A Survey of Recent Research in Health Economics

Abstract

The difference between these two often confused approaches is discussed by Weinstein and Stason [21]. Cost-benefit analysis must value all out comes, including human lives and quality of life, in dollar terms. On the other hand, a cost-effective ness analysis places priorities on alternative ex penditures without requiring that the dollar value of life and health be assessed. Health outcomes in cost-effectiveness analysis must be expressed in commensurate units but not necessarily in dollars. While it is obviously difficult to measure benefits with precision, it is not necessarily any easier to measure costs. Klarman [10] points out that while the ability to measure with precision is taken for granted, this is only true when a firm produces a single good or service. In the case of joint production, it is possible to calculate mar ginal cost for each product, but not its average cost. Changes in technology also introduce a heightened degree of uncertainty concerning future benefits and costs. Further complicating the question of are some of the very disturbing costs of being sick: pain, discomfort, and grief. None of these carries a price tag, and lack of these problems represents intangible benefits which accrue to patients, as well as their friends, relatives, and society at large. Often, humanitarians oppose cost-benefit analy sis because it sets a price on human life. Grosse [6] argues that this results from a misunderstanding of the true nature of as they are considered in decisionmaking. One does not measure the cost of saving a human life in dollars but rather in terms of alternative lives to be saved or other social values sacrificed. There are many possible ways to measure health benefits, such as reduction of disabling con ditions, reduction of premature death, or postpone ment of death. The inability to measure benefits in commensurable units means that while can still be measured and compared, judgments and political processes must be utilized to make the final choices. Despite the potential usefulness of cost-benefit analysis, many such studies remain uncompleted due primarily to lack of data, particularly data regarding benefits of past and existing programs and projects. Another pitfall in the use of cost benefit analysis is the tendency to regard the single number derived as a result (the cost-benefit ratio) as being more precise than it actually is. It must be remembered that all of the limitations noted above are contained in this final result Cost-benefit analy sis should be used with extreme care and full knowledge of its advantages and shortcomings. A higher value could be placed on the use of this analytical technique for health services if better and more complete data were available.