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Cost-Effectiveness and Cost-Benefit Analysis

Cost-Effectiveness and Cost-Benefit Analysis

Healthcare economic evaluation offers essential information to policymakers, health planners, and decision-makers regarding efficiently using scarce healthcare resources to maximize health benefits. Notably, economic evaluation plays a significant role in allocating scarce healthcare resources. It serves as a comparison tool for the costs and impacts of diverse healthcare interventions. Different healthcare facilities across the globe adopt various economic evaluation techniques. Some economic evaluation tools used by policymakers, health planners, and decision-makers to assess the cost and consequences of healthcare interventions include cost-effectiveness analysis, cost-benefit analysis, and cost-utility analysis (Dang et al., 2016). Despite the considerable benefits associated with these evaluation techniques, the most significant challenge experienced is the lack of substantial understanding of the current use of these methods in providing and acquiring healthcare. Accordingly, economic evaluation is an endorsed method for assessing healthcare costs and the impacts of alternative healthcare programs, services, and interventions. However, prospects for growth and development in healthcare economic evaluation are needed due to rapid healthcare inflations, intensifying rates of chronic disease infections, elderly population, and advanced technology implementation, which will require better economic efficiency within the healthcare systems. Although economic evaluation is widely utilized in medicine, its application in other healthcare sectors has gained popularity over the years. Therefore, economic evaluation in healthcare is more likely to become progressively essential in the future. Thus, the paper seeks to describe the meaning of economic evaluation and outline its importance in healthcare. Subsequently, the report will describe the cost-effectiveness and cost-benefit analysis, the two fundamental cost evaluation techniques used in healthcare. Hire our assignment writing services in case your assignment is devastating you.

Eventually, the paper aims to highlight the application of the two techniques in allocating healthcare resources.

Economic Evaluation Definition

 Economic evaluation comprehensively analyzes healthcare costs and the consequences of alternative healthcare programs, services, and interventions.

Typically, economic evaluation involves two key aspects (Cunningham, 2000): the overall cost and consequences of alternative healthcare programs and interventions. Second, decisions must be made in resource allocation. Although sometimes economic evaluation seems challenging to some clinicians, policymakers, and health planners, it aims to examine how scarce healthcare resources can offer maximum benefits (Cunningham, 2000). In recent years, economic evaluation has proved its significance in assessing the economic efficiency of healthcare programs and interventions. Specifically, economic evaluation offers essential techniques such as cost-effectiveness and cost-benefit analysis, now accepted tools for evaluating healthcare interventions. Any economic assessment method involves examining alternative programs and interventions’ healthcare benefits and costs.

Importance of Economic Evaluation in Healthcare

 Morris et al. (2012) explain why economic evaluation is essential in healthcare. The authors clarify that one of the importance of economic evaluation in healthcare is maximizing the benefits of healthcare spending on alternative programs and interventions (Morris et al., 2012). Furthermore, Morris et al. (2012) stated that economic evaluation aids in overcoming regional deviations in access to healthcare services and facilitates maintaining costs and managing demands (Morris et al., 2012). Economic evaluation is also critical in healthcare because it can offer essential information to help policymakers, health planners, decision-makers, and public health workers identify, examine, and compare the cost of a project with its impacts on maximizing population health. In most cases, economic evaluation is an essential tool that offers information to health planners and decision-makers to utilize scarce healthcare resources for maximum health gains effectively (Dang et al., 2016). As one of the most noticeable forms of healthcare economics, economic evaluation provides various techniques for comparing the overall costs and outcomes of diverse healthcare programs and interventions. Due to the scarcity of healthcare resources, economic evaluation plays a significant role when allocating resources to alternative programs. It ensures that the allocated resources are best utilized by comparing the opportunity costs of the alternative programs with the enhancement in healthcare due to the agenda under evaluation.

Cost-Effectiveness Analysis

Ideally, cost-effectiveness analysis is one of the traditional economic evaluation techniques widely used in the healthcare sector. Cost-effectiveness analysis helps policymakers, health planners, and decision-makers determine the best way to implement a healthcare program or intervention (Cunningham, 2000). This economic evaluation technique is usually adopted when healthcare programs or interventions vary in costs and success outcomes. Still, the health outcomes must be expected for both interventions. For instance, when comparing several diverse treatment options for health restorations, it isn’t the cheapest intervention that is of importance; the key is to identify the most effective treatment option based on cost per unit health impact.

Significantly, this healthcare economic analysis effectively examines the costs and consequences of provided healthcare programs, services, and interventions. Cost-effectiveness analysis compares one healthcare program to another by assessing the costs to attain a unit health effect from each program or intervention (Cunningham, 2000). However, cost-effectiveness analysis cannot be utilized to evaluate a single healthcare intervention. Besides, it may not be effective in comparing programs with numerous health outcomes (Cunningham, 2000). Despite these disadvantages, cost-effectiveness analysis helps policymakers, decision-makers, and health planners determine effective ways to allocate healthcare resources to attain more health benefits.

Cost-Benefit Analysis

 The cost-benefit analysis examines the costs and outcomes of health care programs in monetary terms such as pounds, dollars, etc. This economic evaluation approach is used when the health outcomes of two programs or interventions differ to help develop a standard reference for comparing health outcomes (Cunningham, 2000). Cost-benefit analysis varies from cost-effectiveness analysis in that the costs and healthcare benefits are depicted as the same unit. However, The approach has received several hindrances as some people consider placing monetary value on someone’s life or health relief problematic. When evaluating a healthcare program or intervention utilizing the cost-benefit analysis, an assumption that the alternative option is to do absolutely nothing (Cunningham, 2000).

Cost-benefit analysis is one of the most comprehensive economic evaluation techniques currently available. There are two fundamental approaches utilized in this method. First is the human capital method. The human capital method evaluates health improvement based on the individuals’ future earnings (Cunningham, 2000). The second is the willingness to pay way. This approach involves asking individuals how much they are willing to pay for a specific healthcare intervention (Cunningham, 2000). Although cost-benefit analysis has been utilized considerably in environmental matters, it is now gaining popularity in the healthcare sector. However, the approach may be ineffective in a society where people are not used to paying for various healthcare services.

Application of Cost-Effectiveness Analysis and Cost-Benefit Analysis in Allocation of Healthcare Resources

 Undoubtedly, healthcare resources are scarce, making resource allocation controversial. Over the years, healthcare has faced a significant problem associated with limited resources to meet the increasing health demands (Baltussen et al., 2009). As such, policymakers, decision-makers, and health planners must consider the following questions when allocating healthcare resources. First, is the allocation of resources effective? Second, does the distribution of healthcare resources have cost benefits?

I believe both cost-effectiveness and cost-benefit analyses can be applied in allocating healthcare resources to maximize the benefits of health programs and interventions. Specifically, cost-effectiveness analysis can help give resources to yield more health benefits. The application of cost-effective analysis in resource allocation enables allocating fewer resources to more cost-effective healthcare interventions (Phillips & Holtgrave, 1997). Subsequently, cost-benefit analysis facilitates effective decision-making in resource allocation by outlining the cost benefits associated with the allocated resources. More significantly, the cost-benefit study evaluates the financial benefits, such as earned revenue, due to the decision to give specific help to a project. Accordingly, cost-effectiveness analysis can be applied as an economic evaluation tool to address various efficiency problems when allocating scarce healthcare resources. This essential approach provides a way to compare the costs and health benefits of multiple healthcare programs and interventions. Cost-effectiveness analysis can be used alongside cost-benefit comments to aid policymakers, decision-makers, health planners, and public health practitioners in making effective decisions that facilitate allocating healthcare resources to attain maximum costs and health benefits.


Baltussen, R., Acharya, A., Antioch, K., Chisholm, D., Grieve, R., Kirigia, J., Torres-Edejer, T., Walker, D., & Evans, D. (2009). Cost-effectiveness and resource allocation (CERA) – directions for the future. Cost Effectiveness and Resource Allocation, 7(1), 14.

Cunningham, S. J. (2000). Economic evaluation of healthcare – is it important to us? British Dental Journal, 188(5), 250-254.

Dang, A., Likhar, N., & Alok, U. (2016). Importance of economic evaluation in health care: An Indian perspective. Value in Health Regional Issues, 9, 78-83.

Morris, S., Devlin, N., Parkin, D., & Spencer, A. (2012). Economic analysis in healthcare. John Wiley & Sons.

Phillips, K. A., & Holtgrave, D. R. (1997). Using cost-effectiveness/cost-benefit analysis to allocate health resources: A level playing field for prevention? American Journal of Preventive Medicine, 13(1), 18-25.


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Healthcare resources are scarce, and policymakers and health planners choose between alternative uses. Economic evaluation is essential when allocating scarce resources. Cost–benefit analysis, cost-effectiveness analysis, and cost-utility analysis are decision-making tools that help policymakers and planners examine healthcare costs and the consequences of alternative health programs, services, and interventions.

Cost-Effectiveness and Cost-Benefit Analysis

Cost-Effectiveness and Cost-Benefit Analysis

Prepare at least a 5-page overview of cost-effectiveness and cost–benefit analysis as decision-making tools for allocating health resources. Address the following:

  • Define economic evaluation and explain why it is important in healthcare.
  • Discuss cost-effectiveness analysis.
  • Discuss cost–benefit analysis.
  • Share your views on the application of the two approaches in resource allocation.

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