COST-BENEFIT ANALYSIS - A RESEARCH TOOL FOR EVALUATING INNOVATIVE HEALTH PROGRAMS

• NCJ Number: 58665
• Journal: Evaluation and The Health Professions Volume: 2 Issue: 2 Dated: (JUNE 1979) Pages: 129-154
• Author(s): J L BOOTMAN; C ROWLAND; A I WERTHEIMER
• Date Published: 1979
• Length: 26 pages
• Corporate Author: Sage Publications, Inc
• Publication Format: Article
• Language: English
• Country: United States of America

Annotation

IT IS RECOMMENDED THAT COST-BENEFIT ANALYSIS BE USED AS A MECHANISM TO EVALUATE INNOVATIVE HEALTH PROGRAMS. THIS MAY BE THE ONLY METHOD THAT WILL ENABLE HEALTH PRACTITIONERS TO COST-JUSTIFY THEIR SERVICES.

Abstract

COST-BENEFIT ANALYSIS CONSISTS OF IDENTIFYING ALL THE BENEFITS THAT WILL ACCRUE FROM THE PROGRAM IN QUESTION AND CONVERTING THEM INTO EQUIVALENT DOLLARS IN THE YEAR THEY WILL OCCUR. THIS STREAM OF BENEFIT DOLLARS IS THEN DISCOUNTED TO ITS EQUIVALENT PRESENT VALUE AT THE SELECTED INTEREST RATE. ON THE OTHER SIDE OF THE EQUATION, ALL COSTS OF THE PROGRAM ARE IDENTIFIED AND ALLOCATED TO A SPECIFIC YEAR AND AGAIN, THE COSTS ARE DISCOUNTED TO THEIR PRESENT VALUE AT THE SAME INTEREST RATE. THEN, THE PROGRAM WITH THE LARGEST PRESENT VALUE OF BENEFITS LESS COSTS IS THE BEST IN TERMS OF ITS ECONOMIC VALUE. THE APPLICATION OF COST-BENEFIT ANALYSIS TO HEALTH PROGRAMS HAS EVOLVED INTO THREE APPROAHCES: THE NATIONAL INCOME APPROACH, WHICH CONSIDERS THE QUESTION OF WHAT THE MONETARY BENEFITS ARE TO THE ECONOMY AS A WHOLE. SECOND, THE PRODUCTION RESOURCES METHOD WHICH MEASURES THE MONETARY IMPACT ON SOCIETY OF A SPECIFIC HEALTH PROGRAM IN TERMS OF MONETARY LOSS DUE TO DISABILITY AND DEATH. FINALLY, THE CONSUMPTION BENEFIT APPROACH WAS DESIGNED TO ACCOUNT FOR THE NONMONETARY BENEFITS OF HEALTH PROGRAMS. THE ECONOMIC BENEFITS OF A HEALTH PROGRAM ARE DEFINED AS THE REDUCTION IN COSTS REALIZED BECAUSE OF THE IMPLEMENTATION OF THAT PROGRAM. THE THREE COSTS ARE: DIRECT, OR ESTIMATIONS OF SAVINGS ON DIRECT COSTS; INDIRECT, THE POTENTIAL SAVINGS ON INDIRECT COSTS; AND INTANGIBLE WHICH CAN BE DESCRIBED AS THE PSYCHIC COSTS OF DISEASE SUCH AS THOSE INCURRED FROM PAIN, SUFFERING AND GRIEF. MOST OF THE COST-BENEFIT WORK OUTLINES VARIOUS METHODOLOGIES AND REQUIREMENTS TO CARRY OUT EVALUATIONS OF HEALTH PROGRAMS (KLARMAN, 1974A). NUMEROUS WORKS HAVE POINTED OUT THE DIFFICULTIES OF APPLYING COST-BENEFIT ANALYSIS TO THE HEALTH FIELD. ALTHOUGH COST-BENEFIT ANALYSIS IS A WIDELY DISCUSSED ANALYTICAL TECHNIQUE FOR EVALUATING INNOVATIVE HEALTH PROGRAMS, THERE IS A SHORTAGE OF THOROUGHLY DOCUMENTED APPLICATIONS IN LITERATURE. REFERENCES ARE INCLUDED. (STB)