Economic evaluation of health care Guidelines for costing, CHERE Discussion Paper No 1

While there are many published economic evaluations of health care, few allow the reader to understand the practice of costing health care programmes. The aim of this document is to fill this gap. In the document, the principles of how to cost health care for economic evaluation are outlined. Hypothetical and published examples are used to illustrate these principles. First, the economic concept of opportunity cost is defined. Secondly, the techniques of economic evaluation which follow from this definition are introduced: they are cost-benefit analysis, cost-effectiveness analysis and cost-utility analysis. Thirdly, a list of costs which should be considered for inclusion in either of these types of evaluation is provided, this listing being based on the concept of opportunity cost. Problems of measurement and valuation of costs are then outlined, focussing in particular on inflation, discounting, marginal costing, patient-based versus per diem costing, allocating overheads, costing capital and equipment and adjusting distorted market valuations. An example of sensitivity analysis is provided before concluding with a checklist of questions to ask when setting up any costing exercise within an economic evaluation. In the document, a companion volume on measuring benefits of health care for economic evaluation is referred to. This is published as CHERE Discussion Paper No. 2. It is important to read both of these, as consideration of costs without benefits or benefits without costs does not represent valid economic evaluation.