Concept Architecture
Concept
Theoretically, Cost Minimisation is an economic decision rule used when two or more healthcare interventions have been demonstrated to produce equivalent clinical outcomes, safety and quality of life. Under these conditions, economic theory indicates that the preferred intervention is the one that incurs the lowest total cost, since no additional health benefit is gained from the more expensive alternative.
Mathematically, cost minimisation compares the total costs associated with equivalent interventions. Because health outcomes are assumed to be identical, the analysis reduces to identifying the alternative with the minimum cost. The decision problem is therefore a constrained optimisation in which effectiveness is held constant while costs are minimised.
In practice, cost minimisation is implemented only after robust evidence has established therapeutic equivalence, usually through randomised controlled trials, systematic reviews or non-inferiority studies. Costs are measured using standard health economic costing methods and may include direct medical, direct non-medical and indirect costs according to the chosen analytical perspective.
Purpose
Used to identify the least costly intervention among clinically equivalent alternatives, support formulary and procurement decisions, evaluate generic substitution, compare equivalent service delivery models and improve the efficient allocation of healthcare resources.
Mathematical Formulae
Primary Formula
min C?
subject to
E? = E? = ? = E?
where:
- C? = total cost of intervention i
- E? = health outcome of intervention i
Supporting Formulae
Cost difference:
?C = C? ? C?
Decision rule:
Select the intervention with
min(C?)
Related Mathematical Methods
- Constrained optimisation
- Cost comparison
- Cost analysis
- Sensitivity analysis
- Deterministic modelling
- Probabilistic sensitivity analysis
Example
Two antibiotics have been shown through a non-inferiority trial to produce identical cure rates of 95%.
- Drug A total treatment cost = �120 per patient
- Drug B total treatment cost = �95 per patient
Cost difference:
?C = 120 ? 95 = �25
Because clinical outcomes are equivalent, Drug B is selected as the cost-minimising alternative, saving �25 per treated patient.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
| MIN | =MIN(B2:B6) | Identifies the lowest-cost equivalent intervention. |
| IF | =IF(B2=MIN($B$2:$B$6),""Preferred"","""") | Flags the cost-minimising option. |
| SUM | =SUM(C2:C20) | Calculates total intervention costs. |
| ABS | =ABS(B2-B3) | Calculates absolute cost differences between alternatives. |
| Data Table | Scenario analysis | Evaluates the impact of uncertainty in input costs. |
VBA (Optional)
Automate comparison of clinically equivalent interventions and generate reports identifying the lowest-cost option under multiple costing scenarios.
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.
- NICE. Health Technology Evaluation Manual.
- CHEERS 2022 Statement.
- Gold MR, Siegel JE, Russell LB, Weinstein MC (eds.). Cost-Effectiveness in Health and Medicine.
Related Concepts (2)
Institutional Perspectives (2)
- PBAC
Cost-Minimisation Where Non-Inferiority and Equivalent Safety Are Established
A cost-minimisation approach is appropriate where the therapeutic claim is non-inferiority (or superiority) with an equivalent or superior safety profile in both nature and magnitude, and the medicine costs the same or less; the comparison is then reduced to costs. The non-inferiority assumption must be well justified, and where adverse-effect profiles differ significantly a full economic evaluation is required instead.
Pharmaceutical Benefits Advisory Committee, Guidelines for Preparing a Submission to the PBAC, Section 3BView source → - NICE
Cost-Comparison Case Where Health Benefits Are at Least Equivalent
Where a technology is expected to provide similar or greater health benefits at similar or lower cost than technologies already recommended for the same indication, NICE may use a cost-comparison case rather than a full cost-utility analysis, focusing the appraisal on the cost difference while still requiring evidence that outcomes are at least equivalent.
NICE Health Technology Evaluations: The Manual (PMG36) (cost-comparison case)View source →
Frequently Asked Questions (6)
What is cost minimisation?
An approach to selecting among interventions already shown to produce equivalent outcomes, in which the choice reduces to the lowest-cost option.
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.
What is cost-minimisation analysis?
Cost-minimisation analysis is an approach to choosing among interventions already shown to produce equivalent outcomes, in which the choice reduces to selecting the lowest-cost option. Because the outcomes are taken to be the same, the analysis need only compare costs, and the cheapest option is preferred. It is a special case of economic evaluation that applies where effectiveness does not differ between the alternatives, so that value depends on cost alone.
Source: Drummond et al. 2015
When is cost-minimisation analysis appropriate?
It is appropriate only when the interventions compared have been shown to produce equivalent outcomes, so that the sole remaining difference is cost. This is a strong condition: equivalence must be established rather than assumed, ideally by evidence that the options do not differ in effect. Where outcomes may differ, cost-minimisation is not appropriate, and a method that weighs both cost and effect, such as cost-effectiveness analysis, is required instead.
Source: Drummond et al. 2015
Why must equivalence of outcomes be established for cost-minimisation?
Equivalence must be established because, if outcomes actually differ, choosing the cheapest option can sacrifice benefit that the comparison ignores. Assuming equivalence without evidence risks treating a less effective option as acceptable simply because it costs less. A failure to reject a difference in outcomes, for instance in an underpowered trial, is not the same as demonstrating equivalence, so cost-minimisation requires positive evidence that the options do not differ in effect before cost alone can decide.
Source: Drummond et al. 2015
What are the limitations of cost-minimisation analysis?
Its central limitation is that genuine equivalence of outcomes is rare and hard to demonstrate, so the conditions for using it seldom hold cleanly. Applying it where outcomes in fact differ understates the value of the more effective option. Because of this, cost-minimisation has fallen out of favour as a primary method, and analysts increasingly prefer to measure outcomes and use cost-effectiveness analysis, which does not depend on the assumption of equal effect.
Source: Drummond et al. 2015
How does cost-minimisation differ from cost-effectiveness analysis?
Cost-minimisation compares only costs, on the assumption that outcomes are equal, and selects the cheapest option, whereas cost-effectiveness analysis compares both costs and outcomes, expressing value as cost per unit of effect. Cost-effectiveness analysis is the general method, applicable whether or not outcomes differ, while cost-minimisation is the special case where they do not. Because equal outcomes are hard to establish, the more general method is usually preferred. Cost-minimisation survives mainly as a label for the situation in which effects have already been shown to be equal.
Source: Drummond et al. 2015
Trust Record
Verified by Dr Darrin Baines
British health economist
Professional identity: darrinbaines.org
Verification date: 21 Aug 2025
Content version: 1.0.0
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- Persistent URI
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- Term code
- HE-EE_EA-011
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