W5-Costing Flashcards
(19 cards)
What is costing
Refers to the act of measuring and valuing resources, that are valuable if that have alternative uses.
True cost of those resources is their ‘opportunity cost’, or the benefit of the next best alternative forgone.
Phases of costing
- Identify relevant resource use
- Measure and record resource use
- Estimate value of resources – assign a unit cost or price.
Identification of relevant resources
3 different perspectives towards costs
• Health care perspective: Health care costs (drug, hospital costs, analytic procedures) including costs arising from the consequences of treatment e.g. side effects
• Government perspective: Health care costs & other publicly provided services (community services, social services)
• Society perspective: Health care and other public sector provision & direct costs incurred by patients (transport), productivity losses from being off work (absenteeism) or working less effectively (presenteeism), cost of informal carer time
what is Productivity costs
Non-health costs which relate to reduce productivity at work
2 apprcohes
what are the 2 main approaches to Productivity costs
- The human capital approach values time at the opportunity cost of the time to the employer. This is equal to the gross wage rate plus non-wage labour costs such as insurance and pension contributions.
- The friction cost approach recognises that the effect of long-term sickness on production would be eliminated by an employer taking on a replacement member of staff. Therefore the gross wage rate should only be applied to a shorter time period.
how is primary data Measure and record
- Primary data sources
- Trials – provide information on both new treatment and usual care arms but population may not be representative.
- Administrative databases of routine data on resource use (usually no outcome data)
- Clinical databases – specific conditions, may include outcome data but not all health care use
- Medical records for each patient
- Ask experts
how is secondary data Measure and record
- Published studies e.g. trials, observational studies
- Could undertake a systematic review and meta-analysis
- Useful when economic evaluation is being undertaken using a model rather than alongside a trial
- Challenge of finding representative studies i.e. similar to the population in your study
what us used for Recording resource use
- Patient diaries (prospective)
- Questionnaires (retrospective)
- Data extraction forms from different databases
- Information being recorded:
- Type of resource used e.g. GP visit, drugs
- Count of resource used e.g. number of GP visits; could be in terms of length of contact as well e.g. 30minutes with a psychologist
Valuing resource use - opportunity costs
- Real cost will be the opportunity cost (benefits of the next best alternative forgone)
- Means we include cost of resources even if they are paid for (they have alternative use)
- This is often approximated by a market value, which assumes that price is a good reflection of value.
- When prices are not available, we derive unit costs
Average vs marginal cost
• Mostly use average costs as an approximation for small changes in costs
• Total Cost / Quantity (TC/Q)
• Marginal costs may be more relevant locally.
• (TC of x + 1 units) - (TC of x units).
The extra cost of producing one extra unit of output
what are sources of data in the UK
- Hospital costs
• Reference costs or health care resource group (HRGs ) - Community and primary care
• Personal and Social Services Research Unit (PSSRU) - Pharmaceuticals
• British National Formulary (BNF) - Other costs
• Productivity costs – wage rates from Office for National Statistics
• The providers themselves!
• Literature
what is the nominal value
• The nominal value of any economic statistic is measured in terms of actual prices that exist at the time.
what is the real value
• The real value refers to the same statistic after it has been adjusted for inflation.
what is discounting
- Both the cost (and the benefits) of a health care intervention may occur now or some time in the future but decision making is now
- The interventions we wish to compare may have different time profiles for their costs and benefits (e.g. curative v preventative)
- Discounting is a means of calculating the present value of costs and benefits which arise in the future
equation of present value
Future cost / ((1+discount rate)t)
The t in the equation means the number of years in the future- to find the t use the table in W5 folder, (uses both the year and discount value needed to get the correct t value)
Why discount cost
There is an opportunity cost to spending now
We should be richer in the future
The future is uncertain
We are short sighted
Why discount benefits
- Human behaviour to prefer benefits now
- We can potentially use (and enjoy) the health benefits now. If people have health now rather than in 5 years time they can use it to earn an income during that period. Or perform non-market productive roles.
- Uncertainty – we may not believe the benefits will materialise in the future (“a bird in the hand is worth 2 in the bush”), or due to technological developments other unknown treatments will become available.
- We care more about people living now than those not yet living
Governments should consider other generations - We are short-sighted (we drink/smoke etc.) (as before individual vs. government)
- Inconsistent if we discount costs but not benefits
Controversy over discounting benefits
- Is it unethical to discount benefits? Should a life saved today be valued the same as life saved in 10 years time?
- Could argue that governments should care more about inter-generational justice than we do as individuals.
- Disadvantages preventative interventions which can have high up-front costs but benefits in the future
• Incremental cost effectiveness ratio (ICER)
Cost(new) – Cost (usual)/
Outcome(new)-Outcome(usual)
