Cost-Effectiveness and Cost-Benefit Analyses in Healthcare


The cost of health care has continued to rise year after the other which has led to escalating government health budget. This trend calls for cost-benefit and effective analyses to guide governments in resources allocation. Bryan and Jowett concur that health care systems have shown increased need to carry out cost-benefit analysis in the recent past; but real analysis is urgent now than ever before (2010, p.1502). This paper attempts to differentiate between cost-benefit analysis and cost-effective analysis in health care policies.

Cost-benefit Analysis

Cost-Benefit Analysis (CBA) is an economic approach used in decision making especially in business and government projects. The approach is used to assess whether a given program, policy, or project is worth undertaking in comparison with other available options. CBA is used to compare the total costs and benefits that are expected in every alternative. “CBA will show whether costs exceed benefits” (Harrison & Appleby, 2010, p.397).The cost and benefits are expressed in monetary terms to compare different options more effectively. According to Owens, Qaseem, Chou, and Shekelle (2011), CBA helps to compare the value of different projects (p.174). In health care, CBA is used in making health care decisions particularly in determining how different resources will be allocated in the sector as this underscores the appropriateness of a given project (Dowlatshahi, 2010, p.1361).

Cost- effective Analysis

Cost-Effective Analysis (CEA) is a special type of cost benefit analysis used to compare relative outcomes (effects) and costs of different projects, programs, or policies. The effects of two courses of action undertaken are expressed in monetary value after which comparison of the values is conducted in terms of outcomes and costs. Nailen (2009) asserts that, CEA will help to improve the efficiency of any system (p.10). This concept is used in management and planning of different types of projects. “CEA helps in making the right decision in management” (Russell, 2010, p.8). In health care, CEA is used to compare the costs and outcomes of different projects undertaken by the government in the health sector. The evaluations of outcomes and costs will point on the strengths and weaknesses of a given project, program, or policy thus direct government’s intervention. CEA is given inform of a ratio between gains and costs of a given project.

Example of cost-benefit and analysis in health care and proposals

The US health care department has undertaken several projects in an attempt to improve health care services. All these projects require a detailed analysis of the costs and benefits before implementation. For instance, there has been a cost-benefit analysis for carrying out immunization against measles, implementing electronic health records among others (Kumar & Bauer, 2011, p.119). An example of cost effective analysis is cost per Quality Life-Years (QALYs) used by world health organization, (WHO) to compare levels of health care in different countries (Nyman, 2011, p.6). I would propose a cost-effective program to develop the ICU systems of different hospitals where techniques that are more effective and operations will be adopted. This may involve the use of system engineers who have experience in this area (Hernandez & Mustapha, 2010, p.54). I would also propose a cost-benefit analysis program to evaluate costs and benefits of Hepatitis B treatment. As Post, Sodhi, Peng, Wan and Pollack (201, p.340) note, this disease, (Hepatitis B), causes so many deaths annually and it is therefore important to evaluate costs and benefits of its management for the effective adoption of the necessary intervention.


Cost-benefit analysis and cost-effectiveness analysis are closely related and they are used to evaluate the outcomes and costs of different policies. Both are applied in the health care system to improve the efficiency of the services provided.


Bryan, S., & Jowett, S. (2010). Hypothetical versus real preferences: results from an opportunistic field experiment. Health Economics, 19(12), 1500-1503.

Dowlatshahi, S. (2010). A cost-benefit analysis for the design and implementation of reverse logistics systems: case studies approach. International Journal of Production Research, 48(5), 1361-1380.

Harrison, A., & Appleby, J. (2010). Optimising waiting: a view from the English National Health Service. Health Economics, Policy and Law, 5(4), 395- 401.

Hernandez, J., & Mustapha, M. (2010). Systems Engineers Working with Physician Leaders. Physician Executive. 36(6), 50-54.

Kumar, S., & Bauer, K. (2011). The business case for implementing electronic health records in primary care settings in the United States. Journal of Revenue and Pricing Management. 10(2), 117-120.

Nailen, R. (2009). Higher efficiency-by how much? Electrical Apparatus, 62(7), 6-10.

Nyman, J. (2011). Measurement of QALYS and the welfare implications of survivor consumption and leisure forgone. Health Economics, 20(1), 6-11.

Owens, D., Qaseem, A., Chou, R., & Shekelle, P. (2011). High-Value, Cost-Conscious Health Care: Concepts for Clinicians to Evaluate the Benefits, Harms, and Costs of Medical Interventions. Annals of Internal Medicine, 154(3), 174-88.

Post, S., Sodhi, N., Peng, C., Wan, K. & Pollack, H. (2011). A Simulation Shows That Early Treatment of Chronic Hepatitis B Infection Can Cut Deaths and Be CostEffective Health Affairs. Health journal, 30(2), 340-343.

Russell, V. (2010). Whitehall policy assessments need to improve, says NAO. Public Finance, 8-14.

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