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The application of the cost-benefit analysis and cost-effective analysis for resource allocation

Analyse the demand for and supply of health services, factors that influence these, and equity issues in resource allocation.

In this report, an attempt is made to analyze or understand the role of the New Zealand government’s regulation on the healthcare sector. The importance of the cost benefit analysis and the cost effective analysis in the resource allocation is discussed in the report. The report also identifies the strength and weakness of the public health system and identifies the gap that exists. The report attempts to discuss the health care reform that can be undertaken.

The application of the cost benefit analysis and cost effective analysis for resource allocation

The effectiveness of economy is considered when every inputs are able to produce maximum number of units at the cheaper expenditure that is productive efficiency and rare resources have always be re allocated to provide ideal utilization that of an individual can as per as Pareto’s or Kaldor-Hicks criteria. As allocation of the resources becomes a challenging work as a single decision carries different consequences and opportunity, costs when multiple alternatives are related (World Health Organization 2014). Thus as far as the economist concept of economic evaluation it is a standard method that analyses and compares the costs of a result against an actual benefits that in turn determines cost efficiency. The first economic evaluation brought by Jules Dupuit. He discovered the cost effectiveness analysis (CEA), cost-benefit analysis (CBA) and cost-utility analysis (CUA). This evaluation was done so as to implement it in public work when compared to the benefits that could be recovered. The three-evaluation tools share one basic principle that it enables in making planning and decisions on the private and public involvements or policies that are at highest economic efficiency and the best justices to all parties that are involved (Blanket al. 2017).

Cost-benefit analysis (CBA)

This is referred to as a process that assesses and compares the costs of the inputs and output benefits of an action that is summary of the systematic process that includes if it is worth of the value after doing or using financial terms as a common denominator. It will be valuable if net benefit compensate costs. Benefit cost ratio (BCR) is used for multiple alternatives as benefit cost ratio implies net discount benefits to that of net counted costs. Decision makers and policy stakeholders accepted this theory universally and used dollars as the unit of analysis. Government and federal agencies becomes the reference aid in the public tool agencies until date. As CBA debuted health care in 1960 when a man called BrurtonWeisbrod evaluate human capital benefits by using the benefits of economy treating diseases like cancer, TB and polio vs. the cost needed (Naccarellaet al. 2017). However, this decision soon leads to a criticism from many ethicist and welfares agencies and ethicist as it assigns money value to measure the outcomes of CBA and this remain the major shortcomings of CBA among the other perquisite principle as articulated by the US office of budget management in the circular A-94. To avoid this, idea of “willingness” to pay was executed. The willingness to pay refers to the maximum monetary amount an individual is willing to acquire a goods or services in order avoid events that are not desirable and the valued is accrued by survey or consensus (Ozcan and Khushalani 2017).

Cost-benefit analysis (CBA)

The propagator of WTP suggested that in spite of of the use of financial that is economic value as major result, is always ethical and logical as derived from the viewpoint of end-user. WTP become popular after it was mentioned in healthcare context in 1977. From then onwards it grew about 23 fold from 1990 to 2013 along with the Pub Med publication. However, the WTP is not solely to CBA as it uniformly serve in CEA and in other particulate along with origin of QALYs and DALYs for CAU. As understood that unreliable methodologies like bidding game, surveys, consensus and considering conflicts perceptive like social vs. private insurances, policy holders vs. patient advocates , such issues is derived as WTP lead to highly adjustable valuation as economist had doubt of the  WTP validity (McDonaldet al. 2017).

Cost effectiveness Analysis (CEA)

Cost-effectiveness analysis is as proposed by Weinstein and Stason states that a methodical and relative analysis of the input per standardization unit of non-monetary result that measures for two or more involvements and the concept of CEA in 1977 in the healthcare. The effectiveness of CEA can be measured by the ways like the sum of the successful cases treated, total screened or prevented cases or the number of live saved or gained in years. As for easier contrast and position more than two types of option have been selected in CEA that is view of effectiveness of cost have been adopted (Gibson and Segal 2015). As it will a direct case of rejection that is why economist like to detect the extra cost to increase the addition of the efficiency measure and thus the increment cost-effective ratio (ICER) is derives for comparing several choices. Here costA1 and costA1+1 are the total costs of the single costs of a single alternative at initial form of A1 and at the form A1+1.these have incremented effectiveness and net effectiveness are also in these forms. Apart from these types of alternatives ICER is also another way to assess cost effectiveness for an obtainable treatment or health policies that for known efficiency but with different types of scenario (Gauldet al. 2014). For example, the use of herpes zoster vaccine for adults as aged over 50 instead of 60. As from the history of medicine, it can be found that CEA has its most important application in advocating oral rehydration therapy (ORT). These therapy was initiated so to decrease the illness and motility of diarrheal diseases in countries that are developing as given an ICER. This is as low as US$4 per case treated.Though it has many advantages still it has many limitation like these measures of health are mot clinically meaningful as in measurement of 10 mmHg drop in pressure of blood or 0.5mmmole/dL reduction of serum cholesterol cannot really translate to human health for longer longevity. Or it cannot be said number of years lived do not compare or guarantee for life lived, life lived or life saved may always differ from the true value from the various spectrum that is pediatrics or geriatric or cannot be used for compare various platform like education vs. chronic diseases vs. communicable disease (Simonet 2015).

Cost-effectiveness Analysis (CEA)


The strength and weaknesses of the public health system in New Zealand is discussed. The strategy for the health system of New Zealand circulates in the different direction of health services in order to get better the health of the people and communities (Keene et al. 2016). There are various strengths in New Zealand health care services and the commodity and people over there are generally happy with the services they receive. Its health system is strong due the following strengths.

  • The health care are publically funded with a committed large workforce along with highly trained professionals.
  • Its main objective of focus is wellness and primary care of the individuals.
  • It is a unique public health system throughout the worldwide with no –fault return system that serves the whole population of country throughout their lives.
  • There is always a strong desire to work better for the health and social services.
  • There are district health boards and decision makers who respond to the community needs according to the demands and also arrange integrated services.
  • Research has developed from the growing practices or services.
  • Maori and pacific health providers always try to connect to their community and also slants towards modeling integrated approach towards health.

Challenges/ weakness

The health care system of New Zealand also face certain challenges that are discussed below:

  • As New Zealand is situated at a distant part of the country so it was a difficulty to connect to the rest part of the world but now a days due to global marketization and internet facility people all over the world can spread knowledge about the health and cultural practices. It has become a global challenge to the health care to improve their facility all over the world (Currie and Martin 2016).
  • As older people are living longerso heath care services must be provided to these people for their heath related problems.
  • As diabetes, depression, long term condition like heart diseases or muscular-skeletal diseases are increasing in number so health burden are also increasing in order to prevent these diseases.
  • Expectation rises among people when health services meets up with the new technologies and drugs and this equipment are also assed in the light of availability along with affordable price.
  • High mobility of the global workforce
  • As new antibiotics are emerging so resistance property of the organisms are increasing along with new infections.
  • Climatic changes have a mammoth impact on the health and social consequences.


Figure 1: Life expectancy

(Source: 2017)

Apart from these as population is highly focus on ageing  people in New Zealand and this became challenge for the health care service present there to treat long term condition like muscular pain etc. to the older people. One such example is dementia, as numbers of dementia will rises from 48,000 to 78,000 in 2026 (Nicholsonet al. 2014).

Obesity is also a problem in the county that has long-term social and health impacts and children are also being a part of these obesity issue. As the country belief that keeping older people healthy and independent will involve more health care and social services that would be a need for the younger people over there (Beaupertet al. 2014). As older people meet up with the disability and have more than one health condition so the health services support these old people to get a better life with a good health condition. Overall people in New Zealand are living longer in spite of the several disabilities in the health conditions present there but here children are not the part of the health care services as they are dependent on others for these purposes or access.

Figure 2: projected government health spending

(Source: 2017)

The figure above indicates the projected health care spending of the New Zealand. The health funding system has certain weakness:

  • The present health care arrangement is not clear;
  • The system is structured in manner that does not encourage changes to be taken very rapidly;
  • There are certain funding arrangement that creates disparity among groups

There exist several opportunities and various reforms are taken up by the New Zealand health system in the health system in order to make up for the challenges faced by the country. The country can assist the people to either avoid the development of serious and long-term health issues or decrease the speed of development of the health issues by primary focusing on the prevention of illness and as well as making healthy choices an easy option (Limet al. 2014). In order to achieve this objective the country must provide significant importance in providing health services that are universal as well as initiatives with respect to public health covering the entire population. Apart from these few individuals and groups of population requires custom approaches in order to ensure that access to similar levels of services are offered to them so that they can be entitled to same outcomes as offered to the others (Devaux 2015).

Strength and Weakness of the public health system

From the birth into the adulthood what subsidizes to noble health, New Zealand possesses a strong and firm knowledge base that is growing which is developed from various researches. In order to guide the policies which assists the children to start a journey towards a healthy development and growth, this knowledge plays a crucial role in the form of a continuous resource. Some health issues that can turn up or occur in the later phase of life can be prevented through its early involvement (Dwyeret al. 2014). By tapping into the skills of other individuals, families, businesses and communities, it can be possible for the people of New Zealand to expand their process of thinking and knowledge regarding the fact that who contributes to health. This can be achieved by making strong bonding and relationship with other peoples and individuals or families or communities.

Similar to the other sectors like broadband, the health sector can also get a host of benefits from the advancement of technology and other related infrastructures. It will be possible for the skilled staffs to focus on thing that they can perform the best once the routine task gets automated. The information can be shared among organizations or companies or patients and their families in a suitable manner then it will be possible for the people to know what is missing.It helps to analyze the plans and process that are not working so that corrective measure and actions can be taken immediately in order to change it (Lovellet al. 2014).


In order to conclude the entire thing, it can be stated that may be at present the system is working well and fine but no one can take the guarantee or assure that it will be the same tomorrow or in the future as well. An opportunity to develop and improve the country’s health system is offered by the strategy in order to make sure that in the future the people will be in a better position to support the wellness and health of the people of New Zealand. Thus in order to achieve this success it is very much essential to ensure that people must work together


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Blank, R., Burau, V. and Kuhlmann, E., 2017. Comparative health policy. Springer.

Currie, G. and Martin, G., 2016. Narratives of Health Policy. The Oxford Handbook of Health Care Management. Oxford University Press, Oxford, pp.72-92.

Devaux, M., 2015. Income-related inequalities and inequities in health care services utilisation in 18 selected OECD countries. The European Journal of Health Economics, 16(1), pp.21-33.

Dwyer, J., Boulton, A., Lavoie, J.G., Tenbensel, T. and Cumming, J., 2014. Indigenous peoples’ health care: new approaches to contracting and accountability at the public administration frontier. Public Management Review, 16(8), pp.1091-1112.

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Gibson, O.R. and Segal, L., 2015. Limited evidence to assess the impact of primary health care system or service level attributes on health outcomes of Indigenous people with type 2 diabetes: a systematic review. BMC health services research, 15(1), p.154.

Keene, L., Bagshaw, P., Nicholls, M.G., Rosenberg, B., Frampton, C.M. and Powell, I., 2016. Funding New Zealand’s public healthcare system: time for an honest appraisal and public debate. New Zealand Medical Journal, 129(1435), pp.10-20.

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Lovell, S.A., Kearns, R.A. and Prince, R., 2014. Neoliberalism and the contract state: Exploring innovation and resistance among New Zealand health promoters. Critical Public Health, 24(3), pp.308-320.

McDonald, J., Cumming, J., Harris, M., Powell Davies, G. and Burns, P., 2017. Systematic review of comprehensive primary health care models.

Naccarella, L., Scott, A., Furler, J., Savage, G., Meredith, R. and Smith, F., 2017. Narrative literature review on incentives for primary health care team service provision: learning and working together in primary health care.

Nicholson, C., Jackson, C.L. and Marley, J.E., 2014. Best-practice integrated health care governance: applying evidence to Australia’s health reform agenda. Med J Aust, 201(3Suppl), pp.S64-6.

Ozcan, Y.A. and Khushalani, J., 2017. Assessing efficiency of public health and medical care provision in OECD countries after a decade of reform. Central European Journal of Operations Research, 25(2), pp.325-343.

Simonet, D., 2015. Post-NPM reforms or administrative hybridization in the French health care system?. International Journal of Public Administration, 38(9), pp.672-681.

World Health Organization, 2014. Paying for Performance in Health Care Implications for Health System Performance and Accountability: Implications for Health System Performance and Accountability. OECD Publishing.

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