BOOKS OF RtfiDIfGS - PAHO/WHO

- 356 -
Application of Cost-Benefit Analysis to Health Serices /
obtainng cost data and some notion of the link between inputs and outcomes from
pe~onal communications with clinicians and administrators. His threefold classification
of benefits-direct, indirect, and intangible-followed Mushkin and has beconm the
convention.
How such benefits are measured and valued, as well as an assessment of the current
state of the arts, will be given below. Both accomplishments to date, and possible
shortcomings in the accepted procedures will be presented.
Diúect Benefits
Direct benefits are that portion of averted costs currently borne which are associated
with spending for health services. They represent potential tangible savings in the use of
health resources. Certainly in the long run manpower not required to diagnose and treat
disease and injury does become available for other uses It is reasonable to suppose that
our economy, like others, has a vast variety of wants in the face of a totality of relatively
scarce resources, so that freeing resources for other, desired, objectives represents a
contribution to economic welfare.
In the absence of a specific program of services to be evaluated, the measure of direct
benefits is usually taken to be total resource costs currently incurred. The appropriateness
of this measure as a basis for policy is questionable, as indicated above. Nor is it helpful
to take some fraction of the total. In terms of resource use, diminishing marginal
productivity is likely to set in as a program expands beyond a certain point. In terms of
valuation of benefits, diminishing marginal utility is often a plausible assumption.
While it is usually taken for granted that direct benefits, or the current costs of care
that will be averted, can be measured with precision, this is true only when a firm
produces a single good or service, such as maternity care in a special hospital. In most
instances several goods or services are produced jointly. Under conditions of joint
production it is possible to calculate the extra or marginal cost for each product. but not
its average unit cost (10, pp. 44-45). When average unit cost figures are presented, they
reflect an allocation of overhead and joint costs; and such allocation is necessarily an
arbitrary accounting procedure, even where it is systematic and replicable. An alternative
procedure, which is no less arbitrary, is to assign to a diagnostic category its proportion of
total costs, with the proportion taken from the percentage distribution of patients or
services. In the absence of facilities that produce only a single product, it might be helpful
to analyze cost data for facilities with varying diagnostic compositions of patient load.
However, other factors are also at play, and there is no logical solution to the problem of
determining average cost under conditions of joint production of multiple outputs (18, p.
166).
Another complication, which affects the calculation of direct benefits and also of
indirect benefits, is the simultaneous presence of two or more diseases in a patient. The
presence of disease B when intervention is attempted in disease A serves to raise or lower
the costs of intervention and therefore the corresponding benefits (45). The reason that
indirect benefits, which represent gains in future earnings, are also affected is that the
presence of diseases A and B in a patient may reduce the probability of successful
outcome from the treatment of either. The effect is to overstate the benefits expected
from reducing the incidence of one or the other disease (51). The magnitude of this effect
is not known.