REVIEW – December 2014

Evaluation of health economics: decision trees and Markov models

Authors: Eva Juus, Katrin Lutsar, Andres Võrk, Janek Saluse, Raul-Allan Kiivet

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The objective of this article is to provide an overview of economic modelling in health care. Economic evaluation in health care is a comparative analysis of alternatiive courses of action in terms of both costs and benefits. The four main economic evaluation methods used in medical decision making are cost-minimisation, cost-effectiveness, cost-benefit and cost-utility analysis. In economic analysis, costs are divided into direct and indirect costs. The (health) benefits can be measured in additional life years, avoided illnesses, quality adjusted life years, etc. In case available data on costs and benefits is limited, modelling is used to conduct the analysis.

The main modelling methods in evaluation of health economics are decision trees and Markov models. The decision tree is an appropriate method for modelling of diseases with distinct events that happen with a given probability within a limited time frame. Markov models are suitable for modelling diseases with an ongoing or variable risk over a long time.