Measuring and Estimating Costs

7/25/2019 Measuring and Estimating Costs

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Measuring and Estimating

CostsPrepared by: Ms. Hope L. Gemida


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OBJECTIVES

Defne dierent costing terms. Categorize types o costs.

Determine the perspectie o a st!dy basedon types o costs meas!red.

"nderstand #hen ad$!sting or timing ocosts is appropriate.

Ca%c!%ate net present a%!e.

Compare aerage costs #ith margina% andincrementa% costs.

List common so!rces or obtaining cost data.


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COSTING TERMS

C&'(' are ca%c!%ated to estimate thereso!rces )or inp!ts* that are !sed in theprod!ction o a good or serice.

+eso!rces !sed or one good or serice are

no %onger aai%ab%e to be !sed or another. ,ased on economic theory- the tr!e cost

o a reso!rce is its opportunity cost//the

a%!e o the best/orgone option or thene0t best option //not necessari%y theamo!nt o money that changes hand.


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COSTING TERMS

+eso!rces committed to one prod!ct orserice cannot be !sed or other prod!ctor serices )opport!nities*.

1or e0amp%e- i o%!nteers are !sed to he%p

sta a ne# c%inic- eentho!gh no moneychanges hands )i.e.- o%!nteers are notpaid*- there is an opport!nity costassociated #ith their he%p beca!se theyco!%d be proiding other serices i they#ere not he%ping at the ne# c%inic.


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COSTING TERMS

2nother e0amp%e- is the ne# c%inic re3!ired apart/time pharmacist- and a c!rrent%y emp%oyedpharmacist #as as4ed to f%% in at the c%inic as parto his or her d!ties )instead o hiring a ne# part/time pharmacist or the c%inic*.

(he ho!r%y rate o the pharmacist )p%!s ringe

benefts* m!%tip%ied by the n!mber o ho!rs spentat the c%inic #o!%d be !sed to estimate a portiono the costs o the ne# c%inic een tho!gh no one#as added to the payro%%.

(his is beca!se i the pharmacist #as not f%%ing in

at the c%inic- he or she #o!%d hae been proidingother prod!cts or serices// or e0amp%e- f%%ingprescriptions or proiding c%inica% serices toinpatients// the ne0t best option.


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COSTING TERMS

(he price or the amo!nt that is chargedto a payer is not necessari%y synonymo!s#ith the costo the prod!ct or serice.

1or e0amp%e- i a hospita% system #anted

to ca%c!%ate ho# m!ch it cost to treat apatient #ith a specifc diagnosis- theremay be a s!bstantia% dierence in #hat thetota% cost is to the hospita% compared #iththe amo!nt the hospita% charges the payerand compared #ith #hat is act!a%%yco%%ected rom the payer ater a%%o#ab%eamo!nts are actored in.


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COSTING TERMS

(hin4 o these dierences as simi%ar to thene# car mar4et.

(here is a costto the car man!act!rer toprod!ce a car- a stic4er price- #hich is

s!ggested price o the car )higher than thecost to prod!ce a car* and the amo!ntpaid by the aerage car b!yer )!s!a%%y%o#er than the stic4er price - #hich is good

ne#s or the b!yer b!t is hope!%%y higherthan the cost to prod!ce the car- #hich isgood ne#s or the man!act!rer*.


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COSTING TERMS

(hese- in t!rn- are simi%ar to the act!a% costo a hospita% to proide a serice- the chargebi%%ed to the payer )third/party ins!ancepayer- patient payer- or a combination*- andthe a%%o#ab%e charge or reimb!rsed amo!ntpaid by the payer)s*.

2gain- the reimbursedamo!nt is hope!%%yhigher than the cost o the hospita% to proide

the serice )good ne#s or the hospita%* and%o#er than the standard charge %isted by thehospita% )good ne#s or the payer5s6*.


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COST CTEGORI!TION

7n the 89;s and 899;s- most te0tboo4scategorized pharmacoeconomic/re%atedcosts into o!r types:

direct medica" costs#

direct nonmedica" costs#

indirect costs#

and intangib"e costs$


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COST CTEGORI!TION

(hese terms are not !sed consistent%y in the%iterat!re- and it has been noted that theeconomic term indirect costs- #hich reers a%oss o prod!ctiity- might be con!sed #iththe aco!nting defnition o indirect costs- #hichis !sed to assign oerhead.

2n a%ternatie method o categorization hasbeen recent%y proposed by Dr!mmond et a%.that inc%!des the o%%o#ing o!r categories:hea%th care sector costs- costs to other sectors-patient and ami%y costs- and prod!ctiitycosts. ,eca!se o the ariations that readersmay fnd in research st!dies- both methods ocategorization are presented and disc!ssed.


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%IRECT ME%IC& COSTS

Direct medica% costs are the mostobio!s costs to meas!re.(hese are the medica%%y re%ated inp!ts

!sed direct%y to proide treatment.


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%IRECT ME%IC& COSTS

"sing the e0amp%e o chemotherapytreatment- direct medica% costs may inc%!de

the chemotherapy productsthemse"'es-

other medications gi'en to reduce sidee(ects o) the chemotherapy-

intra'enous supp"ies#

"aboratory tests- c"inic costs-

and physician 'isits.


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%IRECT NONME%IC& COSTS

Direct nonmedica% costs are costs topatients and their ami%ies that are direct%yassociated #ith treatment b!t are notmedica% in nat!re.

s o?ce- c%inic- or the hospita%= chi%d care serices or the chi%dren o a

patient= and ood and %odging re3!ired- or the

patients and their ami%ies d!ring o!t/o/to#n treatment.


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%IRECT NONME%IC& COSTS

"sing the e0amp%e o chemotherapytreatment- patients may hae increasedtrae% costs re%ated to trae%ing to thec%inic or hospita%. (hey may a%so hae tohire a babysitter or the time they are

!ndergoing treatment.


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IN%IRECT COSTS

Indirect costsino%e the costs thatres!%t rom the %oss o prod!ctiitybeca!se o i%%ness or death.

Indirect bene*ts- #hich are saingsbeca!se o aoiding indirect costs-are the increased earnings or

prod!ctiity gains that occ!r beca!seo the medica% prod!ct orinterention.


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IN%IRECT COSTS

7n the chemotherapy e0amp%e- someindirect costs res!%t rom time thepatient ta4es o rom #or4 to receietreatment or red!ced prod!ctiity

beca!se o the eects o the diseaseor its treatment. &n the other hand- some indirect

benefts may accr!e at a %ater time

beca!se o the increased prod!ctiitya%%o#ed by the s!ccess o thetreatment in decreasing morbidityand pro%onging %ie.


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INTNGIB&E COSTS

7ntangib%e costs inc%!de the costs o pain-s!ering- an0iety- or atig!e that occ!rbeca!se o an i%%ness or the treatment o ani%%ness.

7ntangib%e benefts- #hich are aoidance or

a%%eiation o intangib%e costs- are beneftsthat res!%t rom a red!ction in pain ands!ering re%ated to a prod!ct or interention.

7t is di?c!%t to meas!re or p%ace a monetarya%!e on these type o costs.

7n the e0amp%e o chemotherapy- na!seaand atig!e are common intangib%e costs otreatment.


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"ternati'e Method o)Categori+ation

2s mentioned- an a%ternatie method ocategorizing costs has recent%y beenproposed by Dr!mmond et a%.

,ea"th care sector costs #hich inc%!demedica% reso!rces cons!med by hea%thcare entities. (hese types o costs aresimi%ar to the defnition o direct medica%costs b!t do not inc%!de direct medica%

costs paid or by the patient )e.g.-ded!ctib%es- co/payments* or other non/hea%thcare entities.


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"ternati'e Method o)Categori+ation

Other sector costs- 'ome diseases andtheir treatment impact other non/hea%thcare sectors- s!ch as ho!sing- homema4erserice- and ed!cationa% serices.

&ne e0amp%e oten noted is that #henmeas!ring reso!rces !sed and saingsinc!rred by the treatment o patients #ithschizophrenia- researchers sho!%d consider

the impact on other sectors- inc%!dingp!b%ic assistance and other prison system.


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"ternati'e Method o)Categori+ation .atient and /ami"y costs-(his

categorization inc%!des costs to the patientand his or her ami%y #itho!t regard to#hether the costs are medica% or nonmedica%in nat!re.

(h!s- these costs inc%!de the patient>s orami%y>s share o direct medica% as #e%% asdirect nonmedica% costs.

.roducti'ity costs- ana%ogo!s to the

economic term indirect costs b!t has theadantage o not being con!sed #ith theacco!nting term #ith the same name.


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"ternati'e Method o)Categori+ation %rummond et a"#adise against !sing the term intangib%e

costs beca!se they are @not strict%y intangib%e as they areoten meas!red and a%!ed thro!gh the !ti%ity or#i%%ingness/to/pay approach.A

(reatment o an i%%ness may inc%!de a combination o thesetypes o costs and benefts. Many st!dies report on%y the

direct medica% )i.e.- hea%th care sector* costs.

(his may be appropriate depending on the ob$ectie o ast!dy.

1or e0amp%e- i the ob$ectie is to meas!re the costs to thehospita% or t#o treatments that are e0pected to dier on%yin direct medica% costs- meas!rement o the other types ocosts may not be #arranted.


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.erspecti'e

(o determine #hat costs are important tomeas!re- the perspecti'eo the st!dym!st be determined.

.erspecti'eis an economic term thatdescribes #hose costs are re%eant basedon the p!rpose o the st!dy.

Conentiona% economic theory s!ggests

that the most appropriate andcomprehensie perspectie is that osociety.


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.erspecti'e

Societa" costs- inc%!de costs to theins!rance company- costs to the patient-other sector costs- and indirect costsbeca!se o the %oss o prod!ctiity.

2%tho!gh this may be the most appropriateperspectie according to economic theory-it is not the most common%y seen in thepharmacoeconomic %iterat!re beca!se it is

di?c!%t and time cons!ming to estimatea%% o these cost components.


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.erspecti'e

7n many cases- researchers are notinterested in the oera%% costs e0cept ordirect medica% costs- meas!rement oother types o costs #o!%d not be re%eant.

(he most common perspecties !sed inpharmacoeconomic st!dies are theperspectie o the instit!tion or proider)e.g.- hospita% or c%inic* or the payer )e.g.-

Medicaid or priate ins!rance p%an*beca!se these may be more pragmatic toans#er the 3!estion at hand.


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.erspecti'e

(he payer perspectie may inc%!de thecosts to the third/party p%an or the patientor a combination o the patient co/pay andthe third/party p%an costs.

7 the perspectie o the ana%ysis is thehospita%- the act!a% cost to treat a patientsho!%d be estimated )simi%ar to the cost toman!act!re a prod!ct s!ch as the

e0amp%e abo!t the cost to prod!ce a car*.


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.erspecti'e

7 the perspectie o the ana%ysis is that othe payer- the amo!nt that is reimb!rsed)simi%ar to the act!a% amo!nt paid or a carby the p!rchaser o the car* sho!%d be!sed #hen estimating costs.

7 the perspectie is that o patient- his orher o!t/o/poc4et e0penses- s!ch as co/payments- ded!ctib%es- %ost #ages- and

transportation costs- #o!%d be estimated.


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(iming 2d$!stments or Costs

Bringing Past Costs to the Present:Standardization of Costs

When costs are estimated from informationcollected for more than 1 year before the

study, adjustment of costsis needed; this

is also referred to as standardization ofcosts.


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(iming 2d$!stments or Costs

Bringing Past Costs to the Present:Standardization of Costs

If retrospective data are used to assess

resources used over

Measuring and Estimating Costs

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