210608L - COST BENEFIT ANALYSIS (CBA)

Lecture to the Health Economics module of the Diploma of Clinical Research Coordinators by Omar Hasan Kasule Sr Professor of Epidemiology and Bioethics June 8, 2021

 

DEFINITION OF CBA

• CBA compares monetary costs with monetary gains.
• CBA measures the costs of an intervention and the benefits of the intervention in the same monetary units.
• CBA is about allocative efficiency
• CBA answers questions like ‘Is it worth achieving this goal?’
• Nett benefit = (Total benefit + averted costs) – total costs
• Nett benefit = Total benefit – (total cost + averted cost).

 

WHAT ARE THE COSTS?

• Hospital expenditures (wages, equipment, and supplies),
• Community expenditures like the cost of transport and lost wages
• Others like ambulance costs.

 

WHAT ARE THE BENEFITS?

• The human capital approach assumes that a healthy individual is an economic asset and his economic productivity (earnings) can be measured and can be attributed to the health intervention.
• The willingness to pay uses the health consumer as the judge of the worth of a specific intervention. The amount of money that a consumer in a free market situation is willing to pay for a specific health intervention can be used as a measure of the benefit of that intervention.
• The cost-savings approach computes the benefit of the intervention as the difference in health and other costs with intervention and without intervention.

 

DECISIONS RELATING TO CBA

• CBA is necessary for making efficient allocation decisions because resources are limited.
• The intervention is allowed to go ahead if benefits exceed costs.
• The intervention is stopped if costs exceed benefits.

 

PROBLEMS OF CBA

• It is not easy to achieve a complete identification of all relevant costs and benefits
• It is difficult to assign monetary values to benefits and some of the costs. What is the monetary value of health? What is the dollar value of intangibles like the value of life, suffering, and quality of life?
• It is not easy to determine the appropriate discount rate for projecting monetary values into the future.

 

USES OF CBA

• Evaluation (screening programs, alternative treatment procedures, and technology),
• Selecting policy alternatives. CBA has the advantage of comparing 2 or more interventions with different outcomes. For example, in the case of polio vaccination, the cost of the vaccination program is compared to the amount of money saved by not hospitalizing and taking care of polio victims.