Equivalence of two healthcare costing methods: bottom‐up and top‐down

Abstract

This paper compares two quite different approaches to estimating costs: a 'bottom-up' approach, represented by the US Department of Veterans Affairs' (VA) Decision Support System that uses local costs of specific inputs; and a 'top-down' approach, represented by the costing system created by the VA Health Economics Resource Center, which assigns the VA national healthcare budget to specific products using various weighting systems. Total annual costs per patient plus the cost for specific services (e.g. clinic visit, radiograph, laboratory, inpatient admission) were compared using scatterplots, correlations, mean difference, and standard deviation of individual differences. Analysis are based upon 2001 costs for 14 915 patients at 72 facilities. Correlations ranged from 0.24 for the cost of outpatient encounters to 0.77 for the cost of inpatient admissions, and 0.85 for total annual cost. The mean difference between costing methods was $707 ($4168 versus $3461) for total annual cost. The standard deviation of the individual differences was $5934. Overall, the agreement between the two costing systems varied by the specific cost being measured and increased with aggregation. Administrators and researchers conducting cost analyses need to carefully consider the purpose, methods, characteristics, strengths, and weaknesses when selecting a method for assessing cost.

The cost effectiveness of early management of acute appendicitis underlies the importance of curative surgical services to a primary healthcare programme

“…23 Other studies have demonstrated that the difference can be as high as 20%. 27 The bottom-up approach is more accurate because it allocates costs based on the actual consumption of specific resources, especially those relating to administrative and other services that support patient care. These represent a significant proportion of total direct costs.…”

“…These represent a significant proportion of total direct costs. 27 In general, three types of costs need to be considered: direct costs, which include hospitalisation costs, physicians costs and medication costs; indirect costs, which are those borne by the patient (eg as time off work, time of travel and productivity losses); and opportunity costs. 28,29 An opportunity cost is the cost incurred because a limited resource is being used to treat a preventable pathology.…”

Facility-Level Variation in Hospitalization, Mortality, and Costs in the 30 Days After Percutaneous Coronary Intervention

“…Second, there is the potential for variation in attributing specific costs to a cost center across VA medical centers. 42 However, total costs should not be influenced by variation in attribution to cost centers because the VA has a national costing system. In addition, we have previously demonstrated a strong correlation (r=0.87) between use and costs.…”

Description of outpatient utilization and costs in group of veterans with traumatic brain injury

“…We used the method created by Yu et al [18] and Phibbs et al [19] to categorize these codes into primary care and internal medicine, psychiatry and substance use, rehabilitation, and other services (e.g., ancillary, diagnostic, prosthetic, dental, nursing home, and home care). We used Health Economics Resource Center (HERC) Average Cost data instead of Decision Support System data; the two sources are highly correlated when annualized, and HERC provides an annualized data set that is easy to use [20]. We extracted data for fiscal years 2002 to 2007, resulting in a median of 6 years (range: 4-6) of data per patient.…”