Economic evaluation offers one way to help decision-makers with difficult decisions about how to use public and private resources – which are becoming increasingly scarce in some countries – so as to improve strategic decision-making, care practice and ultimately the lives of individuals affected by long-term care needs. It offers a structured, conceptually sound way to identify, measure and compare the costs and outcomes of two or more interventions or courses of action, and also (in some cases) a way to trade-off improvements in outcomes against increases in costs. (This section is adapted from Knapp and Kettunen (2017) and Knapp (1984).)

Two of the key questions that will frequently be asked when considering whether to recommend, commission or deliver a particular intervention are: does the intervention work, and is it worth it? (Here we us the term ‘intervention’ to refer to services, preventive strategies, specific therapies or configurations of support that are relevant to long-term care.) The ‘Does it work?’ question asks whether the intervention is effective in achieving outcomes (which are defined and discussed below), such as improving independence or wellbeing. If the answer to this first question is likely to be yes (i.e. the intervention appears to be effective, ideally because robust research has demonstrated that better outcomes are likely to be achieved), then the second question needs to be asked. The ‘Is it worth it?’ question asks whether the outcomes are worth the resources needed to achieve them. The second question is what an economic evaluation seeks to address. Both questions need to be answered by reference to a comparator: does the intervention ‘work’ better than the alternative (where the alternative could be ‘doing nothing’), and are the outcomes ‘worth it’ by reference to how the resources (money) could otherwise have been spent.

There are therefore three principal components to a cost-effectiveness evaluation: (a) two or more interventions that are being compared; (b) the outcomes of each of them; and (c) the costs associated with each of them.

Economic evaluations come in different forms: in health and social care contexts the most common are cost-effectiveness analysis, cost-utility analysis and cost-benefit analysis.