There are several issues that apply to all economic analyses. These include the perspective of the analysis, outcomes using cost versus charge, and discounting.

The importance of perspective

Cost analyses can be constructed in different ways based on the factors included in the analysis. In order to determine which costs to include in an analysis, one needs to determine the perspective of the payer. In the US healthcare system, there are three “payer” perspectives: society, the hospital, and the patient.

The perspective of the patient is the most difficult and subjective to evaluate as it depends on the patient’s individual insurance, deductible level and employment status. In the US, many employers are the primary source of health insurance. A patient with insurance or financial independence may be more likely to seek medical care rather than delay care until it is urgent. The level of drug benefits and co-pay may affect a patient’s willingness to initiate medical management and/or remain compliant with medications which are relatively expensive. Patients without insurance may delay their care and are less likely to purchase costly medications. In countries where medical care is freely available to all citizens, this issue may have less impact on patient decision making.

The hospital’s perspective is usually the easiest to measure because most of the resources utilized can be itemized and accounted. The hospital costs include the resources required to perform a procedure and immediate postoperative care. Hospitals have costs which are individualized to the patient, including the cost of the resources used in surgery (equipment, supplies), medications, room and board, nursing, etc. There are also the general costs such as hospital administration and amortization of capital equipment. In evaluating the cost-effectiveness of surgical approaches, for example, the cost of capital equipment can play a significant role. A hospital usually does not receive additional payment for robotic prostatectomy but has to pay for the robot and its maintenance [2,3]. Similarly, the outlays for a shock-wave lithotripter and a ureteroscope are significantly different while treatment outcomes may be very similar.

An important consideration when evaluating costs from the hospital’s perspective is that budgets within hospitals are often divided into different departments. Some areas may be financially profitable while other areas may lose money for certain procedures. Thus, the costs associated with obtaining new equipment or maintaining current equipment must be viewed in relation to the entire hospital rather than considering the impact on one budget, such as that of the operating room. Some procedures may be associated with decreased length of stay, but may also have higher operating room supply costs (e.g. laparoscopic procedures such as nephrectomy and retroperitoneal lymphadenectomy). Hospital administrations must therefore take a broader look at the financial implications of new technologies as they affect different cost centers in different ways.

The perspective of society involves both direct and indirect costs. As Medicare plays a large role in financing healthcare in the US, a significant percentage of direct costs affects the overall national healthcare budget. Costs borne by private insurance companies are also passed on to employers and participants through higher premiums. Society is also influenced by loss of work productivity that results during an illness and recovery. These indirect costs can be difficult to measure but can represent a significant loss of gross national revenue. Other indirect costs include those incurred by caregivers who lose productivity. Furthermore, there are quality of life issues and morbidities that can have significant costs for the rest of a patient’s life. For example, a patient with incontinence and impotence after prostatectomy will incur life-long costs not immediately accounted for by his hospital and immediate postoperative care. Likewise, a patient who has renal insufficiency after nephrectomy may incur significant costs that are a direct outcome of kidney cancer but not accounted for by evaluating the cost of the nephrectomy from a hospital perspective.

Cost versus charge

Evaluating the literature regarding health economics can be confusing because of the interchangeable use of the terms cost and charge. The charge of a service, procedure or medication incorporates the cost of an item, indirect costs and profit margins. Discerning between analyses that use cost data as opposed to charge data is critical because there are significant differences in how these values are derived and their accuracy in reflecting true resource utilization. Many published evaluations use charge figures provided by the hospital system because they are often easier to obtain [4]. The disadvantage of using charge data is that they do not reflect the true resource allocation as they account for profit margins. There are several confounding factors involving use of charge data. Different departments in a hospital use different cost-to-charge ratios such that the radiology department may charge twice as much as the cost for an x-ray but the pharmacy may charge four times as much for a medication. Another consideration is the fact that most hospitals do not get paid the actual amount that they charge due to Medicare set rates and insurance contracts. The reimbursement varies per hospital and geographic location such that comparing costs is a more uniform means of evaluating differences between treatment or management options.

Unfortunately, even the use of costs can bring variability. The true cost of a procedure depends on utilization. For example, if one pays $1 million for a robot and uses the procedure 10 times per year then that cost is distributed over those 10 patients. However, if one uses the robot 100 times per year then the cost is 10-fold lower per patient [2]. This is true for use of any capital equipment such as computed tomography, shock-wave lithotripters, laboratory equipment, etc. It is also true for hospital beds since the costs of nursing and building the hospital are fixed, so the increased utilization of the facilities of the hospital, such as the emergency room or beds, will affect the per-unit cost of patient care.