Health is the second largest government spending area; moreover according to recent research (OECD, 2010), in the first decade of the 21st century the growth of health spending has consistently outpaced economic growth in most OECD countries. Most governments in OECD countries are currently faced with consolidation pressures and the need to create room for additional spending without jeopardizing the sustainability of their fiscal position or the stability of the economy (fiscal space). In this context, many countries face the challenging task of financing more health expenditure while trying to meet their fiscal objectives.

Against the background of an increasingly complex governance environment, limited fiscal space, and growing demands for transparency and accountability, governments are continually challenged to demonstrate better performance and management of available resources. Supreme audit institutions (SAIs) have also moved from a more traditional focus on financial audits to looking at aspects of performance or value for money. Indeed the International Organization of Supreme Audit Institutions (INTOSAI) posits that performance auditing greatly enriches public accountability and enables the SAI to make practical contributions to improving the efficiency and effectiveness of the public administration (INTOSAI, 2010). As such, SAIs have the potential to contribute to better design and use of performance-related budgeting and management systems and to enhance public accountability in OECD countries.

Governments are faced with budget constraints and therefore should invest in those projects that represent the greatest benefits compared to costs. In addition, the presence of market failures, which are situations in which markets left on their own would produce inefficient results (e.g. monopolies), are commonly addressed by government intervention. Regardless of whether a project is carried out by traditional public provision, public-private partnerships, or others, its economic appraisal remains the responsibility of government. Cost benefit analysis (CBA) is a methodology with a long intellectual and practical history for estimating the ex ante desirability of a project. It is designed to demonstrate whether or not the long-term social benefits of a project are greater than its costs. In practice, it estimates the opportunity cost or benefit of goods and services and uses these accounting prices (or shadow prices) as a more appropriate signal than observed market prices, which may be distorted by a variety of reasons. Performance indicators are then computed; typically, a positive net present value of benefits over costs is required in order to conclude that ex ante a project is socially desirable.