Incremental cost-effectiveness ratio (ICER)

Calculate the additional cost per additional unit of effect when comparing two interventions.

What is this for?

The incremental cost-effectiveness ratio is the central output of a cost-effectiveness analysis: the extra cost of the newer option divided by the extra benefit it delivers. It answers what you pay for each additional unit of health gained, and is compared against a willingness-to-pay threshold to judge value.

How to use it

Enter the total cost and the total effect for each of the two options. Costs and effects must be measured over the same time horizon and from the same perspective.
Effect is most commonly measured in quality-adjusted life years, but any consistent unit works.
Optionally enter a willingness-to-pay threshold to obtain a verdict and the net monetary benefit.

Worked example

A new therapy costs $35,000 and yields 4.0 QALYs; the standard of care costs $10,000 and yields 3.2 QALYs. Calculate the ICER against a $100,000 per QALY threshold.

Answer: ΔC = $25,000, ΔE = 0.8 QALYs. ICER = 25,000 ÷ 0.8 = $31,250 per QALY — well below a $100,000 threshold, so cost-effective at that threshold.

Clinical pearls & pitfalls

A negative ICER is uninterpretable as a ratio. It arises in the dominant and dominated quadrants, where the correct report is "dominates" or "is dominated" rather than a number.
ICERs are exquisitely sensitive to the denominator. A very small incremental effect produces an enormous ICER and wide uncertainty, which is why probabilistic sensitivity analysis is standard.
Willingness-to-pay thresholds are policy judgements, not scientific findings. The frequently cited $50,000 per QALY figure in the US has no formal basis and has not been adjusted for inflation since it entered circulation.
Cost-effective is not the same as affordable. A therapy can be cost-effective per patient and still have an unmanageable budget impact across a population.
Always check the perspective — payer, health system, or societal — and the time horizon. Changing either can reverse a conclusion.

Assumptions & limitations

A point estimate from deterministic inputs. Real analyses require probabilistic sensitivity analysis and cost-effectiveness acceptability curves to express uncertainty.
Does not discount future costs and benefits. Published analyses conventionally discount both, typically at 3% per year.
Assumes the two options are the only relevant comparators. With three or more, an efficiency frontier and sequential ICERs are required.
The QALY itself embeds contested value judgements about how health states are weighted, and is criticised for systematically undervaluing benefits to disabled and older populations.

References

Sanders GD, et al. Recommendations for conduct, methodological practices, and reporting of cost-effectiveness analyses: Second Panel on Cost-Effectiveness in Health and Medicine. JAMA. 2016;316(10):1093-1103.
Neumann PJ, Cohen JT, Weinstein MC. Updating cost-effectiveness — the curious resilience of the $50,000-per-QALY threshold. N Engl J Med. 2014;371(9):796-797.
Husereau D, et al. Consolidated Health Economic Evaluation Reporting Standards 2022 (CHEERS 2022). Value Health. 2022;25(1):3-9.