Integrated Cost Analysis

Concept

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Theoretically, Currency Conversion is the process of expressing a monetary value denominated in one currency as an equivalent value in another currency using an exchange rate. It is based on international finance and exchange rate theory and enables meaningful comparison of costs and economic outcomes across countries. In health economics, currency conversion is essential when adapting cost data from different jurisdictions, conducting multinational economic evaluations or synthesising international evidence.

Mathematically, currency conversion is performed by multiplying or dividing a monetary value by an exchange rate, depending on how the exchange rate is defined. Exchange rates may be market exchange rates or purchasing power parity (PPP) conversion factors. While market exchange rates reflect financial markets at a particular point in time, PPP-adjusted rates are often preferred in comparative health economic analyses because they account for differences in purchasing power between countries.

In practice, currency conversion is undertaken using official exchange rates or PPP conversion factors obtained from recognised international organisations. Analysts specify the reference year for both exchange rates and price data and frequently combine currency conversion with inflation adjustment to express all costs in a common currency and price year. Health technology assessment agencies commonly require transparent reporting of both the exchange rate source and conversion methodology.

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Purpose

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Used to express healthcare costs in a common currency, enabling comparison, transferability and synthesis of economic evidence across countries and healthcare systems.

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Mathematical Formulae

Primary Formula

Converted Cost = Original Cost ? Exchange Rate

where:

• Original Cost = monetary value in the source currency
• Exchange Rate = conversion factor from source to target currency

Supporting Formulae

If the exchange rate is expressed as target currency per source currency:

Target Currency = Source Currency ? Exchange Rate

Purchasing power parity conversion:

PPP Cost = Original Cost ? PPP Conversion Factor

Combined inflation and currency adjustment:

Adjusted Cost = Original Cost ? Inflation Index ? Exchange Rate

Related Mathematical Methods

• Purchasing Power Parity
• Inflation Adjustment
• Price Standardisation
• Cost Adjustment
• Cost Transferability
• Sensitivity Analysis

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Example

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A health economic study conducted in Germany reports a treatment cost of ?2,800. The exchange rate is �0.86 per ?1.

Converted Cost = ?2,800 ? 0.86

Converted Cost = �2,408

If the analysis also requires conversion to a different price year, inflation adjustment would be applied before or after currency conversion, depending on the analytical framework.

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Excel Implementation

Function	Example Formula	Health Economics Application
PRODUCT	=PRODUCT(B2,C2)	Converts healthcare costs using an exchange rate.
XLOOKUP	=XLOOKUP(A2,CurrencyList,ExchangeRateList)	Retrieves exchange rates from a reference table.
INDEX	=INDEX(RateTable,MATCH(A2,CurrencyList,0))	Obtains exchange rates for multiple currencies.
ROUND	=ROUND(B2*C2,2)	Rounds converted monetary values for reporting.
LET	=LET(Cost,B2,Rate,C2,Cost*Rate)	Improves readability of currency conversion calculations.

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VBA (Optional)

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VBA can automate conversion of multinational cost datasets by applying reference-year exchange rates or purchasing power parity conversion factors across multiple currencies.

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Sources

• Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. Oxford University Press.
• CCEMG?EPPI Centre. Cost Converter for Unit Costs.
• World Bank. World Development Indicators.
• Organisation for Economic Co-operation and Development (OECD). Purchasing Power Parities.
• NICE. Health Technology Evaluation Manual.