Recent Advances in the Methods of Cost-Benefit Analysis in HealthcareMatching 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.