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

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  • Michael K. Chapko
  • Chuan‐Fen Liu
  • Mark Perkins
  • Yu‐Fang Li
  • John C. Fortney
  • Matthew L. Maciejewski

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. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Michael K. Chapko & Chuan‐Fen Liu & Mark Perkins & Yu‐Fang Li & John C. Fortney & Matthew L. Maciejewski, 2009. "Equivalence of two healthcare costing methods: bottom‐up and top‐down," Health Economics, John Wiley & Sons, Ltd., vol. 18(10), pages 1188-1201, October.
    • Handle: RePEc:wly:hlthec:v:18:y:2009:i:10:p:1188-1201
    DOI: 10.1002/hec.1422
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    1. Cardinaels, Eddy & Roodhooft, Filip & Herck, Gustaaf van, 2004. "Drivers of cost system development in hospitals: results of a survey," Health Policy, Elsevier, vol. 69(2), pages 239-252, August.
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    13. Rozalia Nistor & Costel Nistor & Mihaela-Carmen Muntean & Ludmila Daniela Manea, 2013. "Information And Communication Technology In Health Services In Romania," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 106-114.
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    20. Shankar Prinja & Akashdeep Singh Chauhan & Pankaj Bahuguna & Sakhtivel Selvaraj & V. R. Muraleedharan & Thiagarajan Sundararaman, 2020. "Cost of Delivering Secondary Healthcare Through the Public Sector in India," PharmacoEconomics - Open, Springer, vol. 4(2), pages 249-261, June.
    21. Akashdeep Singh Chauhan & Shankar Prinja & Sushmita Ghoshal & Roshan Verma & Arun S Oinam, 2018. "Cost of treatment for head and neck cancer in India," PLOS ONE, Public Library of Science, vol. 13(1), pages 1-13, January.
    22. Shankar Prinja & Gursimer Jeet & Ramesh Verma & Dinesh Kumar & Pankaj Bahuguna & Manmeet Kaur & Rajesh Kumar, 2014. "Economic Analysis of Delivering Primary Health Care Services through Community Health Workers in 3 North Indian States," PLOS ONE, Public Library of Science, vol. 9(3), pages 1-9, March.

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