COST AND OUTCOME

Ratna Kurnia Illahi, M.Pharm,

Apt.
Departemen Farmasi Komunitas
Fakultas Kedokteran
Universitas Brawijaya
Outline

• Clasification of cost
• Cost analysis
• Types of outcome in pharmacoeconomy an
alysis
Costs
Input resources utilized by the intervention

 Accounting cost
- The historical money spends for resources requir
ed to produce the intervention.
- Acquisition price of product

 Economic cost
- Opportunity cost of resources used for the interv
ention.
Economic Cost

 Opportunity cost
- Value of the resources if they were used for anoth
er productive purpose.
- Includes accounting and non-accounting costs.

 Economic evaluation studies should use econo

mic costs.
Cost Analysis

 Identification

 Measurement

 Valuation
Cost Analysis: Identification

 Types of cost

 Viewpoint for the analysis

Types of Cost (1)
Types of Cost (2)
 Direct costs
Value of all the goods, services and other resources that
are consumed in the provision o an intervention, side e
ffects, other current and future consequences linked to
it.

 Indirect costs
Productivity gains or losses related to illness or death.

 Intangible costs
Monetary value of pain, suffering, distress etc associate
d with treatment.
Direct Costs
 Direct healthcare costs
Cost of goods and services that are directly provi
ded by the healthcare system
eg. hospital length of stay, drugs, home nursing

 Direct non-healthcare costs

Cost of goods and services used for healthcare th
at are not directly provided by the healthcare sys
tem.
eg. caregiver, transportation
Indirect Costs
 Indirect healthcare costs
• Costs of health care consumption during year of life gai
ned as a result of a health care intervention
• Treatment saves a patient from dying from cancer, surv
ivor medical care costs would be the costs of treating th
e coronary heart disease

 Indirect non-health care costs/Productivity costs

• The value of productivity loss due to illness or treatmen
t
• Income lost from sick-leaved
Productivity Costs
 Morbidity costs
• Costs associated with lost or impaired ability t
o work or leisure activities due to morbidity

 Mortality costs

 Friction costs
• Costs associated with the replacement of a wor
ker
Types of Cost

Type Inclusion
• Direct health care costs √
• Direct non-health care costs √
• Indirect health care costs +/-
• Indirect non-health care costs √
• Intangible costs x
Source: Weinstein et al 1996; Drummond et al 1997
Viewpoint for cost analysis
“ How much it cost depends on for whom co
st is accounting”

• An item that may be a cost from one point of view

may not be in another e.g. patient traveling cost, s
elf-prescription cost
• The perspective must be specified since it determi
nes which costs to consider and whose values to u
se.
Perspectives (1)
• Patient
• Provider
• Purchaser or Payer
• Employer or Other sponsors
• Government •All medical and non-medical costs
are relevant, even though the analyst
• Societal may not be able to measure and value
some of them.
•Requires valuation of resources
using the economic (opportunity)
cost approach.
Perspectives (2)
Perspectives (3)
Cost analysis: Identification
• To identify all relevant resource items
• Requires knowledge about the resource needed to
perform the program
* Tip: expert panel review may useful for this step
• May reasonable to leave out some resource items f
rom further analysis

“ ease of measurement should not be the initial crite

rion for identification” Gold et al 1996
Cost analysis: Measurement (1)
• How are values imputed for non-market item
s?
• When should existing market prices be adjuste
d?
• How long should costs be tracked?
• Should healthcare costs unrelated to the progr
am or intervention under study be included?
• How should capital outlays (building, land) be
handled?
Cost analysis: Measurement (2)
Elements of costing:
• Measurement of the quantities of resource
use (q)
• Assignment of unit costs or prices (p)
Cost analysis: Measurement (3)
For non-market items (volunteer time and p
atient/family leisure time):
• Use market wage rates
Zero, average earnings, average overtime e
arnings
• At least be pointed out to decision makers, e
ven if they are not included.
Cost analysis: Measurement (4)
How to obtain the cost data?
• Retrospective -to predict the cost impact of interventions after
implementation
• Models - are designed to predict the cost impact of intervention
s before (or after) implementation
• Prospective study - Consistent and reliable cost estimates ma
y be obtained since actual cost data can be collected during the i
ntervention e.g., interviewing patients/caregiverd
• Use of pricing references e.g., hospital (charges, unit cost),
Ministry of Public Health website, DRG, reimbursement list, Sta
ndard costing menu
Cost analysis: Measurement (5)
How long should costs be tracked?
Cost analysis: Valuation (1)
Direct valuation
• Gross or top-down approach
• Micro-costing or bottom-up approach

Valuing productivity costs

• Human capital approach
• Friction cost method
• Willingness to pay (WTP)
Cost analysis: Valuation (2)
Direct valuation
• Gross or top-down approach
estimate cost for a given volume of patients by div
iding the total cost by the volume of service use

• Micro-costing or bottom-up approach

to measure all the resource used by individual pat
ient, then assign the unit cost for each type of res
ource consumed, and end up with the total summ
ed
Cost analysis: Valuation (3)
Valuing productivity costs
• Human capital approach
• Friction cost method
Cost analysis: Valuation (4)
Human capital approach
• Wages of persons who would replace the worker
(upper bound)
Example: value of time of an individual caring fo
r a sick relative would be based on the wages of a
care assistant
• Market wage rate (per hour) for the volunteering
individual
the labor opportunity cost for the individual or fr
om those with similar characteristics
Cost analysis: Valuation (5)
Friction cost method
• Unemployment rate
• Mortality case
productivity loss only during that ‘Friction p
eriod’ (recruiting and training of replaced w
orker)
• Morbidity case
- compensatory mechanisms
- short term vs. long term
Types of Outcome in Pharmacoec
onomic Analysis
Economic evaluation

Definition: The comparative analysis of alternative

courses of action in terms of both their costs and co
nsequences (outcome). (Drummond et al 2005)
Types of economic evaluation
Outcome assessment
• Outcome measure plays an important role i
n the validity of health technology assessme
nt results.
• Outcome used for HTA should be measured
from the relevant sample with proper study
design and method.
Unit of outcome measurement in cost-util
ity analysis
Quality-adjusted Life Years (QALY)
QALY is the most widely recommended health outc
ome measure for use in economic evaluations
Concept of QALY
Quality-adjusted Life Years

Utility can be ranged from 0 (worst health state) t

o 1 (best health state)
Example
Current threshold
• In the US, $50,000 per 1 QALY gain or lo
wer is considered cost-effective
• In the UK, £20,000 - £30,000 per 1 QALY
gain or lower is considered cost-effective
• For developing countries, 1-3 times GDP p
er capita/DALY is considered cost-effectiv
e