Incremental Cost-Effectiveness Ratio (ICER)

An incremental cost-effectiveness ratio (ICER) is a key metric used to evaluate the economic value of a healthcare intervention compared to an alternative. It serves as a primary output in economic evaluations, summarizing the additional cost required to achieve an extra unit of health benefit with the new intervention.

The ICER is calculated using the following formula:

ICER = Difference in Total Costs (Incremental Cost) \ Difference in Health Outcomes (Incremental Effect)

This calculation provides a ratio that represents the ‘extra cost per extra unit of health effect’ for the more expensive therapy relative to the comparator. In the UK, the quality-adjusted life year (QALY) is commonly used as the measure of health outcome, allowing ICERs to be compared across different disease areas. Other healthcare systems may use different health outcome measures depending on their specific needs and preferences.

ICERs are particularly useful in decision-making when a new intervention is more expensive but also provides improved health benefits. Economic evaluations report ICERs to determine whether a new intervention represents an efficient use of resources. These ICERs are then compared against a predetermined cost-effectiveness threshold to decide if the new intervention should be adopted. If the ICER falls below this threshold, the new intervention is typically considered a cost-effective option.

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