have a clear understanding of why economic evaluations are needed, what the results of such evaluations mean, and how these findings can inform allocation decisions. We will begin by introducing key ideas and then illustrate these ideas with examples.

ECONOMIC EVALUATION

Central government or federally funded services must deliver health care within fixed and limited budgets (see box). Decisions made to spend money in one way will incur an opportunity cost in terms of investment in other health services that are foregone. For example, investment in a new cancer centre may mean that a new spinal rehabilitation centre is not set up. Alternatively, the delivery of an expensive treatment to one patient may mean that 10 other patients cannot be treated with a less expensive intervention.

In general, economic evaluation is the “comparative analysis of alternative courses of action in terms of both their costs and consequences.”2 In other words, an economic evaluation compares 2 or more …