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Mcthodologic Articles
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APPLICATION OF COST-BENEFIT ANALYSIS TO THE
HEALTH SERVICES AND THE SPECIAL CASE OF
TECHNOLOGIC INNOVATION
Herbert E. Klannan
As an economic technique for evaluating apecific projecta or programa it the public
ctor, cost-benefit analysis is elatively new. In this paper, the theory and pra~ico of
costbenefit aalysis in general ue discussed as a bass for conssdcring ita role Jn ua~e . .
~tedoigy in the health §eicea A review of the literature on applications of
costbenefit or cost-effectiveness analysis to the health field reveals that few complete
stud~s have bcen conducted to date. It is suggestcd that an adequate analysis rtquiraes m
empirical approach in which costs and benefits ae juxtaposed, and in which presuaed
benefit reflect an ascertined relationship between inputs and outputs. A threefold
claufition of benefita is commonly employed: direct, indiect, and intangible. Since
the latter pose difficulty, cost-effectiveness analysis is often the more practicab
procedur. After summanzing some problems in predicting how technologic developments
me likely to affect costa and benefits, the method of cost-benefit analysu is
applied to developments of hcalth systems technology in two sttings-the hospital aud
automasted multiphasic screening These examples underscore the importance of solving
problems of measurement and valuation of a project or program in its concrete setting.
Finally, bain s to the performance of sound and systematic analysi are Usted, and the
political context of decision making in the public sector is emphasized.
The purpose of this paper is to discuss the application of cost-benefit analysis to the
assessment of technology in the health services. With the few exceptions that are noted,
the focus of this paper is on services, not research.
In carrying out this task, there is no substantial body of empirical research literature to
draw upon, analyze, and synthesize. Accordingly, the task will be approached in three
distinct steps. First, the theory and practice Of cost-benefit analysis in general will be
reviewed. Second, applications to the health field will be discussed. Third, the
potentialities and limitations of cost-benefit analysis for the assessment of health systems
technology will be suggested, using concrete illfstrations.
THEORY AND PRACTICE OF COST-BENEFIT ANALYSIS
As a formal and systematic approach to choosing among investments in public
projects, cost-benefit analysis is only a generation old. It derives from the marriage of
theoretical advances in the new welfare economics and the previously undernourished
public expenditures branch of public finance (1). In reviews of the cost-benefit literature,
few references are encountered that antedate 1958 (2-4). Most of the theoretical au well
This auie ia revisin of a paper presented at the Confer~nce on T~cinology and Hhadth COa
Systems in the 1980s it San Pranco in January 1972, aponsored by the Health Care System Study
Sction, Natial Center for lt Svis Rerh anud Development.
Inmtrntional Journl of Health Sevic~, Volunw 4, Number 2. 1974
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