Recent Advances in the Methods of Cost-Benefit Analysis in Healthcare: Matching the Art to the Science

This paper outlines recent advances in the methods of cost-benefit analysis (CBA). Economic evaluations in healthcare can be criticised for, amongst other things, the inappropriate use of incremental cost-effectiveness ratios and the reporting of benefits in terms of cost savings, such as treatment costs averted. Many such economic evaluations are, according to the `scientific' definition, CBAs. The `balance-sheet' (or opportunity cost) approach is a form of CBA which can be used to identify who bears the costs and who reaps the benefits from any change. Whilst the next stage in a CBA, as defined in health economics, would require that all costs and benefits be valued in monetary terms, the balance-sheet approach, however, advocates that available monetary values can be augmented by other measures of cost and benefit. As such, this approach, which has a theoretical basis, is proposed as a practical prescription for CBA and highlights the notion that unquantified benefits are important and can be included within CBAs even when monetarisation is not possible. Recent methodological developments in monetary valuation for use in CBA are the development of the technique of willingness to pay, the use of conjoint analysis (CA) to elicit willingness-to-pay (WTP) values and advances in the debate on the inclusion of production gains in CBAs. Whilst acknowledging that there have been developments in each of these areas, it is claimed there has also been progress in using CBA as a framework for evaluation, as reflected by the balance-sheet approach. The paper concludes by stating that almost all types of economic evaluation have an element of the `cost-benefit' approach in them. The important issue is to focus on the policy question to be addressed and to outline the relevant costs and benefits in a manner which assists the evaluation of welfare changes resulting from changes in healthcare delivery. The focus should not be on moulding a question to fit a hybrid definition of an analytical technique.