Despite these protestations financial reporting and economic analysis has concentrated on the hospital as the accounting entity. An economic analysis provided by Kesteloot and Penninckx reveals how market forces can influence health service decisions in the new competitive environment. In comparing the cost of a traditional procedure with laparoscopic technology from the viewpoint of the hospital as the accounting entity it was found that the laparoscopic technique was the most cost-effective.
If the decision had been based on the surgical department as the accounting entity it would have led to the more expensive open procedure being performed due to the cheaper cost of operation. The higher variable costs beyond surgery are not considered as they would not impact on the financial performance of the surgical unit as accounting entity. This illustrates the fact that applying the accounting entity concept to hospital wide decisions may lead to decisions that are suboptimal from a social perspective just as treating surgical unit as accounting entity would lead to bad decisions due to failure to see the whole picture.
It seems to follow that what we need is an objective measurement that will seek to frame hospital-relevant decisions from a socio-economic perspective. This idea seems to have led to calls for the application of cost benefit analysis which seeks ‘to identify the alternative that will make the most efficient use of society’s scarce resources in promoting social objectives – i. e. that will provide the maximum net social benefits’.
2 This seems to be very close to the medical profession’s desire to justify decisions in terms of their social impact by incorporating aspects of the environment beyond the immediate hospital setting and should be found to be easily accepted by clinicians. This could be part of a comprehensive system in which financial decisions and choices are made by balancing the performance of the hospital against the benefits to society.
Cost-benefit analysis seeks to provide objective measures treating ‘costs as natural, universal artefacts rather than social and historical constructs’3. Cost benefit advocates go on to argue that it allows true costs to be identified, which can be used to rank medical activities for use in budget allocation decisions. It can also lead to identifying best practice at the hospital level and thus may have significant economic and social implications.
Cost benefit analysis could thus lead to improved, consistent provision of health care as medical professionals are thought to be altruistic and thus if they practice at substandard it is because they are uniformed. It was also thought that if consumers were aware of the cost benefit performance of hospitals, it would enhance the market mechanism and lead consumers to use higher quality, low cost providers and this would eventually push up overall quality. Alternatively, as has been done in UK the government can use the data to intervene and influence practice through incentive payments.
The widening of the decision making perspective could have the added benefit of reducing dysfunctions due to manipulation of accounting numbers and hospital processes. A wider perspective would identify the dysfunctions that arise as a result of actions to improve performance in one area. In recent times the use of cost-benefit studies to guide practice has come under attack as the production and distribution of these studies have been argued to demonstrate their greater ‘role as protectionist strategies’.
Cost-benefit studies appear to be highly subjective in their use of data and its major flaw appears to be that it is merely ‘intended to justify projects that the agencies wanted to undertake rather than designed to provide serious, critical analyses of their merits’. 4Therefore it appears to be failing its objective of delivering a monitoring technology to quality control bodies and payers so that they can ‘purchase value’ and ensure optimal practice. The
A major impetus for the implementation of cost-benefit analysis was the assumption that it would lead to resource allocations which are untainted by conflicts over the distribution of health care resources, however this seems to be in conflict with practical experience. The use of cost benefit analysis in the US context has led to increased resistance from the AMA to external ‘interference’ and the literature has described physicians and their authority to be under siege.
However the AMA has advocated the use of economic analysis to be socially responsible if it preserves quality of care and physician autonomy in a bid to reduce public scrutiny. One of the major flaws of cost-benefit analysis has been its decoupling of motivation by naturalising costs; it does not take into account the motivations of providers. It has continued a long tradition of placing trust in the physician’s professional authority even though one of the reasons for reforms had been the public’s loss of faith in the medical profession.
