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Emergent Challenges in Determining Costs for Economic Evaluations


  • Josephine C. Jacobs

    (VA Health Economics Resource Center)

  • Paul G. Barnett

    (VA Health Economics Resource Center
    Stanford University School of Medicine)


This paper describes methods of determining costs for economic evaluations of healthcare and considers how cost determination is being affected by recent developments in healthcare. The literature was reviewed to identify the strengths and weaknesses of the four principal methods of cost determination: micro-costing, activity-based costing, charge-based costing, and gross costing. A scoping review was conducted to identify key trends in healthcare delivery and to identify costing issues associated with these changes. Existing guidelines provide information on how to implement various costing methods. Bottom-up costing is needed when accuracy is paramount, but top-down approaches are often the only feasible approach. We describe six healthcare trends that have important implications for costing methodology: (1) reform in payment mechanisms; (2) care delivery in less restrictive settings; (3) the growth of telehealth interventions; (4) the proliferation of new technology; (5) patient privacy concerns; and (6) growing efforts to implement guidelines. Some costs are difficult to measure and have been overlooked. These include physician services for inpatients, facility costs for outpatient services, the cost of developing treatment innovations, patient and caregiver costs, and the indirect costs of organizational interventions. Standardized methods are needed to determine social welfare and productivity costs. In the future, cost determination will be facilitated by technological advances but hindered by the shift to capitated payment, to the provision of care in less restrictive settings, and by heightened concern for medical record privacy.

Suggested Citation

  • Josephine C. Jacobs & Paul G. Barnett, 2017. "Emergent Challenges in Determining Costs for Economic Evaluations," PharmacoEconomics, Springer, vol. 35(2), pages 129-139, February.
  • Handle: RePEc:spr:pharme:v:35:y:2017:i:2:d:10.1007_s40273-016-0465-1
    DOI: 10.1007/s40273-016-0465-1

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    References listed on IDEAS

    1. Zsolt Mogyorosy & Peter Smith, 2005. "The main methodological issues in costing health care services: A literature review," Working Papers 007cherp, Centre for Health Economics, University of York.
    2. Drummond, Michael F. & Sculpher, Mark J. & Torrance, George W. & O'Brien, Bernie J. & Stoddart, Greg L., 2005. "Methods for the Economic Evaluation of Health Care Programmes," OUP Catalogue, Oxford University Press, edition 3, number 9780198529453, Decembrie.
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    Cited by:

    1. Angels Niñerola & Ana‐Beatriz Hernández‐Lara & Maria‐Victòria Sánchez‐Rebull, 2021. "Improving healthcare performance through Activity‐Based Costing and Time‐Driven Activity‐Based Costing," International Journal of Health Planning and Management, Wiley Blackwell, vol. 36(6), pages 2079-2093, November.
    2. Sandra Sülz & Holger Wagenaar & Joris van de Klundert, 2021. "Have Dutch Hospitals Saved Lives and Reduced Costs? A longitudinal patient‐level analysis over the years 2013–2017," Health Economics, John Wiley & Sons, Ltd., vol. 30(10), pages 2399-2408, September.
    3. Zuzana Špacírová & David Epstein & Leticia García-Mochón & Joan Rovira & Antonio Olry de Labry Lima & Jaime Espín, 2020. "A general framework for classifying costing methods for economic evaluation of health care," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(4), pages 529-542, June.

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