Cost benefit analysis: health economic studies
How to use a cost benefit analysis to evaluate your digital health product.
This page is part of a collection of guidance on evaluating digital health products.
Cost benefit analysis (CBA) is one economic evaluation tool to compare the costs and effects of alternative interventions. CBA measures both costs and effects of interventions in monetary terms. This usually involves placing a monetary value on health benefits.
As all effects are converted to monetary values, CBA can consider non-health benefits together with health effects of the digital product. CBA studies often consider non-health benefits such as:
- cost savings (financial benefits)
- productivity gains (indirect benefits)
- wellbeing and convenience (intangible benefits)
For example, a digital product designed to promote activity among obese people may have the added benefit of improving work productivity and social relationships.
CBA studies allow decisions to be more explicit and transparent because costs and effects of different interventions are measured in the same unit. For example, if the intervention costs less than the value of health and non-health gains in monetary terms, then it clearly provides good value for money. If there are more than 2 competing interventions, then the intervention that provides the largest net value (difference between the costs and effects in monetary terms) is often recommended for use.
CBA is closely related to return on investment (ROI) tools, which allow you to estimate the net value generated by your product. For example, if the ROI value of your product was greater than £1 for every £1 invested in it, this would indicate that the value generated by your product was greater than its cost.
These tools are particularly useful for estimating the impact of interventions targeting prevention and early diagnosis (for example, these ROI tools developed for public health interventions)
What to use it for
Use a cost benefit analysis when:
- you want to evaluate whether your digital product is worth the investment compared with different products
- non-health benefits are an important component of the total effects of using your digital product
Pros
Advantages include:
- similar to cost consequence analysis, CBA can include non-health benefits – for example, your product may improve the quality and convenience of a particular health service
- decisions are explicit and transparent because costs and effects are measured in the same units
- as with cost utility analysis, CBA can inform resource allocation decisions across different healthcare settings
Cons
Drawbacks include:
- the value assigned to health or non-health benefits in monetary terms may differ according to individuals’ characteristics, such as their socio-economic status
- collecting data on individuals’ willingness to pay for a health gain is not straightforward
How to carry out a cost benefit analysis
You should follow the general considerations for any economic evaluation study. Some points are particularly relevant to CBA:
Choosing your study perspective
CBA typically considers a wide range of costs, whoever incurs them, and includes different types of health and non-health effects. This means a broad societal perspective is often the most appropriate viewpoint.
Valuing effects in monetary terms
There are several approaches for valuing effects in monetary terms. The choice of approach depends on the nature of the effect.
Financial benefits are valued using approaches that convert resource use into costs, as typically done in cost effectiveness analysis or cost utility analysis.
Earnings or productivity gains are often valued using salary rates based on the human capital approach. Essentially, this approach assumes an individuals’ life has a value equal to their production. For example, if a digital product improves an individual’s recovery from stroke, the added (indirect) benefit might be returning to work sooner, which can be valued in terms of earning gains.
Intangible benefits are typically valued using individuals’ stated preferences. This involves finding out how much individuals would be willing to pay for a health or non-health benefit. You can do this using interviews or questionnaires. For example, individuals can be presented with a hypothetical scenario, such as the risk of cardiovascular disease, and asked how much they would pay for a digital product that monitors cholesterol levels to reduce that risk. However, you may not need to conduct your own willingness-to-pay study if relevant estimates already exist.
Reporting the results
You can work out whether your product is cost-beneficial (the preferred choice) by comparing the difference between costs and effects in monetary terms (net value) of your product with alternative products. If your product generates the highest net value of the different options, then it provides the best value for the available resources and should be adopted.
Example: the ETHAN initiative
See Langabeer II and others (2017): Cost-benefit analysis of telehealth in pre-hospital care.
The Emergency Telehealth and Navigation (ETHAN) programme aimed to alleviate the pressure on emergency departments in Houston, USA. The study assessed how software to triage non-emergency cases and direct eligible patients to non-emergency primary care services, compared with a traditional model of straight referral to the local emergency department.
The primary outcome of the study was the number of admissions to emergency departments over a period of 12 months.
The CBA took a provider (Houston Emergency Medical Services) perspective. It excluded costs beyond those to the emergency services and effects other than financial benefits (cost savings).
Costs
These included resources associated with:
- emergency services staff who assisted and assessed patients at the scene
- emergency doctors who conducted the video calls with the eligible (non-emergency) patients
- hardware and software costs involved in the implementation of ETHAN
Effects
These included cost savings associated with:
- reduction in transport (ambulances) of emergency patients
- averted admissions to emergency departments
Monetary values of all these effects were based on local tariffs for emergency services.
The CBA found that ETHAN was less costly and provided significant benefits compared to the more traditional emergency services model. ETHAN was associated with a lower total cost of $103 per patient, and higher monetary benefits of $64 per patient. This resulted in a net monetary value (difference between the total costs and monetary benefits) of $167 per patient, or a total of $928,113 over the 12 months.
More information and resources
McIntosh and others (2010): Applied methods of cost-benefit analysis in health care (purchase required). This book provides a more comprehensive explanation of the methods used in cost benefit analysis, including the different approaches for valuing effects in monetary terms.
Stroetmann and others (2006): eHealth is worth it – the economic benefits of implemented eHealth solutions at ten European sites. This study reports on a number of evaluations of eHealth interventions across Europe using cost benefit analysis.