Cost–Benefit Analysis and Health Care Evaluations, Second Edition
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Cost–Benefit Analysis and Health Care Evaluations, Second Edition

Robert J. Brent

Cost–benefit analysis is the only method of economic evaluation that can effectively indicate whether a health care treatment or intervention is worthwhile. In this thoroughly updated and revised second edition, Robert Brent expands the scope of the field by including the latest concepts and applications throughout all regions of the world. This book attempts to strengthen the link between cost–benefit analysis and the mainstream health care evaluation field, which is dominated by non-economists. The need to build a bridge between the two is more important than ever before, as the general understanding of cost-benefit analysis appears to have regressed.
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Chapter 3: Types of costs and their measurement

Robert J. Brent


We continue our analysis of costs within the context of CM and focus on how to measure these costs. We know that ‘cost’ means opportunity cost; but this cost comes in many forms, in particular, marginal, average, overhead, sunk and joint. It is MC cost that is most useful for evaluation purposes. However, often we have information only on AC. Worse still, we are usually faced with hospital or physician charges that may not even reflect AC. After presenting the main cost concepts, we examine the link between markets and costs. Market prices are often used to value resource inputs in health care. We shall see that only competitive market prices can be used for this valuation purpose. The next section examines in detail the relation between charges and costs, highlighting the use and misuse of the hospital cost-to-charge ratio. Then we explain the need for cost standardization when making any form of economic evaluation. The applications cover the two main cost components in health care: hospital and physician services.

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