Micro-Costing

Micro-Costing: Concept Architecture

Orientation and learning roadmap

This page follows a costing exercise from its decision perspective and resource boundary through measurement, valuation, and aggregation. It uses a visit-level example to expose unit choices and double counting, then considers uncertainty and when detailed costing improves an economic evaluation.

Scope and resource inventory

An analyst first specifies the intervention and comparator, setting, perspective, patient population, time horizon, currency, and price year. These choices determine whether staff time, consumables, equipment, space, travel, informal care, and future resource use are relevant and whose costs should enter the analysis.

The inventory describes activities and resource quantities in physical units before assigning prices. Direct observation, time-and-motion measurement, activity logs, patient records, and interviews may each supply quantities, but their completeness and representativeness need appraisal. A detailed list should capture variation across patients or sites when that variation might affect the result.

Measurement and unit-cost valuation

For each included resource $j$, record a quantity $q_j$ and a unit cost $c_j$ matched on definition, setting, currency, and price year. The cost for one patient or service episode sums these products. The calculation is shown below.

$$C=\sum_{j=1}^{J}q_j c_j.$$

The unit cost should reflect the analytical perspective and avoid treating a billed price or reimbursement tariff as automatically equal to the underlying resource cost. Staff rates may need employer on-costs, equipment may need annualisation and allocation over useful capacity, and shared overhead needs an explicit allocation rule. Disclose whether a published unit cost already includes estates or overhead before adding either item again.

Worked example: one outpatient intervention visit

Consider an illustrative provider-perspective visit with recorded nurse and clinician time, a disposable kit, and a room cost allocated by minutes used. These figures are invented and assume that neither staff rates nor room costs already contain the other listed components, and that the visit uses no additional resources within the chosen boundary.

The arithmetic is $0.5(30)+(1/3)(90)+12+(2/3)(18)=69$ pounds per visit. If the comparator visit costs £55 on a comparable basis, the incremental visit cost is £14; for 100 identical visits with no further resource changes, the illustrative incremental total is £1,400. A real comparison must also account for downstream events and differences in visit frequency, resource use, and outcomes.

Detailed versus aggregated costing

Gross costing may use a broad average cost for an admission, visit, or episode, whereas micro-costing itemises smaller resource components. The level of disaggregation and the method used to value each component are separate choices: a detailed inventory can use published unit costs, and a top-down allocation can assign aggregate spending to detailed activities.

Micro-costing is particularly useful when a new technology changes staffing, workflow, consumables, or capacity in ways hidden by a broad average tariff. It demands more data collection and may still miss shared resources, idle capacity, training, or patient time. The selected detail should match the decision question rather than assume the most granular calculation is always the most accurate.

Implementation, uncertainty, and transferability

Time and resource use may vary across patients, service sites, staff grades, learning periods, and throughput. Analysts should report the range and source of quantities and unit costs, test uncertain assumptions, and assess whether capacity constraints make an average allocated cost a poor guide to marginal expansion.

Price year and currency conversions should be documented separately from discounting future costs, and comparable components should be costed consistently across strategies. Sensitivity analysis can vary staffing times, equipment utilisation, overhead allocation, and patient volume; correlated quantities and costs should be respected where evidence supports it. A detailed estimate from one clinic may not transport unchanged to another setting with different wages, pathways, and scale.

Relationship to economic evaluation

Micro-costing supplies cost inputs for cost-effectiveness analysis, budget impact analysis, and service planning, but it does not measure clinical benefit or determine whether an intervention is good value. Incremental cost is the difference between comparable strategies over a common horizon and perspective, not merely the sum of one intervention's line items.

For health technology assessment, nationally available reference costs can reduce the need for local micro-costing, yet a detailed study may be needed when an average cost does not reflect resource use for a new technology or comparator. Reporting should make the resource inventory, valuation sources, allocation assumptions, and omitted items auditable. A fee-for-service claim records a payment rule or bill and should not be silently substituted for a resource-cost estimate.

Source basis and further learning

The sources below establish the separation of resource measurement from valuation and explain when detailed costing is useful in health economic appraisal. Local tariff and accounting rules should be checked for the specific jurisdiction and price year under study.

• NICE, NICE technology appraisal and highly specialised technologies guidance: the manual, economic evaluation. This describes the role of reference costs and when local micro-costing may be relevant.
• NICE, The guidelines manual, economic-evaluation methodology checklist. This specifies separate quantification of resource use and monetary valuation.
• CHEERS 2022 Task Force, “Explanation and Elaboration”, Value in Health. This discusses disaggregation of resource components separately from their valuation and transparent reporting.