Mental health problems typically affect individuals in many ways and the detrimental impact is reflected in the large economic cost of these conditions. Cost can be divided into the direct effects of mental health problems that lead to service responses from care providers and the indirect effects, for example a reduced ability to work, study or to engage in recreational activities. As such, a plethora of agencies are frequently involved in providing care. Recent estimates have suggested that the total health and social care costs associated with mental health problems in England are £20 billion, with a further £29 billion and £51 billion due to lost employment and human costs, respectively [1]. Previously, McCrone et al. [2] demonstrated that of £23 billion service costs (including social care and support from families), around 17% could be attributed to care and treatment responses to schizophrenia, bipolar disorder and other psychoses.

Recognising that mental health problems have major economic impacts should encourage us to consider the ‘value for money’ of alternative interventions, treatments and services. Economic evaluations are crucial because the resources required to provide inpatient beds, psychological therapies, medication and other interventions could be used to treat different patients with mental health problems and indeed patients with other conditions (e.g. cancer, asthma and diabetes). Health care resources are limited in their supply and yet the demand for these resources is almost unlimited. This has always been the case, but is particularly important when countries are going through periods of economic austerity. Ensuring that economic evaluations are conducted in a way such that decision makers are able to organise care using the best available evidence is imperative.

The onset of psychosis in adolescence or early adulthood is associated with disruption of education, low rates of post-school training, poor educational outcomes, impoverishment of social life, poor social functioning, lower-than-average employment and marriage rates, and higher-than-average rates of receipt of disability pensions [3–8]. Other things being equal, the longer the duration of untreated psychosis, (DUP) the higher the rates of occupational inactivity and suicide [9, 10].

One response across many countries has been the development of early intervention (EI) services. Policy makers in England have generally been very supportive of EI and recommended that EI teams should be set up in each local mental health system to provide intensive support for young people who are developing a first episode of psychosis. What policy makers need to know is whether these teams are effective and cost-effective.

It is important to adopt a comprehensive perspective when considering the costs associated with EI services. Clearly, it is crucial to measure the costs of the EI team itself, but an evaluation should also measure the cost of inpatient care, other mental health services, general health care, care provided by social services, inputs from education agencies and contacts with the criminal justice system. Furthermore, family members or friends will also often provide care and support. This will usually be unpaid but it clearly carries an economic cost given that unpaid carer time can usually be used for other purposes. These are all direct service costs. The indirect costs associated with time taken off work or school/college, or reduced productivity whilst at work, should also be measured for individuals served by EI teams. By measuring such direct and indirect costs, it is possible to see whether the extra costs associated with EI teams are offset by reduced costs elsewhere in the system, whether they are unchanged, or whether in fact they are increased as a result of EI teams improving access to other forms of care.

A variety of methods are available for combining cost data with information on outcomes and evaluating different interventions or policies. The different types of analyses are distinguished according to the way in which outcomes are measured, and the choice between them depends crucially on the purpose of the evaluation.

This form of evaluation may be of especial relevance if the key question is how to provide appropriate care for a particular patient group, such as those with first-episode psychosis. Cost-effectiveness analysis requires that a single outcome measure be chosen and this will usually be condition-specific. For example, in an evaluation of EI it may be appropriate to use a measure of functioning or symptomatology, or the DUP. When comparing EI with an existing alternative like standard care, costs will be combined with the outcome measure so that the intervention that produces the greatest outcome improvement for every pound spent can be identified. Whilst cost-effectiveness is commonly used, it is not ideal for decision makers, including commissioners, who have to decide how to spend health care funds across many different areas.

There is an accumulation of evidence relating to the effectiveness of early detection (ED) and EI services. However, there have been fewer studies which have provided information on the relative cost-effectiveness of such services compared to the existing care. In the review that follows, we have included full economic evaluations (where costs are combined with outcomes), cost studies and studies which do not report costs but do provide relevant resource use information.