Economic Evaluation in Health · Faculty workshop · Session 4
Costing your own service
Micro and gross costing, bottom up and top down, capital and shared overheads, and
where Indian unit costs already exist. Then you cost one episode of care yourselves.
Drummond et al., 4th ed., Chapter 7, and the Indian
Reference Case, principle 5
By the end of this session
Tell a price from a cost, and say why it matters
Choose between micro and gross costing, bottom up and top down
Annuitise a piece of equipment and allocate a shared overhead
Say where Indian unit costs already exist before collecting your own
Cost one episode of care in your department, roughly
Prices are not costs
In 2018, many PM-JAY package prices bore little relation to what the care cost to deliver.
Share of packages priced below half their measured cost
Share
2018, before revision
~42%
2019, after costing evidence was used to revise them
~20%
In the revision, 61% of package prices went up and 18% came down.
The evidence was hospital costing across public tertiary hospitals.
A price is what someone pays. A cost is what the care uses up.
Prinja, Singh, Rajsekar et al., Applied Health Economics and Health Policy, 2021.
Three steps, every time
Identify
Which resources does the care use? Staff, drugs,
consumables, tests, equipment, space, the share of the hospital that keeps the lights on.
Measure
How much of each, per episode? Minutes, units,
days, uses.
Value
What is each unit worth? Salary per minute,
purchase price, annuitised capital, allocated overhead.
Most errors happen at identify: something is
simply never counted.
"But the nurse is already paid for"
An economic cost is the value of what the resource could otherwise have done.
Resource
Financial cost to the budget
Economic cost
Staff time on the new service
zero extra, if salaried
the minutes, at salary per minute
Donated equipment
zero
its market value, annuitised
A room that already exists
zero
its share of the building
Economic evaluation uses economic cost, because the question is
what else those minutes could have done.
Two choices about method
Bottom up: count what each patient uses
Top down: divide a total by the output
Micro costing: every item
Most precise. Minutes timed, items counted, priced one by one. Slow; can miss shared costs.
Department totals split finely by activity. Captures overheads; needs good accounts.
Gross costing: big blocks
A few large components per patient: a bed-day, an operation, a course of drugs.
Fastest. Annual budget ÷ patients. Every patient looks average.
Precision where the money is; gross costing for the rest.
Bottom up and top down, side by side
Bottom up
Follow patients. Time the staff, count the items, price each.
Sees variation between patients. Misses anything nobody thought to count: supervision, idle time, overheads.
Top down
Start from the department's annual spend. Divide by patients, or bed-days.
Sees every rupee the department spends. Misses that a complex case uses more than a simple one.
India's national hospital costing uses both.
The Cost of Health Services in India study planned a mixed top-down and bottom-up
method across 52 public and 40 private hospitals in 13 states.
Charges or prices used as costs, without saying so
Capital left out, or charged in full to one year
Overheads left out. Bottom-up alone, with no allocation
Average cost used for a marginal decision, or the reverse
Old costs, new decision: cost year and currency not stated, or not updated
Every one of them makes the intervention look cheaper, or
hides that it is not.
Your turn: the worksheet
5 min
Choose one episode your department
delivers. Define where it starts and ends. Map the pathway.
20 min
Fill in staff, items, equipment and overheads.
Rough numbers. Mark the ones you are guessing.
5 min
Add up. Compare with a PM-JAY rate if one exists.
Answer the three questions on page 2.
The goal is not the right number. It is knowing which
number you do not know.
And your paper
Where did its costs come from: a database, a trial, package rates, the literature?
Bottom up, top down, or not stated?
Whose costs: the hospital's, the payer's, the patient's?
Which of the five errors can you find?
Write it in row 5 of the checklist before lunch.
Sources
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. Chapter 7, Cost analysis.
Sharma D, Prinja S, Aggarwal AK, Rajsekar K, Bahuguna P. Development of the Indian Reference Case for undertaking economic evaluation for health technology assessment. Lancet Reg Health Southeast Asia 2023;16:100241. PMID 37694178
Prinja S, Singh MP, Rajsekar K, Sachin O, Gedam P, Nagar A, Bhargava B; CHSI Study Group. Translating research to policy: setting provider payment rates for strategic purchasing under India's national publicly financed health insurance scheme. Appl Health Econ Health Policy 2021;19(3):353–70. PMID 33462775
Prinja S, Singh MP, Guinness L, Rajsekar K, Bhargava B. Establishing reference costs for the health benefit packages under universal health coverage in India: cost of health services in India (CHSI) protocol. BMJ Open 2020;10(7):e035170. PMID 32690737
Prinja S, Chauhan AS, Bahuguna P, et al. Cost of delivering secondary healthcare through the public sector in India. PharmacoEcon Open 2020;4(2):249–61. PMID 31468323
National Health System Cost Database for India. PGIMER Chandigarh and Department of Health Research. healtheconomics.pgisph.in/costing_web/