Benefit-Cost Analysis in Disease Control Priorities, Third Edition

Excerpt

A variety of economic methods is used for analysis in the health sector. Other chapters in this volume summarize the findings from Disease Control Priorities (third edition) (DCP3) concerning cost-effectiveness analysis (CEA) and extended cost-effectiveness analysis (ECEA) (Horton 2018; Verguet and Jamison 2018). This chapter summarizes the findings concerning benefit-cost analysis (BCA).

BCA has long been used for the analysis of public policy. The U.S. Secretary of the Treasury first used it in 1808, and its use became mandatory for the U.S. Army Corps of Engineers in 1936. The U.S. Bureau of the Budget first issued guidelines for its use in 1952. Mills, Lubell, and Hanson (2008) suggest that BCA became less well used for analysis of malaria eradication around 1980, when CEA methods were becoming well developed. More recently, there has been a resurgence of interest in applying BCA to assess the viability of public investment programs and to set priorities among a list of interventions (Jha and others 2015; Ozawa and others 2016).

BCA tends to be relatively readily understood by the general public, because the private sector uses analogous concepts. However, BCA also tends to raise controversies because it assigns monetary values to outcomes (such as small changes in annual mortality probabilities) that cannot be monetized according to many individuals.

We observe that BCA and CEA in the health sector represent two distinct cultures. The metric for value in CEA can accommodate real health outcomes, such as child deaths averted, and aggregate measures, such as quality-adjusted life years (QALYs) or disability-adjusted life years (DALYs), as well as more granular measures, such as malaria cases correctly treated. When health benefits are measured in life years, both the ages of the individuals and their remaining life expectancies are implicitly factored into the analysis. In contrast, in BCA, health benefits are often measured in terms of the number of statistical lives; ages and remaining life expectancy of individuals are often not considered. BCA involves an additional step of assigning monetary value to health benefits; analysts are required to explicitly assume a certain relationship between the proportional change in this monetary value and the differences in countries’ income levels, namely, income elasticity. This factor is often not considered in CEA.

The choice of applying CEA or BCA to evaluate economic benefits depends on the type of outcomes produced by the health interventions. For some interventions, the main benefits include reduced mortality, improved quality of life, or reduced morbidity or disability. For these outcomes, CEA works well and allows comparisons with other health interventions. Many health interventions also affect future health care requirements; preventive interventions, in particular, can reduce future health care costs. In CEA, these future cost reductions can be subtracted from current costs of the intervention before comparing net costs to the health benefits.

Other interventions may improve health, but their key outcomes are more easily expressed in monetary terms. For example, supplementation or food fortification with iron or iodine produces modest health benefits in the form of reduced anemia and cretinism. However, the most pervasive benefits accrue via improved human capital—in this case, cognition and education—and thus BCA is more appropriate. The eradication of a disease, such as smallpox, improves health but can also save a substantial amount of money through elimination of future prevention and treatment costs. Hence, BCA may be the most effective way to provide evidence of and advocate for this as a policy intervention.

A third group of interventions undertaken in sectors outside health (for example, improvements in road safety, safety regulations for vehicles, or water and sanitation) are more naturally assessed by BCA methods. The investment decisions are made in sectors that are accustomed to using BCA, and the investments with health benefits are being compared to other investments with outcomes that are assessed by BCA. CEA is more frequently used for comparisons within the health sector; it has been refined for specific policy purposes, such as the decision whether to allow insurance coverage of a particular new drug, technique, health technology, or diagnostic test within a country, or for the prioritization of the use of donor funds when international assistance is involved. (For alternative approaches incorporating noneconomic considerations, see also Norheim and others 2017.)

BCA, CEA, and ECEA are complementary techniques; each has value in addressing specific circumstances or specific policy questions. This chapter summarizes the BCA findings from DCP3. It then examines the existing methods for valuing life and considers possible improvements and ends with concluding comments.