1. Farid Abolhassani Counting the costs 17

2. Learning Objectives After working through this chapter, you will be able to: Define and set up a cost analysis Define and give examples of each of the following types of costs: financial and economic costs; direct, indirect and intangible costs; capital and recurrent costs; fixed and variable costs Calculate the following as they relate to an intervention: total costs; annual and annualized costs; average costs; and marginal costs Explain why discounting may be necessary

3. Key Terms Annual cost Annual cost The cost of an intervention, calculated on a yearly basis, including all the annually payable capital costs as well as the yearly recurrent costs. Annualized costs Annualized costs The annual share of the initial cost of capital equipment or investments, spread over the life of the project – usually modified to take account of depreciation. Average cost Average cost Total cost divided by quantity. Capital cost Capital cost The value of capital resources which have useful lives greater than one year. Direct cost Direct cost Resources used in the design, implementation, receipt and continuation of a health care intervention.

4. Key Terms Discount rate Discount rate The rate at which future costs and outcomes are discounted to account for time preference. Discounting Discounting A method for adjusting the value of costs and outcomes which occur in different time periods into a common time period, usually the present. Financial (budgetary) cost Financial (budgetary) cost The accounting cost of a good or service usually representing the original (historical) amount paid – distinct from the opportunity cost. Indirect cost Indirect cost The value of resources expended by patients and their carers to enable individuals to receive an intervention. Intangible cost Intangible cost The costs of discomfort, pain, anxiety or inconvenience.

5. Key Terms Marginal cost Marginal cost The change in the total cost if one additional unit of output is produced. Overhead cost Overhead cost Costs that are not incurred directly from providing patient care but are necessary to support the organization overall (e.g. personnel functions). Recurrent cost Recurrent cost The value of recurrent resources with useful lives of less than one year that have to be purchased at least once a year. Time preference Time preference People’s preference for consumption (or use of resources) now rather than later because they value present consumption more than the same consumption in the future. Total (economic) cost Total (economic) cost The sum of all the costs of an intervention or health problem.

6. Steps of Cost Determination Identification of the resources needed; Quantification of the amount of each resource; and Valuation of each resource Valuation of each resource

7. Costing – not as simple as it may look How can you value the time of individuals? The purchase was made long ago and the resources have declined in value The people who have information are not available or willing to share their information The price may not reflect the true value of the resource to society If a resource is donated, the price may be zero but the value of the equipment is not zero. Price paid also does not reflect the value of the resources when the resources are subsidized or taxed.

8. Financial and Economic Costs Financial or budgetary cost Financial or budgetary cost: The actual money spent on the resources Economic or real cost Economic or real cost: The value of a resource in its most productive alternative use (opportunity cost). This can be, but need not be, the same as its financial cost.

9. Classification of Costs Total Cost of Intervention Direct CostsIndirect Costs Health careNon-health care Value of lost productive time WTP to avoid pain and suffering Intangible Costs PatientCaregiverRecurrentCapital ConsumablesRunning cost

10. Methods of spreading out capital costs over time Straight-line depreciation: dividing the initial cost by the number of years of useful life Annualization: the interest that would be earned if an amount of money equal to the initial cost were invested in the bank

11. Cost Allocation Capital Direct Support Service Patient Direct Allocation Step down Allocation Step down with iteration

12. Methods of attribution of shared costs to a specific intervention Buildings – the percentage of floor space or square footage (or meters) used for activities related to the intervention Staff – the percentage of their time that staff spend on the intervention Equipment – the percentage of time the item of equipment is used for the intervention Utilities (water, electricity, gas) – the percentage of floor space used by the intervention Maintenance – the percentage of floor space used by the intervention

13. Fixed, Variable, Marginal, and Incremental Costs Volume of Service Cost Variable Cost Fixed Cost Total Cost V V + 1 Marginal Cost V + n Incremental Cost

14. Total cost, Annual cost, Average cost Total cost Total cost is the sum of all costs. This gives an indication as to how much the intervention costs overall – taking account of the value of all the resources used. Annual cost Annual cost is the cost of the intervention calculated on a yearly basis – including all the annualized costs of capital expenditures as well as the yearly recurrent costs. of the annual cost. Average cost Average cost is the total cost divided by the total units of activity or outcome. Average cost gives an indication of how efficiently, on average, different providers are functioning.

15. Patient and Family Costs 405- هر بار دريافت مراقبت چقدر از شما وقت مي‌گيرد؟ 1/405- طي راه ( واحد ارايه‌ي خدمت )........... دقيقه 2/405- وقت گرفتن از پزشك.......... روز 3/405- انتظار ( واحد ارايه‌ي خدمت )............. دقيقه 4/405- دريافت خدمت ( واحد ارايه‌ي خدمت )......... دقيقه 5/405- طي راه ( مجموع وقت صرف شده براي رفتن به آزمايشگاه براي نمونه گيري و دريافت جواب )............ دقيقه 6/405- انتظار در محل آزمايشگاه تا نمونه گيري........ دقيقه 7/405- درياف جواب آزمايش........... روز 406- هر بار مراجعه براي دريافت مراقبت چقدر براي شما هزينه دارد؟ 1/406- رفت و آمد به واحد ارايه‌ي خدمت........... تومان 2/406- حق ويزيت............ تومان 3/406- رفت و آمد به آزمايشگاه......... تومان 4/406- هزينه‌ي آزمايش........... تومان 5/406- هزينه‌ي دارو......... تومان 407- آيا در هر بار مراجعه براي دريافت مراقبت كسي شما را همراهي مي‌كند؟ 1- بله 2- خير ( به 409 برويد ) 408- چه كسي شما را همراهي مي‌كند؟ شماره‌ي فرد......................... نام فرد..................................................................

16. Patient and Family Costs 100 درآمدم را كاملاً از دست داده‌ام 75 شديد 50 متوسط 25 خفيف 0 هيچ 705- هر يك از اعضاي خانوار و نزديكان شما چند درصد از وقت استراحت خود را صرف مراقبت از شما مي‌كنند؟ 700- به دليل ابتلا به بيماري ديابت چند در صد كسب درآمد شما كمتر شده است؟........ درصد شماره‌ي سؤال شماره فرد در ليست نام فرد در صد وقت صرف شده 0255075100 1/705 2/705 3/705

17. Patient and Family Costs 706- هر يك از افراد خانوار به دليل صرف وقت براي مراقبت از شما چند درصد از درآمد خود را از دست داده‌اند؟ شماره‌ي سؤال شماره فرد در ليست نام فرد در صد درآمد از دست رفته 0255075100 1/706 2/706 3/706 4/706 5/706 6/706 7/706 8/706 9/706 10/706 11/706

18. Time Preference and Discounting Discounting present value Discounting is a way to adjust future costs (and outcomes) to today’s equivalent costs (and outcomes) – termed the present value.

19. Discounting D DDDDDDDDDD 1 2345678910 RRR D DDDDDDDD D DDDDDDDD 23456789 23456789 Rehabilitation Intervention

20. Present Value P = F ( 1 + r ) n Present Value Future Cost Interest Rate Period