Topic

Costing methods

Costing methods turn the resources used by patients and services into money values that an evaluation can use. Micro-costing and bottom-up costing build estimates from individual resource items, while top-down costing and step-down allocation divide total spending among services. Cost types such as incremental cost, marginal cost and acquisition cost sit here too.

Concepts in this topic

• Acquisition CostAcquisition cost is what a payer spends to buy a drug, at the price actually paid after any discounts, excluding administration and monitoring costs.
• Activity-Based CostingActivity-based costing (ABC) is a method that assigns resource costs to activities, then to patients or services in proportion to the activities they use.
• Bottom-Up CostingBottom-up costing estimates the cost of care by recording each patient's use of resources and multiplying every item by its unit cost.
• CostIn health economics, cost is the value of resources used by a healthcare intervention, measured as the benefit forgone from their best alternative use.
• Cost AllocationCost allocation is the assignment of shared or indirect resource costs to defined services, activities, or populations using an explicit allocation rule.
• Cost ValuationCost valuation is the assignment of monetary values to measured resource use in accordance with a specified perspective, setting, price year, and decision purpose.
• Cost-to-Charge RatioA cost-to-charge ratio is a provider accounting cost divided by its corresponding billed charges for a defined set of services and period, used to estimate costs from charge data when direct patient-level costs are unavailable.
• Incremental CostIncremental cost is the difference in expected total cost between one healthcare option and its stated comparator, calculated using the same population, perspective, time horizon, currency, price year and costing methods.
• Inflation RateThe percentage rate at which the general level of prices for goods and services rises over a given period.
• Intangible CostA cost representing the non-financial burden of illness or treatment, such as pain or reduced quality of life, that is hard to value in money.
• Marginal Cost EstimationThe process of estimating the additional cost of producing one more unit of a good or service at the current level of output.
• Marginal Cost of HealthcareThe additional cost of providing one more unit of healthcare service, such as treating one further patient.
• Micro-CostingMicro-costing is a detailed method of estimating the cost of healthcare activities by identifying and measuring their individual resource components and valuing each component with an appropriate unit cost.
• Operating CostThe recurring cost of an organisation's ongoing operations, such as staffing, supplies, and utilities, as distinct from one-off capital investment.
• Standard CostingA costing method that assigns predetermined, expected costs to services based on historical or engineered estimates rather than actual costs incurred.
• Step-Down AllocationA method of allocating support department costs to operating departments in sequence, so that once allocated, no further costs return to that department.
• Time Value of MoneyThe principle that a given sum of money is worth more today than the same sum received in the future.
• Time-Driven Activity-Based CostingA costing method estimating a service's cost by multiplying the capacity cost rate of resources involved by the time required to complete each activity.
• Top-Down CostingA costing approach that starts with aggregate costs and allocates them to services, activities or patients using documented shares and output counts.
• Treatment Administration CostTreatment administration cost is the cost of giving a medicine to a patient, such as nurse and chair time and consumables; it varies by route.