DMC COLLEGE FOUNDATION INC.

Health Technology Assessment and Health Policy

ALLIED MEDICAL SCIENCES DEPARTMENT (With Pharmacoeconomics)
BS PHARMACY Lecture Activity Sheet #6

Name: _____________________________________________________ Class number: _________

Section: ____________ Schedule: ________________________ Date: ________________
MODULE NO. 6
KEY ATTRIBUTES OF COST ANALYSES
Learning Objectives
At the end of the activity, you will be able to:
• Discuss the Key Attributes of Cost Analyses
KEY ATTRIBUTES OF COST ANALYSES
The approaches to accounting for costs and outcomes in cost analyses can vary in a number of
important respects, such as choice of comparator, perspective of economic analysis, and time horizon of
analysis. A basic “checklist” of these attributes is shown in Box VI‐1, and some are described briefly below.
These attributes should be carefully considered by investigators who design and conduct cost analyses,
assessors who review or appraise reports of these analyses, and policymakers who intend to make use of
findings based on these analyses. Given the different ways in which costs and outcomes may be determined, all
studies should make clear their methodology in these respects.
Box VI-1. Attributes to Consider When Designing and Reviewing Cost Analyses

Comparator. Any cost analysis of one intervention versus another must be specific about the comparator. This
may be standard of care (current best practice), minimum practice, or no intervention. Some analyses that
declare the superiority of a new intervention may have used a comparator that is no longer in practice or is
considered sub-standard care or that is not appropriate for the patient population of interest.

Prepared by: Princess C. Cedeño, RPh

 DMC COLLEGE FOUNDATION INC. Health Technology Assessment and Health Policy
ALLIED MEDICAL SCIENCES DEPARTMENT (With Pharmacoeconomics)
BS PHARMACY Lecture Activity Sheet #6

Perspective. The perspective of a cost analysis refers to the standpoint at which costs and outcomes are
realized. For instance, the perspective may be that of society overall, a third-party payer, a physician, a hospital,
or a patient. Clearly, costs and outcomes are not realized in the same way from each of these perspectives.
Many analysts favor using the broad societal perspective that seeks to identify all costs and all outcomes
accordingly. However, “society” as such may not be the decision maker, and what is cost effective from that
perspective may not be what is cost effective from the standpoint of a ministry of health, insurance company,
hospital manager, patient, or other decision maker. It is possible that this perspective may resemble that of a
national or regional government, if indeed that government experiences (or is responsible for representing the
perspectives of those that experience) all of the costs and outcomes that are included in a societal perspective.

Direct costs. Direct costs represent the value of all goods, services, and other resources consumed in providing
health care or dealing with side effects or other current and future consequences of health care. Two types of
direct costs are direct health care costs and direct non-health care costs.
Direct health care costs include costs of physician services, hospital services, drugs, etc. involved in delivery of
health care. Direct non-health care costs are incurred in connection with health care, such as for care provided
by family members and transportation to and from the site of care. In quantifying direct health care costs, many
analyses use readily available hospital or physician charges (i.e., taken from price lists) rather than true costs,
whose determination may require special analyses of resource consumption. Charges (as well as actual
payments) tend to reflect provider cost-shifting and other factors that decrease the validity of using charges to
represent the true costs of providing care.
Indirect costs. Analyses should account for indirect costs, sometimes known as “productivity losses.” These
include the costs of lost work due to absenteeism or early retirement, impaired productivity at work (sometimes
known as “presenteeism”), and lost or impaired leisure activity. Indirect costs also include the costs of premature
mortality. Intangible costs of pain, suffering, and grief are real, yet very difficult to measure and are often omitted
from cost analyses.
Time horizon. Interpretation of cost analyses must consider that the time horizon (or time-frame) of a study is
likely to affect the findings regarding the relative magnitudes of costs and outcomes of a health care intervention.
Costs and outcomes associated with a particular intervention usually do not accrue in steady streams over time.
Time horizons should be long enough to capture streams of health and economic outcomes (including significant
intended and unintended ones). These could encompass a disease episode, patient life, or even multiple
generations of life (such as for interventions in women of child-bearing age or interventions that may cause
heritable genetic changes). Quantitative modeling approaches may be needed to estimate costs and outcomes
that are beyond those of available data. Of course, the higher the discount rate used in an analysis, the less
important are future outcomes and costs.
Average costs vs. marginal costs. Assessments should make clear whether average costs or marginal costs
are being used in the analysis. Whereas average cost analysis considers the total (or absolute) costs and
outcomes of an intervention, marginal cost analysis considers how outcomes change with changes in costs (e.g.,
relative to the standard of care or another comparator), which may provide more information about how to use
resources efficiently. Marginal cost analysis may reveal that, beyond a certain level of spending, the additional
benefits are no longer worth the additional costs.
Discounting. Cost analyses should account for the effect of the passage of time on the value of costs and
outcomes. Costs and outcomes that occur in the future usually have less present value than costs and outcomes
realized today. Discounting reflects the time preference for benefits earlier rather than later; it also reflects the
opportunity costs of capital, i.e., whatever returns on investment that could have been gained if resources had
been invested elsewhere. Thus, costs and outcomes should be discounted relative to their present value (e.g.,
at a rate of 3% or 5% per year). Discounting allows comparisons involving costs and benefits that flow differently

Prepared by: Princess C. Cedeño, RPh

 DMC COLLEGE FOUNDATION INC. Health Technology Assessment and Health Policy
ALLIED MEDICAL SCIENCES DEPARTMENT (With Pharmacoeconomics)
BS PHARMACY Lecture Activity Sheet #6

Name: _____________________________________________________ Class number: _________

Section: ____________ Schedule: ________________________ Date: ________________
over time. It is less relevant for “pay-as-you-go” benefits, such as if all costs and benefits are realized together
within the same year. It is more relevant in instances where these do not occur in parallel, such as when most
costs are realized early and most benefits are realized in later years. Discount rates used in cost analyses are
typically based on interest rates of government bonds or the market interest rates for the cost of capital whose
maturity is about the same as the duration of the effective time horizon of the health care intervention being
evaluated.
Cost analyses should also correct for the effects of inflation (which is different from the time preference accounted
for by discounting), such as when cost or cost-effectiveness for one year is compared to another year.
Sensitivity analysis. Any estimate of costs, outcomes, and other variables used in a cost analysis is subject to
some uncertainty. Therefore, sensitivity analysis should be performed to determine if plausible variations in
the estimates of certain variables thought to be subject to significant uncertainty affect the results of the cost
analysis. A sensitivity analysis may reveal, for example, that including indirect costs, or assuming the use of
generic as opposed to brand name drugs in a medical therapy, or using a plausible higher discount rate in an
analysis changes the cost-effectiveness of one intervention compared to another.

Prepared by: Princess C. Cedeño, RPh