Application of Cost-Benefit Analysis to the Health Services and the Special Case of Technologic Innovation

Abstract

As an economic technique for evaluating specific projects or programs in the public sector, cost-benefit analysis is relatively new. In this paper, the theory and practice of cost-benefit analysis in general are discussed as a basis for considering its role in assessing technology in the health services. A review of the literature on applications of cost-benefit or cost-effectiveness analysis to the health field reveals that few complete studies have been conducted to date. It is suggested that an adequate analysis requires an empirical approach in which costs and benefits are juxtaposed, and in which presumed benefits reflect an ascertained relationship between inputs and outputs. A threefold classification of benefits is commonly employed: direct, indirect, and intangible. Since the latter pose difficulty, cost-effectiveness analysis is often the more practicable procedure. After summarizing some problems in predicting how technologic developments are likely to affect costs and benefits, the method of cost-benefit analysis is applied to developments of health systems technology in two settings-the hospital and automated multiphasic screening. These examples underscore the importance of solving problems of measurement and valuation of a project or program in its concrete setting. Finally, barriers to the performance of sound and systematic analysis are listed, and the political context of decision making in the public sector is emphasized.