Incremental cost-effectiveness ratio

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The incremental cost-effectiveness ratio (ICER) is an equation used commonly in health economics to provide a practical approach to decision making regarding health interventions. It is typically used in cost-effectiveness analysis. ICER is the ratio of the change in costs to incremental benefits of a therapeutic intervention or treatment.[1] The equation for ICER is:

ICER = (C1 – C2) / (E1 – E2)

where C1 and E1 are the cost and effect in the intervention or treatment group and where C2 and E2 are the cost and effect in the control care group.[2] Costs are usually described in monetary units while benefits/effect in health status is measured in terms of quality-adjusted life years (QALYs) gained or lost.[3]


ICER provides a means of comparing projects or interventions across various disease states and treatments. As seen in the equation above, a ratio is created with the units of cost per benefits/effect unit. By using this ratio, comparisons can be made between treatment modalities to determine which provides a more cost-effective therapy. ICER studies thus provide an opportunity to help contain health care costs without adverse health consequences.[4] They also provide to policy makers information on where resources should be allocated when they are limited.[5] As health care costs have continued to rise, many new clinical trials are attempting to integrate ICER into results to provide more evidence of potential benefit.[6]


Many people feel that basing health care interventions on cost-effectiveness is a type of health care rationing and have expressed concern that using ICER will limit the amount or types of treatments and interventions available to patients.[5] Currently, the National Institute for Health and Care Excellence (NICE) of England’s National Health Service (NHS) uses cost-effectiveness studies to determine if new treatments or therapies provide better value relative to the treatment that is currently in use. With the number of cost-effectiveness studies rising, it is expected for a cost-effectiveness ratio threshold to be established for the acceptance of reimbursement or formulary listing. However, there is currently no evidence that health care systems have determined such a threshold;[7] without such a standard, the interpretation of ICER analyses may not be uniform.

The concern that ICER may lead to rationing has affected policy makers in the United States. The Patient Protection and Affordable Care Act of 2010 provided for the creation of the independent Patient-Centered Outcomes Research Institute (PCORI). As part of its creation however, PCORI was not authorized to develop or use cost-effectiveness analysis studies. The Senate Finance Committee in writing PPACA forbade PCORI from using “dollars-per-quality adjusted life year (or similar measure that discounts the value of a life because of an individual’s disability) as a threshold to establish what type of health care is cost effective or recommended.”[8]


If a fictional treatment costs a total of £45,000 at today's value and increases a person's quality of life (QoL) from 0.5 to 0.6 for the remainder of their life from age 70 and onwards, and their expected lifespan increases from 73 to 75.

The total QALYs without the treatment are: 3 years * 0.5 = 1.5 QALYs

The total QALYs with the treatment are: 5 years * 0.6 = 3 QALYs

So the treatment is associated with a gain of 1.5 QALYs and a cost of £45,000.

The ICER will then be £45,000/1.5 = £30,000 per QALY.


  1. ^ Folland S, Goodman AC, Stano M. Chapter 4: Economic Efficiency and Cost-Benefit Analysis. In: The Economics of Health and Health Care. 6th Edition. 2010. Prentice Hall: Boston, MA.
  2. ^ What is the incremental cost-effectiveness ratio (ICER)? GaBI Online. [1]. Accessed 20 March 2012.
  3. ^ Primer on Cost-Effectiveness Analysis. Effective Clinical Practice, September/October 2000. [2]. Accessed 20 March 2012.
  4. ^ Orszag PR, Ellis P. Addressing rising health care costs—A view from the Congressional Budget Office. N Engl J Med, 2007; 357:1885–1887.
  5. ^ a b Cost-effective Medical Treatment: Putting an Updated Dollar Value on Human Life. Knowledge@Wharton, 30 April 2008. [3]. Accessed 20 March 2012.
  6. ^ Ramsey S, Willke R, Briggs A, Brown R, Buxton M, Chawla A, Cook J, Glick H, Liljas B, Petitti D, Reed S. Good research practices for cost-effectiveness analysis alongside clinical trials: The ISPOR RCT-CEA task force report. Value in Health, 2005; 8(5):521-533.
  7. ^ Eichler HG, Kong SX, Gerth WC, Mavros P, Jonsson B. Use of cost-effectiveness analysis in health-care resource allocation decision-making: How are cost-effectiveness thresholds expected to emerge? Value in Health, 2004; 7(5):518-528.
  8. ^ Wilkerson J. PCORI head vows not to do cost-effectiveness studies, but notes gray areas., 28 September 2011. Accessed 20 March 2012.