MODULE 3: COST MEASUREMENT hospital; child care services for the children

of a patient; and the children of a patient;

MODULE OVERVIEW and food and lodging required for the
1. Types of Cost patients and their families during out-of-
2. Perspectives town treatment.
3. Valuation or Cost Estimation
4. Identification of Resource Utilization INDIRECT COST
● Involve the costs that result from the loss of
TYPES OF COST productivity because of illness or death
● Or the costs of the lost or reduced
Cost are calculated to estimate the resources productivity at work because of the disease
(or inputs) that are used in the production of a or the treatment process
good or service. ● Indirect benefits are savings from avoiding
indirect costs, these are the increased
According to economic theory: “true”cost of a earnings or productivity gains that occur
resource is its opportunity cost- not necessarily because of the medical product or
the amount that changes hands (the amount of intervention.
money that is paid).
INTANGIBLE COST
OPPORTUNITY COST is the value of the best- ● Costs of pain, suffering, anxiety or fatigue
forgone option or the “next best option” that occur because of an illness or the
treatment of an illness.
Example: ● This may include nausea and vomiting.
● If volunteers are used to help staff a new ● Intangible benefits, are avoidance or
clinic, even though no money changes alleviation of intangible costs, are benefits
hands (volunteers are not paid), there is an that result from a reduction in pain and
opportunity cost associated with their help suffering related to a product or intervention.
because they could be providing other
services if they were not helping at the new EXAMPLES OF TYPES OF COSTS
clinic.
Type of Cost Category Examples
The “price”or the amount that is charged to a Direct Medical Costs Medications
payer is not necessarily synonymous with the Medication monitoring
cost of the product or service. Medication
administration
4 TYPES OF COST Patient counselling
and consultations
DIRECT MEDICAL COST Diagnostic tests
● Medically related inputs used directly to Hospitalizations
provide the treatment Clinical visits
● Examples include the costs associated with Emergency
the pharmaceuticals, diagnostic tests, department visits
physician visits, pharmacists visits, Home medical visits
emergency department visits, and Ambulance services
hospitalizations. Nursing services
Direct Nonmedical Travel costs to receive
DIRECT NONMEDICAL COST Costs health care (bus, gas,
● Costs to patients and their families that are taxi)
directly associated with treatment but are Nonmedical assistance
not medical in nature. related to condition
● Examples include the cost of traveling to (e.g. Meals-on-Wheels,
and from the physician’s office, clinic, or the homemaking services)
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 Hotel stays for patient ● Societal cost include costs to the insurance
or family for out-of- company, costs to the patient, costs to the
town care provider/institution, other sector costs, and
Child care services for indirect costs because of the loss
children of patients productivity.
Indirect Costs Lost productivity for
patient PERSPECTIVE OF THE INSTITUTION OR PROVIDER
Lost productivity for ● Hospital or clinic
unpaid caregiver (e.g. ● Actual cost of the whole treatment process
family member, of a patient should be used in estimation
neighbor, friend)
Lost productivity PATIENT OR PAYER’S PERSPECTIVE
because of premature ● Costs to the third-party plan (private
mortality insurance plan) or the patient or a
Intangible Costs Pain and suffering combination of the patient co-pay and the
Fatigue third-party plan costs
Anxiety ● Includes patients’ out-of-pocket expenses,
such as co-payments, deductibles, lost
ALTERNATIVE METHOD OF CATEGORIZATION wages, and transportation costs
(Types of Cost)
VALUATION OR ESTIMATING COST
1. HEALTH CARE SECTOR COST
● Medical resources consumed by health The more similar a clinical study is to “real-world”
care entities practice, the better estimate this method
● Are similar to the definition of direct medical provides.
costs
Sources of estimates for common direct medical
2. OTHER SECTOR COST cost include medications, medical services,
● Some diseases and their treatment impact personnel costs and hospitalizations.
other non-health care sectors such as
housing, homemaker services, and MEDICATIONS
educational services. ● Average Wholesale Price (AWP) is often
used when calculating the cost of
3. PATIENT AND FAMILY COST pharmaceutical products.
● Costs to the patient and his or her family - This is considered the “list price”of medications
without regard to whether the costs are and can be found in readily available sources
medical or nonmedical in nature. such as the Red book (USA), Drug Price
Reference Index (Philippines)
4. PRODUCTIVITY COST ● Wholesale Acquisition Cost (WAC) prices are
● Analogous to the economic term indirect estimates of costs to wholesalers from the
costs manufacturer
● Cost of the lost of productivity - analog of “catalog” prices, these estimates do
not include discounts
PERSPECTIVE OF COST MEASUREMENT ● Average Manufacturer’s Price (AMP),
calculated to reflect the average amount
Perspective - is an economic term that paid to manufacturers by wholesalers after
describes whose costs are relevant based on discounts are included.
the purpose of the study. - a more precise estimate of what buyers
(pharmacies) pay for medications, but is
CONVENTIONAL ECONOMIC THEORY proprietary and not available for general public.
● Suggests that the most appropriate and
comprehensive perspective is that of society. MEDICAL SERVICES
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● Such as office or clinic visits and outpatient
laboratory and surgical procedures
● These are frequently included in direct
medical cost estimates
● Various sources are available to estimate
these costs to the payers such as the
Physician’s Fee Reference (both a book and
a searchable database are available)
PERSONNEL
● When the perspective of the study is that
procider of health services (e.g. hospital,
clinic, physician’s office, pharmacy) and the
provision of different health care alternatives
involves a difference in the amount of time
spent by medical personnel, attributing a
cost to this difference is warranted.
● Estimating the time for the personnel may
include the use of the estimates based in
similar services or may involve more precise
work measurement methods.
● These work measurement methods may
include using a stopwatch to time how long
an activity takes on average (e.g.,
recording how long it takes for a nurse to
hang an intravenous medication bag)
● Or having the employees keep a log of
when they are involved in certain activities
(e.g., asking the pharmacist to write down
how many hours are spent in the clinic and
how many patients are counseled each day)
● Example:
If a hospital wanted to determine the
cost-effectiveness of instituting a pharmacy
discharge counselling service, an important cost
estimate would include the time of the
pharmacists who would provide this service. To
estimate these costs, the amount of time spent
in the activity would be multiplied by the salary
plus fringe benefits of pharmacists.
HOSPITALIZATION
● There are four methods for estimating
hospital costs. These are per diem, disease-
specific per diem, diagnosis-related group
(DRG), and micro-costing.
1. PER DIEM
─ Least precise method of estimating hospital
costs
─ An average cost per day for all types of
hospitalizations is used as a multiplier
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─ Example:
If the average cost reimbursement per day
for hospitalizations of all patients was
P2,000.00 per day, the cost estimate for a 3-
day stay for appendicitis would be the same
as the estimate for a 3-day stay for cardiac
bypass surgery (3 days x $2,000/day = $6,000)
2. DISEASE-SPECIDIC PER DIEM
─ More precise to use, estimated costs per
day for specific diseases, or a disease-
specific per diem
─ Example:
Average reimbursement rate may be
P1,500.00 per day for the appendicitis case
($4,500 for 3 days) and $10,00 per day ($30,000
for 3 days) for the cardiac surgery bypass
surgery case.
3. DIAGNOSIS-RELATED GROUP
─ A relatively available and often used
method of estimating hospital costs to the
payer
─ This method is used to classify clinically
cohesive diagnoses and procedures that
used similar resources.
─ Example:
Each patient is assigned one or more
than 500 DRGs based on factors such as
principal diagnosis, specific procedures involved,
secondary diagnoses, and age, and the
average reimbursement for each DRG can be
used to approximate the cost to the payer.
4. MICRO-COSTING
─ Most precise method of estimating hospital
costs
─ Involves collecting information on resource
use for each component of an intervention
to estimate and compare alternative
interventions.
─ Usually entails a review of patient’s hospital
records to determine what specific (e.g.,
medications, laboratory services,
procedures), were used and to assign a cost
to each service.
─ Records are kept for each service to
determine how much to charge the payers
(patient and third-party payers) for each
hospital stay.
IDENTIFICATION OF RESOURCE UTILIZATION - Its best to aim for a rate around 80% - anything
above the risks employee burn out, and
RESOURCE UTILIZATION anything less will not utilize the resource fully.
● Resource utilization is the process of
strategically measuring how effective
resources are.
● A resource utilization example is checking if
a certain employee is being maximized in
between projects. Thus, proper utilization of
resources makes your project successful.
● Resource utilization, ultimately, helps make
the most out of any available resources

What are the benefits of resource utilization?

● Proper utilization of resources is important for

maintaining productivity, because it
prevents staff from underperforming or
being overburdened by workloads and
burning out.
● Projects can be managed with better
visibility, reducing the risk of oversights
● Maximum utilization of resources gives you a
better return on investment (ROI)
● It ensures that specific resources aren't
being over or under-utilized
● It allows PMs to be agile and reschedule
resources as quickly as possible to avoid
problems surfacing or becoming worse

IMPLEMENTATION OF RESOURCE UTILIZATION

The most common formula for project managers

is full-time equivalent (FTE). This is used to
calculate how optimally a resource is being
used in terms of available workable hours.

To calculate this, divide the allocated hours a

resource will work during a project by the total
number of workable hours available in the
project. Multiply the result by 100 to create a
percentage, and the product will indicate the
effectiveness of the resource.

Percent effectiveness of resource = (Allocated

hours resource has worked / Total number of
workable hours) x 100

Example: If a worker has been allocated to a

project for 45 work hours, and that project has a
total of 60 workable hours, then that resource
has a utilization of 75% as per the FTE formula.
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