The use and misuse of cost-effectiveness analysis

Cost-effectiveness analysis is indeed a necessary and useful tool to determine optimal resource allocation within the health field. Misuse of the simple CE ratio has however led to incorrect decisions. CE ratios cannot be correctly employed in the following instances: 1. (1) With regard to any program which will result in price changes especially of input factors in the economy; 2. (2) Whenever the total cost or the total quantity of outputs varies among projects; 3. (3) To calculate marginal changes in project size unless data specific to the project size is available, i.e. the planner cannot assume constant costs will prevail in expanding projects. The cost-effectiveness tool has clear advantages over the previously used and time consuming cost-benefit analysis. Not only does cost-effectiveness require less computation but it requires fewer assumptions concerning intangibles which tend to be concentrated on the benefits side. Lastly, this analysis has a useful duality in that any solution unambiguously tells you the least total cost of reaching a given outcome and simultaneously gives you the maximum output for that total cost sum of money.