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Theoretical Foundations of Medical Cost-Effectiveness Analysis

Theoretical Foundations of Medical Cost-Effectiveness Analysis

Implications for the Measurement of Benefits and Costs of Medical Interventions

(p.97) 2 Theoretical Foundations of Medical Cost-Effectiveness Analysis
Medical Care Output and Productivity
David Meltzer
University of Chicago Press

Increasingly, both private and public health care institutions in the United States are looking toward medical cost-effectiveness analysis as they consider complex resource allocation decisions concerning medical technologies. This chapter investigates the connection between the methods used in the most common form of medical cost-effectiveness analysis — that which utilizes quality-adjusted life years (QALYs) — and principles of welfare economics. It addresses two key issues concerning the link between welfare economics and cost-effectiveness analysis: the measurement of benefits and the measurement of costs, especially future costs, of medical interventions. After reviewing the historical origins and development of cost-effectiveness analysis based on QALYs, the chapter explores the use of revealed preference measures to assess the extent to which QALYs reflect patient preferences.

Keywords:   cost-effectiveness analysis, quality-adjusted life years, welfare economics, patient preferences, benefits, costs, medical interventions, health care

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