Marc A. Koopmanschap

The friction cost method for measuring indirect costs of disease

A new approach for estimating the indirect costs of disease, which explicitly considers economic circumstances that limit production losses due to disease, is presented (the friction cost method). For the Netherlands the short-term friction costs in 1990 amount to 1.5-2.5% of net national income (NNI), depending on the extent to which short-term absence from work induces production loss and costs. The medium-term macro-economic consequences of absence from work and disability reduce NNI by an additional 0.8%. These estimates are considerably lower than estimates based on the traditional human capital approach, but they better reflect the economic impact of illness.

Standardisation of costs: the Dutch Manual for Costing in economic evaluations.

The lack of a uniform costing methodology is often considered a weakness of economic evaluations that hinders the interpretation and comparison of studies. Standardisation is therefore an important topic within the methodology of economic evaluations and in national guidelines that formulate the formal requirements for studies to be considered when deciding on the reimbursement of new medical therapies. Recently, the Dutch Manual for Costing: Methods and Standard Costs for Economic Evaluations in Health Care (further referred to as ‘the manual’) has been published, in addition to the Dutch guidelines for pharmacoeconomic research. The objectives of this article are to describe the main content of the manual and to discuss some key issues of the manual in relation to the standardisation of costs.The manual introduces a six-step procedure for costing. These steps concern: (i) the scope of the study; (ii) the choice of cost categories; (iii) the identification of units; (iv) the measurement of resource use; (v) the monetary valuation of units; and (vi) the calculation of unit costs. Each step consists of a number of choices and these together define the approach taken. In addition to a description of the costing process, five key issues regarding the standardisation of costs are distinguished. These are the use of basic principles, methods for measurement and valuation, standard costs (average prices of healthcare services), standard values (values that can be used within unit cost calculations), and the reporting of outcomes. The use of the basic principles, standard values and minimal requirements for reporting outcomes, as defined in the manual, are obligatory in studies that support submissions to acquire reimbursement for new pharmaceuticals. Whether to use standard costs, and the choice of a particular method to measure or value costs, is left mainly to the investigator, depending on the specific study setting.In conclusion, several instruments are available to increase standardisation in costing methodology among studies. These instruments have to be used in such a way that a balance is found between standardisation and the specific setting in which a study is performed. The way in which the Dutch manual tries to reach this balance can serve as an illustration for other countries.

A Practical Guide for Calculating Indirect Costs of Disease

SummaryThere may be some discussion about whether indirect costs should be taken into account at all in an economic appraisal, but there is certainly considerable debate about the proper way of estimating these costs.This reviews offers a practical guide for quantifying and valuing these indirect costs of disease, both at an aggregated level of general cost of illness studies, and in an economic appraisal of specific healthcare programmes.Two methods of calculating these costs are considered: the traditional human capital approach, and the more recently developed friction cost method. The former method estimates the potential value of lost production as a result of disease, whereas the latter method intends to derive more realistic estimates of indirect costs, taking into account the degree of scarcity of labour in the economy. All necessary steps in the estimation procedure and the data required at various points will be described and discussed in detail.

Demographic and epidemiological determinants of healthcare costs in Netherlands: cost of illness study

abstract Objectives: To determine the demands on healthcare resources caused by different types of illnesses and variation with age and sex. Design: Information on healthcare use was obtained from all 22 healthcare sectors in the Netherlands. Most important sectors (hospitals, nursing homes, inpatient psychiatric care, institutions for mentally disabled people) have national registries. Total expenditures for each sector were subdivided into 21 age groups, sex, and 34 diagnostic groups. Setting: Netherlands, 1994. Main outcome measures: Proportion of healthcare budget spent on each category of disease and cost of health care per person at various ages. Results: After the first year of life, costs per person for children were lowest. Costs rose slowly throughout adult life and increased exponentially from age 50 onwards till the oldest age group (95). The top five areas of healthcare costs were mental retardation, musculoskeletal disease (predominantly joint disease and dorsopathy), dementia, a heterogeneous group of other mental disorders, and ill defined conditions. Stroke, all cancers combined, and coronary heart disease ranked 7, 8, and 10, respectively. Conclusions: The main determinants of healthcare use in the Netherlands are old age and disabling conditions, particularly mental disability. A large share of the healthcare budget is spent on long term nursing care, and this cost will inevitably increase further in an ageing population. Non-specific cost containment measures may endanger the quality of care for old and mentally disabled people. Key messages Little is known about demands for health care outside acute sectors In the Netherlands health costs are strongly age dependent, increasing exponentially after age 50 The five highest healthcare costs are for mental retardation, musculoskeletal disease, dementia, other mental disorders, and ill defined conditions Coronary heart disease, all cancers, and stroke accounted for only 9% of costs The main healthcare costs are for care not cure and costs are likely to increase rapidly in an ageing society

Economic valuation of informal care

Informal care makes up a significant part of the total amount of care provided to care recipients with chronic and terminal diseases. Still, informal care is often neglected in economic evaluations of health care programs. Probably this is related to the fact that the costs of informal care are to an important extent related to time inputs by relatives and friends of care recipients and time is not easy to value. Development of theoretically sound, yet easily applicable valuation methods is therefore important since ignoring the costs of informal care may lead to undesirable shifts between formal and informal care. Moreover, there is increasing evidence that providing informal care may lead to health problems for the caregiver, both in terms of morbidity and mortality. Until now these health effects have not been incorporated in economic evaluations. More attention for the identification and valuation of the full costs and (health) effects of informal care for the informal caregiver seems needed therefore. This contribution presents a critical evaluation of the available methods to incorporate informal care in economic evaluations.

Towards a new approach for estimating indirect costs of disease

Many researchers in the field of evaluation of health care doubt the usefulness of estimates of indirect costs of disease in setting priorities in health care. This paper attempts to meet part of the criticism on the concept of indirect costs, which are defined as the value of production lost to society due to disease. Thus far in cost of illness studies and cost-effectiveness analyses the potential indirect costs of disease were calculated. In the following a first step will be taken towards a new method for estimating indirect costs which are expected to be effectuated in reality: the friction cost method. This method explicitly takes into account short and long run processes in the economy which reduce the production losses substantially as compared with the potential losses. According to this method production losses will be confined to the period needed to replace a sick worker: the so called friction period. The length of this period and the resulting indirect costs depend on the situation on the labour market. Some preliminary results are presented for the indirect costs of the incidence of cardiovascular disease in the Netherlands for 1988, both for the friction costs and the potential costs. The proposed methodology for estimating indirect costs is promising, but needs further development. The consequences of illness in people without a paid job need to be incorporated in the analysis. Also the relation between internal labour reserves and costs of disease should be further investigated. Next to this, more refined labour market assumptions, allowing for diverging situations on different segments of the labour market are necessary.

Labor and Health Status in Economic Evaluation of Health Care: The Health and Labor Questionnaire

A health care program may influence both costs and health effects. We developed the Health and Labor Questionnaire (HLQ), which consists of four modules, to collect data on absence from work, reduced productivity, unpaid labor production, and labor-related problems. We applied the HLQ in several studies, and the results are encouraging.

Productivity losses without absence: measurement validation and empirical evidence

Productivity losses without absence are scarcely discussed in the literature. In this paper, the construct validity of three different measurement instruments for productivity losses without absence is investigated. The data were collected under employees of a Dutch trade firm, not in specific patient groups. On an average day, over 7% of the respondents were working with health problems, indicating that productivity losses without absence is quite a common problem. The amount of production losses related to these health problems are relatively small. However, for specific patient groups, the costs related to these productivity losses may be substantial.

Productivity Costs Measurement Through Quality of Life? A Response to the Recommendation of the Washington Panel

This paper comments on the recently published guidelines of the Washington Panel on incorporation of indirect non-medical costs, or productivity costs, in economic evaluations of health care. Traditionally the human capital or more recently the friction cost method is used to measure these costs. The Panel, however, recommends incorporating productivity costs as health effects in the denominator of the C/E ratio. This paper argues that incorporation of productivity costs in cost-effectiveness analysis expressed as health effects is not correct. Only direct health related effects on quality of life that cannot be meaningfully monetarized should be considered as health effects. Furthermore, measuring productivity costs in terms of quality of life may lead to misrepresentation of these costs from a societal viewpoint. This misrepresentation occurs because of the existence of social security systems and private insurance compensating for income reductions from disease. Furthermore, the patients viewpoint is useful for quality of life measurement, but not for measuring productivity costs from a societal perspective. Finally, alternative recommendations are formulated for incorporating societal productivity costs in economic evaluations of health care.

Indirect Costs in Economic Studies

SummaryIndirect costs of disease often constitute a substantial part of estimated costs or savings in economic evaluations of healthcare programmes. The human capital approach is almost unanimously used for estimating indirect costs, defined as production loss due to disease, although a growing number of authors question its validity. This article discusses the relevance of indirect cost estimates for health policy and reviews the current empirical and methodological literature on this issue. It describes several important issues and controversies regarding indirect costs, such as the consequences of short term absence from work for productivity, reduced productivity without absence from work, the influence of unemployment on production loss, the relation between health effects and indirect costs, and the possible medium term macroeconomic consequences of absence from work and disability. It concludes that indirect costs are relevant for health policy, provided that the estimates of indirect costs reflect the real changes in production due to disease, including the production of unpaid labour. Future research should focus on attaining these estimates. Indirect costs in economic evaluations should preferably be presented separately from direct costs, health effects and other study outcomes.