Concept Architecture
Concept
Theoretically, Average Cost-Effectiveness (ACE) is an economic measure that expresses the cost required to achieve one unit of health outcome for a single intervention. It is calculated by dividing the total cost of an intervention by its total health effect and provides an overall measure of efficiency without comparison to an alternative intervention. Average cost-effectiveness was historically used in economic evaluation but has largely been superseded by incremental cost-effectiveness analysis for healthcare decision-making because resource allocation decisions require comparison between competing alternatives.
Mathematically, average cost-effectiveness is represented as the ratio of total costs to total effectiveness. The resulting average cost-effectiveness ratio (ACER) estimates the average cost required to produce one unit of health outcome, such as a life-year gained, quality-adjusted life-year (QALY) gained or disease case prevented. Although straightforward to calculate, the ACER cannot determine whether one intervention provides better value for money than another because it ignores incremental differences between alternatives.
In practice, average cost-effectiveness is estimated using observed or modelled costs and health outcomes for a single intervention. It is commonly reported in descriptive economic analyses, programme evaluations and public health assessments. Within formal health technology assessment, ACERs are generally supplemented or replaced by incremental cost-effectiveness ratios (ICERs), which provide the information required for reimbursement and resource allocation decisions.
Purpose
Used to estimate the average cost required to achieve one unit of health outcome for a single intervention, providing a descriptive measure of economic efficiency.
Mathematical Formulae
Primary Formula
ACER = C / E
where:
- ACER = average cost-effectiveness ratio
- C = total cost of the intervention
- E = total health effect
Supporting Formulae
If effectiveness is measured in QALYs:
ACER = Total Cost / Total QALYs
If effectiveness is measured in life-years gained:
ACER = Total Cost / Life-Years Gained
Related Mathematical Methods
- Cost-Effectiveness Analysis
- Incremental Cost-Effectiveness Ratio (ICER)
- Cost-Utility Analysis
- Cost-Benefit Analysis
- Cost Analysis
- Decision-Analytic Modelling
Example
A vaccination programme costs �2,400,000 and is expected to generate 160 QALYs.
ACER = �2,400,000 � 160
ACER = �15,000 per QALY gained
This result describes the average cost of producing one QALY but does not indicate whether the programme represents good value compared with alternative interventions.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
| IFERROR | =IFERROR(B2/C2,0) | Calculates the average cost-effectiveness ratio while preventing division-by-zero errors. |
| SUM | =SUM(CostRange)/SUM(EffectRange) | Calculates the ACER for a programme or intervention. |
| ROUND | =ROUND(B2/C2,2) | Rounds the ACER for reporting. |
| LET | =LET(Cost,B2,Effect,C2,Cost/Effect) | Improves readability of ACER calculations. |
| SUMPRODUCT | =SUMPRODUCT(CostRange,WeightRange)/SUMPRODUCT(EffectRange,WeightRange) | Calculates weighted average cost-effectiveness across multiple population groups. |
VBA (Optional)
VBA can automate calculation of average cost-effectiveness ratios across multiple interventions and generate summary tables for economic evaluation reports.
Sources
- Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. Oxford University Press.
- Briggs A, Claxton K, Sculpher M. Decision Modelling for Health Economic Evaluation. Oxford University Press.
- Gold MR, Siegel JE, Russell LB, Weinstein MC. Cost-Effectiveness in Health and Medicine. Oxford University Press.
- NICE. Health Technology Evaluation Manual.
- ISPOR Good Practices for Cost-Effectiveness Analysis.
Related Concepts (2)
Library
Publications
1
Applied Methods of Cost-Effectiveness Analysis in Healthcare — Gray, Clarke, Wolstenholme & Wordsworth, 1st Edition ed., 2011 (Oxford University Press)
A practical, worked-example guide to conducting cost-effectiveness analysis, structured around outcomes, costs, modelling with decision trees and Markov models, and presenting results. Volume 3 in the Handbooks in Health Economic Evaluation series, developed from the University of Oxford course.
BookView source →
Frequently Asked Questions (6)
What is average cost-effectiveness?
A measure comparing an intervention's total cost to its total effect, without reference to an alternative comparator.
Source: Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. 4th ed. Oxford University Press; 2015.
How is average cost-effectiveness calculated?
Total cost is divided by total effect for a single option, giving a cost per unit of outcome computed without reference to any alternative. The implicit comparison is therefore with doing nothing, since both quantities are measured against a baseline of no intervention. Each option in a set generates its own figure independently, rather than being compared with the others. Because the comparison is with an absence rather than an alternative, the figure is generally more favourable than any incremental measure would be.
Source: Drummond et al. 2015
Why is average cost-effectiveness the wrong basis for choosing?
Because decisions are between alternatives rather than between an option and nothing, and what matters is the additional health the additional money buys relative to the next best available choice. Ranking options by their average figures can place them in a different order from the one their incremental performance implies, so a set of individually defensible decisions can produce an allocation yielding less health than an alternative costing the same. The consequence is that a set of individually defensible decisions can produce an allocation yielding less health than an alternative costing the same.
Source: Weinstein & Stason 1977
What error does average cost-effectiveness produce?
It favours options achieving a small effect cheaply over options achieving a much larger effect for a moderate additional outlay, because the measure rewards a low cost per unit rather than the value of what the extra spending buys. A programme reaching many people with slight benefit therefore dominates a ranking while an intervention producing substantially more health per patient is passed over. The distortion is systematic rather than occasional, which is why the measure is not used for choosing between mutually exclusive options.
Source: Karlsson & Johannesson 1996
When does average cost-effectiveness carry meaning?
Where the alternative genuinely is no intervention, which arises when a service is introduced where none exists, and where the options are independent rather than mutually exclusive so adopting one does not preclude another. It is also used descriptively to characterise the efficiency of an established programme. Outside these circumstances it describes a comparison nobody is making. Even in those situations the figure should be reported alongside the incremental measure rather than in place of it, so that readers are not left to infer a comparison that was never made.
Source: Drummond et al. 2015
How does average cost-effectiveness relate to the incremental measure?
The incremental measure divides the difference in cost between two options by the difference in effect, answering what the additional health costs. The average measure is the special case where the comparator is no intervention, so the numerator and denominator happen to be totals. Correct analysis orders options by effect, discards those that cost more and achieve less, then calculates incremental ratios between the survivors.
Source: Gold, Siegel, Russell & Weinstein 1996
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Verified by Dr Darrin Baines
British health economist
Professional identity: darrinbaines.org
Verification date: 5 Aug 2025
Content version: 1.0.0
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- HE-EE-CEA-002
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