This is lesson 3.2.3 Unit Costs. In the previous lesson, we briefly touched on the idea of a unit cost or probably a price, at the end of the lesson. In this lesson, we'll discuss a few more details and considerations thinking about and using Unit Costs. The first consideration, when thinking about unit costs, applies to unit costs in the hospital setting. It's important to remember that hospital charges are not the same as hospital prices or costs. A hospital charge is what the hospital lists as the charge for a service maybe $200 for a surgery. The price that's paid by Medicare of the insurers is likely less than 200 maybe that's 150, that would be the price of the service. The cost of the service on the other hand is what it costs for that hospital to actually provide or produce that surgery. That maybe $125, that would mean that if the insurer reimburses $150 for what costs $125, the hospital makes $25. In this sense, the unit cost that we'd be interested, because it would be what applies to the patients, or what the insurers would pay would be the price, not the charge, and not the cost. Hospital charges can be adjusted to reflect costs by using the Medicare cost to charge ratio found in the Medicare Cost Reports. Although we're most interested in prices, costs are still a better approximation, or a proxy for price, rather than charges. Hospital prices for privately insured patients usually need to be calculated using administrative claims data from a commercially insured population because charges do not reflect directly the prices or the cost of procedures and can lead to misleading results. A second consideration is inflation, in other words, how prices change over time. If we want to calculate prices over time, we could adjust for that change in price over time using the consumer price index, or we could more accurately adjust for the change in price over time using the medical components of the Consumer Price Index. The medical component is based specifically on medical care products and services, rather than a collection of all products and services in the economy. A third consideration for using unit costs, is that of patient time and how to estimate a price for patient time costs which don't usually have prices associated with them. Patient time cost can be estimated by the wage rate of the patients in the targeted intervention. However, not all patients in the targeted intervention may have a wage rate. Stay at home parents will have to have their wages imputed. One way to do this is to find the age, gender, education, labor experience of a housewife, if that is the person, and we're trying to identify the price of the time cost for. And then, impute the wage from our regression equation that estimates the wages from all of these variables listed for the entire population. Other groups of patients who won't necessarily have wages are retired people or children. Who may be receiving health care, but won't have wages that can be used to estimate the time costs because they are not working, there's no productive time cost that could be used to impute the wage like there is for stay at home parents. However, there are time costs associated with leisure in a similar approximation could be used to estimate the value of the wage based on the value of leisure to retired individuals or children. Another consideration, an example of wages or prices that need to be imputed are those of informal caregivers. Again, the approach is similar, so we'd find the age, gender, education, labor experience of the informal caregiver population. And impute the wage from a regression model that estimates wages from all of the variables for the entire population, not just the informal caregiver population. In other words, this approach estimates what the informal care giver would make if they were in the working population. Now let's consider an example. Suppose there's a person who has to stay home from her job as an attorney to care for an ailing parent. In this sense, this person is an informal caregiver, however they have a job. In this case, we could use her actual wage rate as a proxy for the unit cost, or price, of the informal care giving. Finally, there's one more consideration about future costs. We have discussed adjusting for inflation, but there is also a question of whether or not to include future costs in the analysis at all. Generally, future medical or healthcare costs should be included. This is not a controversial practice if the costs that are included are associated with the condition being treated by the intervention. For example, cancer treatment today that prevents cancer growth or cancer progression would include all costs associated with preventing cancer in the future. However, future medical or health care costs that are unrelated to the intervention or condition that are being assessed are controversial. These refer to any medical costs that would be included due to treating another condition that resulted from treating the original condition. For example, if we're trying to assess cancer treatments and then include the cost of a heart attack. Ten years from the start of the cancer treatment assessment because the person lived for ten years after being treated for cancer rather than only five years. It would be controversial to include the cost of the heart attack in the assessment of the cancer treatment. Although, there's no hard and fast rule about this and it's up to the analyst to determine which costs to include. Future costs generally should only include those associated with the condition or intervention that's being assessed.
