Concept Architecture
Concept
Theoretically, Bottom-Up Costing is a costing methodology that estimates the total cost of a healthcare intervention by identifying, measuring and valuing every individual resource consumed. It is based on micro-costing principles and economic evaluation theory, recognising that accurate costing requires detailed measurement of resource utilisation at the patient or intervention level. The method exists to improve the precision of cost estimates compared with aggregate costing approaches.
Mathematically, Bottom-Up Costing is represented as the sum of the quantities of individual resources consumed multiplied by their respective unit costs. The mathematical framework estimates total intervention cost by aggregating the costs of all identified resource components.
In practice, Bottom-Up Costing is implemented by collecting patient-level or intervention-level resource utilisation data, assigning unit costs to each resource and summing the resulting costs. It is widely used in trial-based economic evaluations, micro-costing studies, health technology assessment and analyses of complex healthcare interventions.
Purpose
Used to estimate intervention costs from detailed resource utilisation data, improve costing accuracy, support economic evaluations, inform reimbursement analyses, and identify the principal drivers of healthcare costs.
Mathematical Formulae
Primary Formula
TC = ????� q?c?
Where:
- TC = Total cost
- q? = Quantity of resource i
- c? = Unit cost of resource i
Supporting Formulae
None.
Related Mathematical Methods
- Micro-costing
- Activity-Based Costing
- Resource Utilisation Analysis
- Cost Aggregation
Example
A patient undergoing elective surgery consumes:
- 3 inpatient days at �450 per day
- 2 specialist consultations at �180 each
- Medicines costing �275
The total cost is:
TC = (3 ? 450) + (2 ? 180) + 275
TC = 1,350 + 360 + 275 = �1,985
The Bottom-Up Cost of the patient's treatment is �1,985.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
| SUMPRODUCT | =SUMPRODUCT(B2:B20,C2:C20) | Calculate total intervention cost from resource quantities and unit costs. |
| SUM | =SUM(D2:D20) | Sum individual resource costs calculated separately. |
| ROUND | =ROUND(SUMPRODUCT(B2:B20,C2:C20),2) | Report total intervention costs for economic evaluation. |
VBA (Optional)
Automate patient-level costing by combining resource utilisation data with healthcare unit cost schedules.
Sources
- Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. Oxford University Press.
- Gold MR, Siegel JE, Russell LB, Weinstein MC (eds.). Cost-Effectiveness in Health and Medicine. Oxford University Press.
- Briggs A, Claxton K, Sculpher M. Decision Modelling for Health Economic Evaluation. Oxford University Press.
- ISPOR Good Research Practices Task Force. Estimating Costs in Economic Evaluation.
Related Concepts (2)
Library
Publications
2
Economic Analysis in Health Care — Morris, Devlin, Parkin & Spencer, 2nd Edition ed., 2012 (John Wiley & Sons)
A core textbook for advanced undergraduate and postgraduate health economics students, covering both the economics of health care systems and the evaluation of health care technologies, with international case studies and a strong balance of theory and application.
BookView source →Methods for Estimating Avoidable Costs of Excessive Alcohol Consumption — Gavurova B & Tarhanicova M, 18(9):4964 ed., 2021 (International Journal of Environmental Research and Public Health)
Peer-reviewed methods review and application covering top-down and bottom-up estimation of alcohol-related avoidable costs.
Journal ArticleView source →
Frequently Asked Questions (6)
What is bottom-up costing?
A costing method that estimates total cost by measuring detailed resource use at the individual patient level and aggregating those measurements.
Source: Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. 4th ed. Oxford University Press; 2015.
What does aggregation involve in bottom-up costing?
Resource use is recorded for each patient individually, valued at unit prices, and summed to give that patient's cost, after which patient costs are combined to give a total or an average for the group. Because the individual figures are retained rather than discarded, the distribution can be examined, subgroups can be costed separately, and the effect of changing one component can be traced. That retention is the property distinguishing the method, not the direction of the arithmetic alone.
Source: Drummond et al. 2015
What infrastructure does bottom-up costing require?
It requires activity to be recorded against identified patients rather than counted in aggregate, which means feeds from theatre, ward, diagnostic, pharmacy and outpatient systems linked by a common patient and episode identifier. Unit costs must exist for each activity type and be maintained. Where any feed is missing, the resource it covers has to be apportioned instead, so most operational systems are hybrids in which some categories are patient-level and others are allocated averages.
Source: Kaplan & Porter 2011
How does bottom-up costing compare with working downward from totals?
The two approaches should reconcile, and comparing them is a useful check rather than a redundancy: summing patient-level costs and comparing the result against total departmental expenditure identifies activity that was not captured and costs that were allocated twice. Working downward is faster and adequate where patients are similar. Working upward is necessary where they are not, since an average conceals the variation that determines both the budget required and where cost is concentrated.
Source: Drummond et al. 2015
When is the effort of bottom-up costing justified?
It is justified where patients differ enough that an average misdescribes most of them, where the analysis must report subgroups, where the question concerns the cost of a change at the margin rather than the cost of the service as a whole, and where the components of cost need to be examined separately because the intervention affects some and not others. It is not justified for resources the decision leaves unchanged, which can be taken from standard published unit costs.
Source: Drummond et al. 2015
What are the weaknesses of bottom-up costing?
Activity not recorded in a system is invisible, and a great deal of clinical and administrative work is not recorded, so patient-level totals understate effort in a pattern that varies between departments. Shared capacity still has to be apportioned, so the method removes averaging from part of the calculation and not all of it. Maintaining the unit costs and the mappings is a continuing commitment, and a system left unmaintained produces figures that look granular and are stale.
Source: healtheconomics.wiki
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Verified by Dr Darrin Baines
British health economist
Professional identity: darrinbaines.org
Verification date: 8 Aug 2025
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