Cost–Benefit Analysis and Health Care Evaluations
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Cost–Benefit Analysis and Health Care Evaluations

Robert J. Brent

Cost–benefit analysis is the only method of economic evaluation which can effectively indicate whether a health care treatment or intervention is worthwhile. This book attempts to build a bridge between cost–benefit analysis, as developed by economists, and the health care evaluation literature which relies on other evaluation approaches such as cost-minimization, cost-effectiveness analysis and cost–utility analysis.
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Chapter 7: Further Issues of Cost-Effectiveness Analysis

Robert J. Brent


7. Further issues of cost-effectiveness analysis 7.1 INTRODUCTION Although economists are unanimous in adopting discounting for costs, there is no such widespread agreement in the health care field for discounting effects. If costs are discounted and effects are left undiscounted, obviously C/E ratios would be radically altered. Even when discounting of effects is accepted, not everyone agrees that the discount rate on effects should be the same as that used for costs. The second section addresses these issues. From there we proceed to a second main theme, i.e., how do CEAs need to be conducted and interpreted when the values that we use for C and E are average ones that may come from a sample with a large amount of sampling variation? Our first task is to cover some background issues concerning these two themes. 7.1.1 When is Discounting Especially Needed? Discounting is particularly important for screening or preventative programs for which the costs are immediate, but the health effects are in the future. Otherwise, as Viscusi (1995) points out, discounting is important when health effects are cumulative (diet or exercise programs) and / or occur with a lag (cigarette smoking). Any major surgery has long-term effects that require discounting. Environmental effects affect future generations (e.g., Taxol used in treatment for cancer comes from the bark of Pacific Yew trees and thus the stock of these trees gets depleted when the Taxol drug is manufactured). Drug companies must...

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