Signature
C_b = C_a * I_b / I_a
| Inputs | Definition | Unit |
|---|---|---|
C_a | Cost as observed or reported in the prices of year a | currency in year a prices |
I_b | Value of the chosen price index in year b | index points |
I_a | Value of the same price index in year a, greater than zero | index points |
C_b | Cost expressed in the prices of year b | currency in year b prices |
|---|
Function
Resource costing function
Maps the resources used by an option, and the unit cost of each, to a single cost expressed in one currency, one price year and one time basis. Costing identifies the resources that differ between options, measures how much of each is used and values each with a unit cost; costs from other years are moved to the common price year, and capital used over several years is spread as an equivalent annual cost. Future costs are then discounted, as set out on the Discount Rate page.
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Implementations
Excel
Price-year adjustment from annual increases
With the original cost in CostOriginal and the annual percentage increases between the two price years, as decimals, in AnnualIncreases, Excel chains the increases and returns the cost in the target year. PRODUCT evaluates the array directly in Excel 365; earlier versions need it entered as an array formula.
=CostOriginal*PRODUCT(1+AnnualIncreases)
Assumptions
Index matched to the cost perspective
The index reflects the price change of the resources being costed. The Unit Costs of Health and Social Care 2025 manual adjusts NHS unit costs with the NHS Cost Inflation Index and home care and nursing care costs with the PSS Pay and Prices Index excluding capital.
Adjustment for inflation only
The ratio removes general or sector price change between years. It does not reflect changes in how a service is delivered, and it is separate from discounting, which converts costs falling in future years to present values.
Worked examples
One year of NHS cost inflation to 2024/25
The NHS Cost Inflation Index overall rose by a provisional 4.02% in 2024/25. Setting the index at 100 for 2023/24 gives 104.02 for 2024/25, and a unit cost of 500 pounds in 2023/24 prices becomes 520.10 pounds, as in the article.
C_a = 500; I_a = 100; I_b = 104.02; C_b = 520.10
Two chained years of NHS cost inflation
From 2022/23 the overall index rose by 2.47% in 2023/24 and by a provisional 4.02% in 2024/25. Chaining the two increases from a base of 100 gives 106.589294, so 500 pounds in 2022/23 prices becomes about 532.95 pounds in 2024/25 prices.
C_a = 500; I_a = 100; I_b = 106.589294; C_b = 532.95
Common errors
Applying only the latest year's increase
Uprating a 2022/23 cost to 2024/25 prices with the 2024/25 increase alone gives 520.10 pounds instead of about 532.95 pounds. Every year between the two price years is included.
Treating inflation adjustment as discounting
Indexing a cost to a later price year and discounting a future cost to present value answer different questions. A cost is first expressed in the common price year and then, if it falls in a future year of the model, discounted.
Leaving provisional index values unflagged
The 2024/25 NHS Cost Inflation Index figures are provisional and will be revised in the next manual, so costs uprated with them are reported with the index edition used.
Sources
NICE requirement to adjust costs to the current price year
National Institute for Health and Care Excellence. NICE technology appraisal and highly specialised technologies guidance: the manual (PMG36). Published 31 January 2022, last updated 31 March 2026. Chapter 4 Economic evaluation, section 4.4.12 (costs from previous years adjusted using inflation indices appropriate to the cost perspective, such as the NHS cost inflation index and the PSS pay and prices index from the unit costs report, or the ONS consumer price index).
NHS Cost Inflation Index and PSS Pay and Prices Index
Jones K, Weatherly H, Barker A, Birch S, Castelli A, Chalkley M, Dargan A, Findlay D, Hinde S, Markham S, Smith D, Teo H. Unit Costs of Health and Social Care 2025 Manual. Canterbury and York: Care and Outcomes Research Centre, University of Kent, and Centre for Health Economics, University of York; 2026. Section 12.1, table 12.1.1 (NHS Cost Inflation Index, annual percentage increases for NHS providers, including overall 2.47% for 2023/24 and a provisional 4.02% for 2024/25) and tables 12.1.2 to 12.1.4 (PSS Pay and Prices Index), and the scoping review article on the use of these indices to derive 2024/25 unit costs.
Adjusting costs across time with price indices
Tan-Torres Edejer T, Baltussen R, Adam T, Hutubessy R, Acharya A, Evans DB, Murray CJL, editors. Making choices in health: WHO guide to cost-effectiveness analysis. Geneva: World Health Organization; 2003. Section 3.2.6 (costs from other years adjusted to the base year in constant prices; measures of inflation including the consumer price index and the GDP deflator).
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