cost benefit analysis

Cost-Benefit Analysis

Introduction

  • Presenter: Lorenzo Villa Zapata, PhD
  • Course: PHRM6750_Pharm and US Health Care System Spring 2026

Definition and Purpose of Cost-Benefit Analysis (CBA)

  • Monetary Representation: Both outcomes and costs are converted to monetary units (dollars) in cost-benefit analysis.
  • Comparative Aspect: CBA enables the comparison of different types of interventions or entirely different businesses.
  • Challenges: Assigning reasonable costs or benefits in monetary terms can be troubling for some individuals.
  • Objective: CBA is utilized to determine whether the value of the outcome of an intervention or service outweighs the cost of performing that intervention or service.
  • Valuation: All values are quantified in monetary terms, essential for resource allocation from a budget to services or activities that can generate revenue or enhance a budgetary bottom line.

Historical Context

  • First Use: The first documented use of CBA in healthcare was to quantify the value of a vaccination program aimed at children in the 1960s.

Benefits of Cost-Benefit Analysis

  • Comparison of Programs: CBA allows for the comparison of multiple types of programs with differing outcomes, such as after-school activity programs versus smoking cessation programs or vaccination programs.
  • Decision-Making Flexibility: CBA provides a unique aspect in decision-making where the option to do nothing exists, unlike cost-minimization or cost-effectiveness analyses (CEA), where treatment options are presented to a patient requiring intervention.

Calculation in Cost-Benefit Analysis

  • Net Benefit: The net benefit is calculated as the difference between total benefits and total costs, derived from subtracting total costs from total benefits.
      - If Net Benefit > 0: The project is regarded as cost-beneficial.
  • Benefit-to-Cost Ratio: Calculated by dividing the total of all benefits by the total of all costs associated with the project.
      - If Benefit-to-Cost Ratio > 1: The project is also considered cost-beneficial.

Comparative Examples

  • Type of Programs Compared in CBA:
      - Vaccination program
        - Cost-effectiveness ratio: $100,000 per case prevented
        - Benefit-cost ratio: 2.4:1
      - Nutrition education program
        - Cost-effectiveness ratio: $30,000 per obese child avoided
        - Benefit-cost ratio: 0.5:1

References and Acknowledgment

  • Received: 16 April 2020
  • Revised: 30 April 2020
  • Accepted: 14 May 2020
  • DOI: 10.1111/jcpt.13195
  • Original Article: Benefit of Incorporating Clinical Pharmacists in an Adult Intensive Care Unit: A Cost-saving Study
      - Authors: Daniel Muñoz-Pichuante PharmD, BCCCP & Lorenzo Villa-Zapata PharmD, PhD