CESifo Economic Studies Advance Access originally published online on August 12, 2006
CESifo Economic Studies 2006 52(3):500-512; doi:10.1093/cesifo/ifl011
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Cost-Effectiveness Analysis in the Health Sector when There is a Private Alternative to Public Treatment
In health economics, cost-effectiveness is defined as maximized health benefits for a given health budget. When there is a private alternative to public treatments, care must be taken when using cost-effectiveness analysis to decide what types of treatments should be included in the public program. The correct benefit measure is in this case the sum of health benefits to those who would not be treated without the public alternative and the cost savings to those who would otherwise choose private treatment. In the socially optimal ranking of treatments to be included in the public health program, treatments should be given higher priority the higher are costs per treatment for a given ratio of gross heath benefits to costs. (JEL: H42, H51, I18)
* Department of Economics, University of Oslo. PO Box 1095 Blindern, N-0317 Oslo, USA, e-mail: mihoel{at}econ.uio.no
Useful comments have been given by the participants at a seminar at the Ragnar Frisch Centre for Economic Research, in particular by Kjell Arne Brekke, and by Per-Olov Johansson and Albert Ma. Mathias Kifmann and other participants at a CESifo workshop have also given useful comments. I also thank two anonymous referees for their constructive comments to an earleir version of the article. I gratefully acknowledge financial support from the Research Council of Norway through HERO – Health Economic Research Programme at the University of Oslo.