PHAR 422 - Lecture 2: Identifying, Measuring, and Valuing Resource Use I

health economic evaluations involve

identification and measurement of resource use, valuation or resource profile, calculation of cost

healthcare cost categories

outpatient/physician service, drugs, ER services, diagnostics, inpatient/hospital

healthcare cost categories

labour input, consumables, capital, overheads (heating, cleaning, etc)

valuation

assigns unit costs

if market is perfectly competitive

market price = opportunity cost; price = cost

time preference

ppl want benefits now rather than later (positive rate of time preference)

discount rate

rate of time preference

discount rate recommended by CDA

1.5%

present value formula

sum of (future cost/(1+interest/discount rate)^n)

capital costs considerations

opportunity cost of initial investment + depreciation over time

how to allocate capital costs over useful life

using annuitization or equivalent annual cost of capital

annuitization formula (capital expenditure)

K = sum of (E/(1+r)^n)

where k = capital expenditure (present value of payments), E = equivalent annual cost for working life, r = discount rate

annuity factor for n periods and interest rate r (AF)=

[(1+r)^n-1]/[r(1+r)^n]

annuitization equation (equivalent annual cost for working life of capital)

E = K/AF

price adjustments include

inflation, international currencies

adjusting for inflation

use consumer price index → cost of known price * (CPI value of year wanted to know/CPI value of year of known price)

adjust for international currencies

exchange rates or purchasing power parities (better)

purchasing power parities (PPPs)

national/local currency compared to USD

how to use PPP

cost in local currency/ cost of thing in USD

why is PPP better than exchange rates

different cost of living that doesn’t translate to only strength of economy

case mix cost method

gives cost for each category of case/hospital patient based on related data element; each group homogenous

case mix groups (CMG+)

methodology used to aggregate acute care inpatients with similar clinical and resource use characteristics

CMG+ factors

age, comorbidity level, flagged intervention, intervention event, out of hospital intervention

resource intensity weights (RIW)

resource indicator estimated for each CMG group, adjusted for factors (death, sign-outs, length of stay, etc.)

cost of a standard hospital stay (CSHS) in CMG is

1 RIW

cost of hospitalization in CMG

RIW * CSHS

micro costing

allocation of resources shared by all treatment programs (overhead costs, equipment costs)

how to micro cost

cost of overhead utility * (sq ft of used space/sq ft of total space of room); then add annuity discount (use E = K/AF); add that to total cost then divide by number of service provided