Economic Evaluation of Health Programs: The Case for Cost Benefit Analysis

Abstract

Arrow’s (1963) seminal work on ‘Uncertainty and the economics of medical care’ laid the foundation of welfare economics analysis of health programs. An important area of health economics is the application of cost benefit analysis and its associated methodologies in project planning and economic evaluation of health policies and health programs. Economic evaluation in the area of reimbursement of pharmaceuticals attracts most attention. Cost benefit analysis estimates net social welfare changes as a result of a program or a policy, with social welfare being measured in terms of net benefits of the program. A body of literature exists in this area following Arrow’s (1963) seminal work (Drummond et al. 1997; Williams 1997; Carter and Harris 1999; jack 1999; Johannesson 2000; Carter 2001; Islam 2001; Brent 2003). However, there are significant limitations in the current literature. In order to improve its effectiveness and usefulness, economic evaluation of health programs requires adjustment based on normative social choice theory.