Cost-Effectiveness Analysis

Cost-Effectiveness Analysis promotes a balance of harms and benefits for drug manufacturers (health care providers) and consumers.

By achieving cost efficiency, one firm may lose out in the production of another product (service), while others may benefit from increased demand for services. In this way, companies can easily adapt to market demand and recover from financial losses.

This article explains in more detail what a cost-benefit analysis is, shows a simple example of how such an analysis can be calculated for a medical program, and explains the benefits of creating a digital model for the calculation.

What is profit?

If the first indicator is higher than the second, then everything is fine and the company has achieved financial success. If it is the opposite, the company suffers losses.

Analyzing and optimizing economics enables companies to make the most of available resources, reducing not only costs but also profits. Therefore, companies are constantly looking for other ways to achieve the same results using more profitable materials, suppliers, and different resources.

How to increase cost efficiency

This process involves the use of various technologies that enable the company to increase efficiency in certain directions.

  • Automation of business;
  • improving employee skills;
  • waste reduction;
  • Improve production facilities.

Indicators of company profitability

They can be long-term, such as continued growth and development, or short-term, such as stabilizing business performance in response to unexpected events known as economic shocks.

Economists use various indicators to measure how well a company is doing. They measure macroeconomic variables that directly or indirectly assess whether economic performance has improved or worsened.

Key Financial Indicators:

  • Cost recovery – the time it takes for revenue to start covering costs;
  • Gross income includes net income and wages;
  • Profit – received a share of income including all expenses;
  • Profit rate – the ratio of cost and profit of fixed and current assets;
  • Price or individual value – the amount spent on the production of goods;

Pareto economics

Economists often use the concept of efficiency in terms of the Pareto method, named after the Italian engineer and economist Vilfredo Pareto, who researched the optimal allocation of resources in the economy.

For example, when a medical laboratory is working at the limit, it is impossible to increase its productivity without deteriorating the physical and moral condition of the medical staff or the quality of the results.

Decide which results of the two actions you will compare

In our example, this is the number of people who decide to join the group. For the calculation, determine the number of visits required for the referral program to be considered successful. For example, does the count include people who attended the group only once or twice? The calculation should be the same every time.


In our example, we have considered the simplest method of profit analysis. If you want to compare several actions that have results that are easy to calculate, the only goal of this type of analysis is to save money. For example, in the case we are considering, face-to-face counseling may have other benefits—such as emotional and informational support.

You Read This Article On where You can Get All the Latest Updates, News, and Reviews.

Written by Patna Motihari

Leave a Comment

Your email address will not be published. Required fields are marked *