Most medical institutions have integrated Cost-Benefit analysis (CBA) as a crucial component in decision-making as far as project implementation is concerned. Most hospitals in the United States have therefore conducted CBA in their human resource department as well as procurement offices to ensure that the cost of public healthcare remains relatively low to ensure affordability to all citizens. The CBA is an innovative way of determining the most optimal costs for the medical facilities. The CBA method is used in recognizing calculating as well as assessing the benefits and costs of a given medical program or treatment method. In a medical context, CBA determines the effectiveness of the program when compared to other treatment methods by deducting the benefits from costs (Muennig & Bounthavong, 2016).
The CBA involves converting the costs and benefits regarding dollars based on their existing value. Next, the analyst will formulate the cost-benefit ratios (Costs: Benefit) for alternative programs. Lastly, the organization chooses the program that has the highest value of the ratio. The major advantage of CBA includes simplicity of calculations (Muennig & Bounthavong, 2016). The CBA focuses on whether benefits outweigh cost or vice versa. In this regard, the analysts can evaluate different treatment scenarios in monetary terms and determine if they are suitable for implementation or not.
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Unfortunately, the simplicity of CBA can result in severe complications. First of all, the analyst must accurately forecast future costs and benefits from the treatment options (Muennig & Bounthavong, 2016). Hence wrong estimations result to inaccurate calculations leading to the implementation of the wrong treatment options resulting in huge financial losses. Moreover, the analysis faces measurement challenges since it involves quantifying health benefits of a given program. The process of converting qualitative benefits (such as patient recuperation is difficult) into quantitative data is difficult and impossible. Lastly, the CBA approach experienced data accuracy challenges especially because of changing external environments in future as well as interference of current market environment and interferences by government policies relating to medical care. Lastly, CBA does not take into consideration the future market expectations such as inflations since there is no evaluation of the time value for money (Russell, 2014).
Due to such limitations of the CBA, medical institutions have integrated other evaluation methods such as Cost-Effectiveness Analysis (CEA). The CBA measures ad compares the costs and benefits of different treatment programs in monetary terms; the CEA compares the expected outcomes and relative costs of different treatment programs as well as other medical services in which it is inappropriate to measure the health effects in monetary terms. The CEA is the ratio of the cost associated with a given treatment procedure or medical service to the medical gain associated with the treatment method.
In this regard, the medical gain includes the longevity of the patient’s life by reduction of the number of sick days, the premature version of other harmful symptoms and side effects as well as the improvement of the patient’s physical body structure and mental wellbeing. The most common outcome measure used as the numerator in the calculation of the CEA is the Quality Adjusted Life Years (QALY). The QALY is a generic index number that measures the impact of a given disease regarding morbidity, mortality, financial cost or other medical indicators (Russell, 2014).
The procedure of conducting the CEA of treatment programs is similar to that of the CBA in which the analyst will calculate the costs incurred in implementing each treatment as well as the appropriate medical gain (such as QALY). The analyst will after that calculate the CEA for each treatment program. Thirdly, the analyst will select the program having the highest CEA, as the most viable, and implement the program. The CEA approach is a better method of decision making as far as a project, and system evaluation is concerned in the medical field (Russell, 2014). CEA, therefore, provides better analysis into the technical aspects of human health care compared to CBA.
References
Muennig, P., & Bounthavong, M. (2016). Cost-effectiveness analysis in health: A practical approach . John Wiley & Sons.
Russell, L. B. (2014). The science of making better decisions about health: cost-effectiveness and cost-benefit analysis (No. 2014-06). Working Papers, Department of Economics, Rutgers, The State University of New Jersey.
