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What Is a Cost-Benefit Analysis in Healthcare?

Mary McMahon
Updated May 16, 2024
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A cost-benefit analysis in healthcare is an assessment of the costs associated with a given medical treatment contrasted with the benefits for the patient or society at large. This is a component of health care economics, the study of economic factors that may play a role in decisions about medical treatment from patients, doctors, insurance companies, and public health agencies. Subjecting medical decisions to this type of analysis makes some patients uncomfortable, and it may be balanced with evidence-based medicine and other measures to determine whether a treatment should proceed.

One use for a cost-benefit analysis in healthcare is when limited resources are available and care providers want to use them efficiently to provide the greatest good to the greatest number. This comes up particularly markedly in triage, where care providers need to make snap decisions about who gets care and when. In the wake of a major train accident, paramedics and other personnel may decide not to exert substantial energy and effort on saving a person with serious and probably fatal energies if it means depriving multiple people of care that could help them survive, for example. In this case, the cost could be counted in resources and human lives, versus the marginal benefit of maybe saving one life.

Insurance companies routinely use cost-benefit analysis in healthcare to set policies and decide whether to approve claims. Many companies have blanket policies on general treatments, to either approve or deny them. If the cost is unacceptably high and the benefit is marginal or low, the company may deny treatment. In the event of an appeal, it can perform a more rigorous analysis of the situation. For example, a cancer patient who will die may not receive approval for a medication that adds two weeks of life, on the grounds that the drug is expensive and the benefit is minimal.

Hospitals and clinics can use cost-benefit analysis in healthcare to make policy decisions as well. An obligation to treat patients at serious risk of death is present in many regions, but hospitals can be selective about the kind of treatments they provide and how much support to offer to patients who cannot afford treatment. While hospitals and clinics want to promote health, they also don't want to go bankrupt expending resources, thus depriving the whole community of their services.

Individual patients can also use a cost-benefit analysis in healthcare, and some may find it helpful for making treatment decisions. A doctor can lay out a series of treatment options and their costs, not just in monetary terms but also in terms of side effects, potential complications, and risks. The patient can consider the benefits, like whether treatments will be curative, could extend life, or might offer a chance at survival while waiting for a better treatment to become available. Patients may opt out of high-cost, low-benefit treatments if they feel that the costs are simply not worth it to them.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By ysmina — On Jul 05, 2014

Is cost-benefit also an issue in countries with subsidized national health care? Or is it more of an issue in countries like the US with private health care?

By fify — On Jul 05, 2014

@fBoyle-- I see where you're coming from but when doctors decide to give a patient priority over another, I'm sure they don't do that because they value people differently.

Cost-benefit analysis is basically an issue of resources and resources are never unlimited. There is always an issue of lack of time, medical personnel or equipment. For example, if there is only one doctor available and one respirator, then the doctor will probably treat the person whom he believes has a higher chance of survival. If he treats the person who cannot be saved, than the other person may be lost as well.

These are not easy decisions but someone has to make them. I agree with you that life is priceless and doctors do their best to treat everyone.

By fBoyle — On Jul 04, 2014

I think that cost-benefit analysis in healthcare is morbid. How can doctors decide not to treat a patient with severe injuries predicting that the patient will probably not survive? I'm no expert on this topic, but I'm certain that this is not why these people went to medical school.

I think that all patients should be given priority. In fact, those with more severe injuries should be given more priority since their life is at greater risk. Equating the value of life with the value of money or resources is not very humane in my opinion. Life doesn't have a price, it's priceless.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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