The process of estimating the cost of surgery: Providing a practical framework for surgeons

Over the last decades, health care costs have been increasing at an alarming, exponential rate which is considered unsustainable. Surgical care utilizes one‐third of health care costs. Estimating, evaluating, and understanding the cost of surgery is a vital step towards cost management and reduction. Current cost estimation studies and cost‐effectiveness studies have vast disparities in their methodology, with published costs of Operating Room varying from as low as $7 and as high as $113 per minute. Costs in surgery are distinguished as direct and indirect. Allocation of direct costs involves identification, measurement, and valuation processes. Allocation of indirect costs involves the allocation of capital and overhead costs and of indirect department costs. Annualised capital costs and overhead hospital costs are then allocated to surgery by either the cost‐centre allocation or the activity‐based allocation frameworks. Indirect department costs are allocated to a specific surgery by weighted service allocation or hourly rate allocation or inpatient day allocation, or marginal markup allocation. The growing societal, financial and political pressure for cost reduction has brought cost analysis to the forefront of healthcare discussions. Thus, we believe that almost every single surgeon will eventually enter the field of healthcare economics by necessity. This review aims to provide surgeons with a practical framework for engaging in cost estimation studies.