Cost analysis: concepts and application.

Public health nurses are increasingly called upon to justify the cost of care or to decide which of two alternative programs is more cost-effective. Cost studies can be complex and difficult to conduct, but an understanding of the basic techniques allows nurses to fully participate in planning, implementing, and evaluating programs that greatly impact the health of the community. This article defines some of the basic terms used in health economics, discusses standard methods of cost analysis, and provides an example of neonatal screening to illustrate methods of describing, measuring, and assigning a value to cost items.

A comparative cost analysis of newborn screening for classic congenital adrenal hyperplasia in Texas.

OBJECTIVE: Texas mandates a two-test newborn screening program for congenital adrenal hyperplasia (CAH): one test at birth and a second test at approximately one to two weeks after birth. The authors compared the dollar cost of detecting infants with CAH clinically and through the screening program. METHODS: The authors estimated the costs of screening newborns in 1994 for CAH, including resources used by the Texas Department of Health and the broader cost to society. RESULTS: Fifteen infants with classic CAH were diagnosed in Texas in 1994 among 325,521 infants born (1:21,701 cumulative incidence). Seven infants were detected clinically and the others were detected through screening, six on the first screen and two on the second screen. The first screen identified all previously undetected infants with severe salt-wasting CAH. The cumulative cost to diagnose the seven infants detected clinically was $79,187. The incremental costs for the screening program were $115,169 per additional infant diagnosed through the first screen and $242,865 per additional infant diagnosed through the second screen. CONCLUSIONS: If the goal is early diagnosis of infants with the severe salt-wasting form of CAH, a single screen is effective. If the goal is to detect infants with the simple virilizing form of the disorder who may benefit from early treatment, the second screen is necessary, but it is not as cost-effective as the first screen.

Health care's double standard: the prevention dilemma.

Curative services often have been judged by their perceived value, while preventive services have been held to a more rigorous standard of documentation. The dilemma for preventive services is not driven by evidence of their cost-ineffectiveness relative to curative services, but by the paucity of evidence of any type. The issues are whether preventive services of different types are perceived as having value, by what criteria these perceptions are measured, and by whom they are determined. We examine five key constituencies, the measures by which the value of prevention is judged, and the implications for the funding of prevention activities.

Have Medicaid reimbursements been a credible measure of the cost of pediatric care?

OBJECTIVE: Despite uncertain validity as a measure of cost, Medicaid reimbursements may be used to compare the costs of different pediatric interventions. We explored the credibility of Medicaid reimbursements as a measure of the costs of inpatient care associated with two different approaches to follow-up care for high-risk indigent infants. DESIGN: Analysis of Medicaid reimbursements within a randomized trial of primary follow-up care. PATIENTS: Infants

Patterns and economic effects of drug overdose mortality in Texas: 1980-1986.

Drug overdose mortality and its economic consequences are explored for ten different drug categories in this article. Data on drug overdose mortality in Texas for the years 1980-1986 are examined and a cost of mortality analysis is presented using the human capital methodology. In addition, mortality rates per 100,000 population are presented for each drug category. The results indicate that the cost of drug overdose mortality has more than doubled over the six-year period. The greatest growth in mortality cost has been for narcotics and cocaine, with commonly prescribed psychoactive drugs remaining fairly constant. The results suggest that men are at far greater risk of drug overdose than women with respect to illicit drugs. Women, however, appear to be at greater risk for overdose from commonly prescribed drugs.

Maternal serum alpha-fetoprotein screening for Down syndrome: economic considerations.

The economic consequences of using an index of maternal age and maternal serum alpha-fetoprotein (MSAFP) screening to indicate risk of Down syndrome (DS) are examined. If DS screening indicated solely by a given maternal age is economically justifiable, then amniocentesis indicated by a DS risk equivalent to that maternal age cutoff, but based on an index of maternal age (for ages below the cutoff) and low MSAFP results, is also economically justifiable. It is concluded that the extant use of MSAFP screening for DS is a move toward the cost-effective use of scarce resources that can be made available with coordinated planning. However, increased professional and public awareness may result in significant increases in aggregate demand for these services. While MSAFP screening for DS is economically justifiable, there exists some potential for bottlenecks at the aggregate level, and these should be considered in conjunction with recommendations that the technology be adopted on a widespread basis.

Economic considerations in technology assessment: the case of genetic disease.

This paper describes economic issues pertinent to health care technology assessment. Of interest are the allocation of resources between health and other sectors of the economy, between alternative services within the health sectors, and the costs of producing the services that are selected. These issues are discussed and then illustrated by reference to a specific area of health care technology: screening for and intervention against genetic diseases. It is concluded that investments in screening programs for Tay Sachs disease and Down Syndrome are allocatively efficient. Indications are that such investments are also efficient for interventions against Neural Tube Defects; however, there are complex ethical issues involved. There are many genetic diseases for which screening tests have yet to be developed. As such tests become available, each will have to be evaluated on its own merits relative to alternative health sector investments.

Economic evaluation of occupation-based programs: conflicting criteria and the case for government subsidy.

Differences in the economic criteria for evaluating the efficiency of occupation-based intervention programs vs public (nonprofit) rehabilitation programs are highlighted and the consequences of these differences are discussed. It is shown that if the development of such programs is determined strictly by the employer's criteria, they will not produce the full benefits for society that they are capable of. The incentive therefore exists for government to encourage the development and proliferation of quality programs. It is proposed that this can be accomplished by altering the employer's incentives (through subsidies or tax credits), thus making the private and public economic criteria for program evaluation more consistent.

Do-not-admit versus inpatient surgery in an HMO: determinants of choice and the implications for medical care costs.

We develop a model for investigating the implications of policies that have encouraged a shift from inpatient to do-not-admit (DNA) surgery. We use discriminant function analysis on date for two surgical procedures from the Kaiser Permanente Medical Care Program of Portland, Oregon. Case attributes found to be significantly associated with the choice of surgery mode are surgeons' rate of inpatient surgery, number of chronic conditions per patient, time in surgery, number of procedures performed, and type of anesthesia used. Our estimates of cost savings provide support on economic grounds for the use of DNA surgery, for the types of surgery investigated. Our results also suggest that simple evaluation methods, based on the mean length of stay and on extrapolation of proportion of DNA cases from the base year to the current year, may overestimate the cost savings derived from the shift to DNA surgery.

Prospective economic evaluation of lead poisoning prevention programs.

This paper illustrates an economic methodology for the prospective evaluation of individual lead poisoning screening and prevention programs. A method is presented for prospectively estimating the prevalence and expected health consequences of lead poisoning in an urban population. The economic costs of these consequences are calculated and cost-benefit analysis is used to complete the evaluation. A case study is developed to illustrate the potential utility of the model as a framework for the prospective evaluation of programs under funding consideration.

Estimates of preventive versus nonpreventive medical care demand in an HMO.

Multiple regression analysis is used to investigate whether medical services in a large HMO are distributed primarily on the basis of need and predisposing factors (such as health status, age and sex) or according to enabling characteristics (such as coinsurance and income) of the population. Equations are formulated to estimate the likelihood and volume of preventive visit demand, nonpreventive visit demand and hospital admissions for a sample of 3,892 individuals enrolled in the Kaiser Foundation Health Plan of Portland, Oregon. The results indicate that predisposing and need factors are the main determinants of nonpreventive visits and hospital utilization, while enabling characteristics are important determinants (along with age and education) of preventive utilization. There are marked differences in the impact of explanatory factors on utilization by dependents (children) versus nondependents (adults).

The economic returns to employment-based alcoholism programs: a methodology.

A model for the estimation of the economic returns to a firm's investment in an occupational-based alcoholism rehabilitation program is described.

A multivariate analysis of the likelihood and volume of preventive visit demand in a prepaid group practice.

An economic framework for the investigation of the demand for preventive medical care services is suggested and empirical models for the likelihood and volume of preventive physician visits are specified. These are tested using data on 3,892 individuals enrolled in the Kaiser Foundation Prepaid Health Plan of Portland, Oregon. Preventive visits, delineated by the Kaiser Clinical Behavioral Classification System, included general medical examinations, eye examinations, well-child care and immunization services. Multiple regression is used to estimate the likelihood of preventive visits for all persons and the volume of preventive visits for users. Income and coinsurance were the most significant economic variables in the likelihood equation, possessing the expected positive and negative signs, respectively. The usual findings of a positive education effect and negative family size effect were supported by the results. The economic variables were less significant in the volume equations than in the likelihood equations, suggesting that system and physician effects may neutralize these factors. Females were more likely to make a preventive visit than were males and the relatively young and old were the heaviest age-group users of preventive care. Perceived helath status did not appear to significantly affect preventive care demand.

An economic evaluation of a genetic screening program for Tay-Sachs disease.

The resolution of policy questions relating to medical genetic screening programs will not be without considerable difficulty. Examples include such issues as the optimal degree of screening program expansion, the relative values of screening for different genetic diseases, the appropriate sources of program funding (public vs. private), and the relative value of funding expanded genetic screening programs vs. research directed toward elimination of genetic traits themselves. Information on the net impact of the relevant alternatives is greatly needed, and this need will increase if the National Genetics Act receives funding approval. We have provided what is hopefully a contribution toward this end. While our analysis pertains to a specific disease and a specific screening program for that disease, the methodology is readily generalizable to other genetic diseases, as well as programs of any size or structure. Hopefully, this will serve to stimulate further research efforts that we believe are needed for the objective consideration of resource allocation alternatives.