As an economic technique for evaluating specific projects or programs in the public sector, cost-benefit analysis is relatively new. In this paper, the theory and practice of cost-benefit analysis in general are discussed as a basis for considering its role in assessing technology in the health services. A review of the literature on applications of cost-benefit or cost-effectiveness analysis to the health field reveals that few complete studies have been conducted to date. It is suggested that an adequate analysis requires an empirical approach in which costs and benefits are juxtaposed, and in which presumed benefits reflect an ascertained relationship between inputs and outputs. A threefold classification of benefits is commonly employed: direct, indirect, and intangible. Since the latter pose difficulty, cost-effectiveness analysis is often the more practicable procedure. After summarizing some problems in predicting how technologic developments are likely to affect costs and benefits, the method of cost-benefit analysis is applied to developments of health systems technology in two settings-the hospital and automated multiphasic screening. These examples underscore the importance of solving problems of measurement and valuation of a project or program in its concrete setting. Finally, barriers to the performance of sound and systematic analysis are listed, and the political context of decision making in the public sector is emphasized.
A n appropriate starting point for examining the application of cost-benefit analysis to health care can be found in the work of Selma Mushkin (1958), work which is both in the mainstream of economics and in the vanguard o f health economics. In cost-benefit analysis the mainstream has meant a preoc cupation with the measurement (valuation) o f economic benefits. As seen by economists, the essential tasks in measuring benefits are these: avoid duplication in counting benefits; distinguish between real and pecuniary benefits and include only the former; find a market price or obtain a shadow price (an imputed price or an adjusted market price) for each set of benefits; and obtain their present value by discounting. A close reading of Mushkin s early writings on cost-benefit analysis suggests what appears to be a small deviation from the economics mainstream. She tended to minimize the use of a discount rate, citing for illustration health programs that yield returns rather promptly and over a short interval of a year or two. Under these circumstances the discount rate is immaterial (Mushkin and Collings, 1959). I am unable to determine from M ushkin's early writings whether she in tended to go further and do away altogether with the discount rate
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