What is a cost-benefit analysis?

As a reminder, economic evaluation is the comparative assessment of alternative options based on the analysis of the differing costs and consequences in the utilisation of two or more health technologies. A cost-benefit analysis (CBA) is a form of economic evaluation that uses monetary units to measure or value the consequences of using a health technology, rather than natural units or generic units, such as a QALY or DALY. The use of monetary units allows for the inclusion of non-health benefits such as wellbeing and comparison across different programmes.

Cost-benefit analysis is based upon taking the sum of the overall costs of implementing the intervention and the monetary benefit (net value) and comparing these with those of a comparative intervention. The intervention providing the highest net value provides the best value.

Cost-benefit analyses are related to return on investment analyses and built on the foundation of traditional welfarist economics, where healthcare exists to improve welfare and as such decisions should be evaluated like other public or private initiatives. Whereas cost-effectiveness or cost-utility analyses are based upon principles of non-welfarist or extra-welfarist economic theory. The foundations of cost-benefit analyses mean they are commonly used in economic evaluation outside of healthcare, in areas such as transport and the environment.

The monetary valuation of consequences is based on revealed price – where a market exists. In a situation where a market doesn’t exist or there are intangible benefits, stated preferences are used to value benefits based on how much an individual would be willing to pay for the intervention. This is done via specific contingent valuation/willingness-to-pay studies where respondents participate in interviews or complete questionnaires (e.g. discrete choice experiments)

The advantages of a cost-benefit analysis are the ability to include aspects of health or non-health benefits, that may not be captured by measures of health-related quality of life or natural units of health. Additionally, as effects are measured in the same units they can help inform resource allocation across settings, as one would see for cost-utility analysis.

The disadvantages of a cost-benefit analysis are that different people may differently value benefits, based on factors such as their socioeconomic background and the collection of willingness-to-pay data can add complexity.

From an evidence perspective, like cost-utility and cost-effectiveness analyses, inputs for the costs of consumption are consistent, with the main difference being how consequences are valued. As highlighted above consequences require the use of revealed prices or stated preferences – which can be identified either through existing studies or via primary data collection. Where stated preferences are sought via contingent valuation/willingness-to-pay, one has to consider the complexities in the generation of this data. For example, is a respondent valuing a certain health outcome, an uncertain health outcome; is it a health intervention they are certain to use or not; furthermore is a benefit to include future healthcare cost savings or production gains and income effects? Other aspects that are important to consider are bias and precession within data generation, how data is validated and how relevant it is to the healthcare setting.

1. Briggs, A., Schulpher, M., & Claxton, K. (2006). Decision modelling for health economic evaluation. Oxford University Press.
2. Drummond, M., Sculpher, M.J., Claxton, K., Stoddart, G., Torrance, G., 2015. Methods for the economic evaluation of health care programmes, Forth. ed. Oxford University Press.
3. Office of Health Improvement & Disparities (2020) Guidance: Cost-benefit analysis – health economic studies. UK government – Crown Copyright. Accessed 25 June 2024
4. McIntosh, E et al. (2010) Applied methods of cost-benefit analysis in health care. First. ed. Oxford University Press.