How to calculate indirect costs in economic evaluations

Area of Science:

• Health Economics
• Societal Cost-Benefit Analysis
• Economic Theory

Background:

• Indirect costs are crucial for societal perspective economic evaluations.
• Accurate estimation of indirect costs is essential for robust cost-effectiveness analyses.
• Existing methods for estimating indirect costs vary, impacting study conclusions.

Purpose of the Study:

• To evaluate the theoretical consistency of indirect cost estimation methods.
• To identify components of indirect costs that should be included in societal studies.
• To compare the friction-cost approach, QALY approach, and human capital-cost approach.

Main Methods:

• Theoretical analysis based on economic principles.
• Critique of the friction-cost approach's assumptions regarding leisure valuation and labor markets.
• Examination of the inclusion of indirect costs within Quality-Adjusted Life-Year (QALY) calculations.

Main Results:

• The friction-cost approach excludes key indirect cost components and relies on unrealistic assumptions.
• The QALY approach does not encompass all indirect costs as suggested by some panels.
• Neither the friction-cost nor the QALY approach is theoretically sound for societal indirect cost estimation.

Conclusions:

• The human capital-cost approach remains the most theoretically consistent method for estimating indirect costs from a societal perspective.
• The friction-cost and QALY approaches are not recommended due to their theoretical limitations.
• Future economic evaluations should prioritize methods grounded in established economic theory for accurate societal cost assessment.