What is the Incremental Cost-Effectiveness Ratio (ICER) and how is it interpreted in decision-making?

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What is the Incremental Cost-Effectiveness Ratio (ICER) and how is it interpreted in decision-making?

The idea behind the Incremental Cost-Effectiveness Ratio is to quantify value for money when choosing between two health interventions by linking what extra we pay to what extra health benefit we get. It is calculated as the difference in costs between the new option and the comparator, divided by the difference in their health effects, usually measured in QALYs: ICER = (Cost_new − Cost_old) / (QALY_new − QALY_old). This yields the extra cost per additional QALY gained. A lower ICER means you’re paying less for each extra year (adjusted for quality) of life, so the new option offers better value relative to the threshold society is willing to pay for a unit of health gain. Decision-makers compare the ICER to a willingness-to-pay threshold; if the ICER is below the threshold, the intervention is considered cost-effective, and if it’s above, it’s not. If the new option costs less and provides more health, it’s considered dominant and preferred. If it costs more and provides less health, it’s dominated and unlikely to be chosen. These ideas highlight why ICER is about incremental costs and incremental health benefits, not a simple product of cost and effect, not a ratio of adverse events to participants, and not the maximum price a payer would pay.

The idea behind the Incremental Cost-Effectiveness Ratio is to quantify value for money when choosing between two health interventions by linking what extra we pay to what extra health benefit we get. It is calculated as the difference in costs between the new option and the comparator, divided by the difference in their health effects, usually measured in QALYs: ICER = (Cost_new − Cost_old) / (QALY_new − QALY_old). This yields the extra cost per additional QALY gained.

A lower ICER means you’re paying less for each extra year (adjusted for quality) of life, so the new option offers better value relative to the threshold society is willing to pay for a unit of health gain. Decision-makers compare the ICER to a willingness-to-pay threshold; if the ICER is below the threshold, the intervention is considered cost-effective, and if it’s above, it’s not.

If the new option costs less and provides more health, it’s considered dominant and preferred. If it costs more and provides less health, it’s dominated and unlikely to be chosen. These ideas highlight why ICER is about incremental costs and incremental health benefits, not a simple product of cost and effect, not a ratio of adverse events to participants, and not the maximum price a payer would pay.

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