Economic analysis is an in-depth study of the relationship between costs, benefits and decisions. It is based on the deductive method of economic thought, advancing from general facts to assumptions and then to constructive theories.
The foundation of economic analysis is the principle of ceteris paribus, or “all other things being equal.” This means that all other factors influencing the decision or outcome must be held constant when analyzing the effects of a change in one factor on the decision or outcome. This is an important assumption because it allows the analyst to isolate the effect of the factor under study and not be confused by other influences.
Another key element of economic analysis is a societal perspective. This requires accounting for all costs and benefits of an intervention or program regardless of who bears them – payers, providers, the health care system, patients or their families, or the wider community. This is often referred to as cost-effectiveness or cost-utility analysis (Box 2).
It is common for economic analyses to include a cost-benefit comparison of alternative approaches. The outputs from such evaluations are typically expressed in monetary terms, either as cost per unit of impact or more commonly as net monetary benefit (Box 1). These values are an approximation of the potential realisable monetary benefits to patients and society of the benefits generated by an intervention. They should not be misinterpreted as actual realisable fiscal monetary benefits to payers.