Direct measurement of health care costs

Cost identification is fundamental to many economic analyses of health care. Health care costs are often derived from administrative databases. Unit costs may also be obtained from published studies. When these sources will not suffice (e.g., in evaluating interventions or programs), data may be gathered directly through observation and surveys. This article describes how to use direct measurement to estimate the cost of an intervention. The authors review the elements of cost determination, including study perspective, the range of elements to measure, and short-run versus long-run costs. They then discuss the advantages and drawbacks of alternative direct measurement methods such as time-and-motion studies, activity logs, and surveys of patients and managers. A parsimonious data collection effort is desirable, although study hypotheses and perspective should guide the endeavor. Special reference is made to data sources within the Department of Veterans Affairs (VA) health care system.