The state of the art of costing health care for economic evaluation.

In this paper, the principles of costing health care for economic evaluation are outlined. Hypothetical and published examples are used to illustrate these principles. First, the economic concept of opportunity cost is defined. Secondly, the techniques of economic evaluation which follow from this definition are introduced: they are cost-benefit analysis, cost-effectiveness analysis and cost-utility analysis. Thirdly, a list of costs which should be considered for inclusion in either of these types of evaluation is provided, this listing being based on the concept of opportunity cost. Problems of measurement and valuation of costs are then outlined, focusing in particular on inflation, discounting, marginal costing, patient-based versus per diem costing, allocating overheads, costing capital and equipment and adjusting distorted market valuations. An example of sensitivity analysis is provided and also a checklist of questions to ask when setting up any costing exercise within an economic evaluation.