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Costs in health: from the accounting, bookkeeping analysis to the economic evaluation

Some techniques of cost analysis in health are analyzed and it is proposed to introduce the economic perspective within the cost studies as a necessary complement in the context of health sector reform. It briefly reviews some specific changes that need to be introduced in traditional studies and concludes that such changes are in themselves cost-beneficial, since they only require slightly increasing the complexity of studies to significantly increase their usefulness.

Traditionally, cost studies in the Costa Rican Social Security Fund have been carried out from an accounting and bookkeeping perspective, mainly in order to establish rates for the uninsured population.1 These studies filled a need for the institution for long time, however, the needs have changed. The reasons for the demand for this type of study are today, and into the future, more related to the allocation of resources, be it between alternative treatments, between internal or external provision, between health care centers or any other forms Alternatives to allocate resources. This situation demands the introduction of social and economic factors in traditional cost analysis.

The need to increase efficiency, in order to improve the provision of services to the population, requires resources to be allocated to the best available alternatives, which in the health sector is only possible through in-depth studies that include Exhaustively the advantages and disadvantages-costs and benefits-of such alternatives.

We often face the Fund with the need to choose between two options that offer basically the same results, but with different costs. An example is the choice between internal provision or outsourcing of services: the difference is in costs – in terms of monetary costs, waiting times, etc. – because if the technology is the same both internally and externally, Differ significantly. In such cases, a cost minimization analysis is recommended.2 This type of study is used when, to meet a need for health care or service organization, there are two or more options, all of which offer very similar results.

There are different types of cost analysis, with different characteristics and objectives, that need to be known to apply them to the solution of specific problems.3
Different types of cost studies

In terms of costs, a first differentiation to be made is between economic costs and accounting costs. Accounting costs help with cash flow planning, tariff setting, or budgetary resource allocation, but they have limitations on the economic evaluation of those costs that do not involve cash flows, as well as on the evaluation of results.

A second type of study refers to the cost description. These studies are limited to making a collection of all the costs in which it is necessary to incur to carry out an intervention. 4 The cost description may include economic costs in general, but is not an economic assessment as such, not as compared to other alternatives nor evaluates the results. The usefulness of these studies is very limited; In general they can be used when other alternatives are not available to solve a particular problem or as a first stage for complete economic studies.

Another type of study is cost analysis, which compares two alternative interventions in relation to their costs. This type of analysis is a partial economic evaluation, since it does not contemplate the results of the options analyzed. An investment project can have a much lower cost than another, precisely because it does not incorporate all the necessary requirements to solve the problem in question. Cost analysis can be useful when there is a reduced and fixed amount for investment, which requires choosing the lowest cost option, leaving aside the results.

Finally, there is the analysis of cost minimization, which constitutes a complete economic evaluation, both in terms of costs and benefits. This type of analysis has the peculiarity of comparing interventions with basically equal results, so a step prior to performing a cost minimization analysis is to prove that the interventions to be compared do not differ substantially from the results.
Cost minimization analysis

The analysis of cost minimization thus appears as a type of study that responds largely to the current needs of cost evaluation by the Institution.

Since these studies are performed in order to serve the decision-making process, they must comply with a series of formal requirements that allow them to be read by a relatively large number of professionals (doctors, administrators, etc.). For this reason, it is recommended that they have the following characteristics.5

1. They must clearly explain the problem they aim to solve, the study objectives
and overall methodology used.

2. You should make a comprehensive description of the options available to address the problem including the option of doing nothing. This description should include the methods used and the possible effects on the patient, both in purely clinical terms and in terms of the benefit itself (discomfort, side effects, etc.). In this sense, every effort should be made to rely on Existing national or international evidence. 6

3. It should be analyzed or at least mention if other alternatives to the future are envisaged and what would be, in general terms, the potential impact of them.

4. Clearly identify all relevant social costs and benefits. As a public entity, the Fund seeks not to maximize its corporate profits but the social benefits. For this reason, the costs of the programs should include those of the population, those of the productive sector and those of other public institutions.

5. Measure in appropriate and homogeneous units both costs and benefits and explicitly evaluate the methods used, with their advantages and disadvantages.

6. Identify the temporal distribution of costs and benefits and present the results to the current time, using appropriate update rates. For the users of the studies, the results are clearer if they are brought to the present than if they are located in another point of the temporal space.

7. When costs or benefits are not constant per unit of production for any of the alternatives evaluated, a marginal cost-benefit analysis should be performed. For some technologies, average costs may increase or decrease as production increases. Likewise, an increase in production may reduce the benefit of treatment, either through overcrowding of patients, because the quality of personal care falls or for other reasons. This situation requires a break-even analysis of production, which could eventually lead to the choice of a combination of alternatives. Again, an example is the dilemma between internal production and outsourcing, where a combination of alternatives could be optimal in some services. 

8. Perform a sensitivity analysis to observe the impact of the change in magnitude of some of the variables used in the analysis, such as the number of patients treated, discount rate, equipment life and, finally, All those variables whose magnitudes have been assumed or estimated and that could vary within a certain range.

The analysis of cost minimization requires first of all to be exhaustive with the relevant costs. The main categories of costs to be taken into account are presented in the No. 1 box . Irrelevant costs, that is, those that do not bring a fundamental difference to the result, can be omitted, since the cost of collecting them often makes their inclusion not in itself a cost benefit.

A relevant aspect in minimizing costs is to be clear about the perspective from which the analysis is done. An element that is a cost to one participant could be a benefit to another. When using a social perspective, the analysis includes the costs of all the economic agents involved. This is the broadest analysis whenever there are doubts as to the costs and benefits to be taken into account.

When comparing options, it is possible to ignore the common costs between them and compare only the costs that differ. For example two options may have the same administrative costs, imply the same costs of transferring the patient, etc., which allows them to be excluded from the analysis. However, cost exclusion precludes future comparison with new options that differ in omitted costs.

Possible problems in determining costs

The valuation of each element, both on the cost side and the benefits, should be made at market prices. However, in some cases there are particular reasons for using another type of cost. An example is a situation in which an external donation of an asset is received, but it is necessary to condition a space, in this case the real cost that must be imputed to the project is the conditioning of the space. The price of the asset is not considered, since it does not represent an opportunity cost for the system, that is, the asset is received or not received, but can not be exchanged for another option.

In other situations, it is necessary to impute opportunity costs to goods and services not available in the market or to apportion the cost of an investment between several services or various periods of time. In these cases you have to resort to some special techniques to allocate the costs, which we detail below.

– Assessment of the time not worked by the patient and his / her relatives or companions. This situation presents two problems: on the one hand a salary should be imputed to each one of these people and, on the other, one must estimate the time that each one of them destines to the attention. Since these figures vary from one patient to another, time estimation requires a review of the distribution of characteristics that may affect it, such as age and the range of motion (which determine, for example, the need for a companion) , Geographic dispersion of the population served, average duration of treatment, etc. Regarding the evaluation of the time devoted to health care, the average salary or salary is used that is representative of what the patient and his family could earn during the time they dedicate to the care; However, when it is necessary to allocate free time to health care, the rate of extraordinary remuneration (payments for extraordinary days) is used. The argument behind this latest valuation is that it is the rate at which the waiver of leisure time is paid on the market.

– Capital investments. Capital costs have several differences with respect to the operating costs of the programs. Unlike the latter, capital costs represent one-time payments, usually at the start of the program. These payments are invested in an asset that is used over time, and that is depreciating during that period. In this way, capital investment represents two costs: on the one hand is the opportunity cost of the amount invested and, on the other hand, the cost of the depreciation that the asset is suffering as time passes. One method to address these two costs together is to analyze the initial capital investment over the useful life of the asset, calculating its equivalent annual cost. Another way of dealing with capital investments is to determine the annual amortization using some accounting, bookkeeping method and then determine the opportunity cost from the asset’s undepreciated balance.

– Another problem in evaluating costs is cost-sharing by programs. Although there is no exact way to prorate these costs between programs, there are several techniques among which you can choose to carry out such a task. The idea is to determine an allocation base, which is considered to be related to the use of the service, to allocate maintenance costs; The number of hours contracted by the service in relation to the number of hours contracted by all the final production services, to assign administration jacks; The number of employees of the service in relation to the total number of hospital workers, to allocate telephone expenses. A formula that although crude, it may be practical for distribution overhead is:
Cost = Cost program directly allocable + (hospital Net expense / total patient-day X (number of patient-days attributable to the program).

When the difference from this calculation to a finer one is not significant, this formula is appropriate. This is a principle that must be applied in all calculations more exact entails a very large effort and the gain in accuracy does not have a significant effect on the final result, it is preferable to use a rough approximation.
Conclusions and recommendations

– The new model of resource allocation, implemented by the reform process, requires the introduction of a new perspective in cost studies, going from bookkeeping, accounting studies to economic studies, which, among other things, introduce a perspective In the evaluation of costs and benefits. Visit Online xero bookkeeper sydney for more information.
– Economic cost minimization studies appear as the appropriate technique for solving many of the resource allocation dilemmas. Indeed, in the hospital environment and in the administration of health system resources, the problem of choosing between two or more alternatives with the same results but with differences in costs, which must be solved From a cost minimization analysis.
– Cost minimization studies do not differ significantly from cost accounting studies in terms of the difficulty of their elaboration; However, they present significant differences from the perspective of their usefulness. For this reason, the proposed change of perspective is in itself cost-effective.
– The institution has human resources of wide experience in the evaluation of costs, which facilitates the development of a team specialized in the matter. The increase in the demand for this type of studies, which is even more visible towards the future, fully justifies the investment that the institution makes in order to develop a unit with such functions. 



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