Scandinavian Working Papers in Economics

HERO Online Working Paper Series,
University of Oslo, Health Economics Research Programme

No 2005:13: Cost-effectiveness analysis in the health sector when there is a private alternative to public treatment

Michael Hoel ()
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Michael Hoel: Department of Economics, Postal: P.O. Box 1095 Blindern, NO-0317 Oslo, Norway

Abstract: 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 costeffectiveness 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.

Keywords: Public health; cost-effectiveness

JEL-codes: H42; H51; I18

16 pages, June 7, 2009

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