Cost analysis

Cost analysis is the most fundamental pharmacoeconomic study. This type of analysis deals solely in costs and does not directly account for the outcome of the therapy. Researchers can report their results from either micro-costing or macro-costing. Micro-costing involves enumerating each component of a therapeutic strategy and then determining the cost of each component. Tsao et a/.1 used micro-costing methods to determine the annual direct cost of diagnosing and treating melanoma. The authors systematically itemised the components of direct healthcare costs for melanoma care such as excisional biopsies, excision with primary closure, encounters with physicians, lymph node biopsy and interferon alpha. They estimated the annual direct cost of treating newly diagnosed melanoma in 1997 to be US$563 million.

Macro-costing determines the overall cost to care for a particular disease, usually with a population-based approach. Kirsner et al2 used a macro-costing approach to evaluate the cost of hospitalisation for dermatology-specific and diagnosis-related groups (DRGs) using data from the Medicare Provider Analysis and Review (MEDPAR) 1990-1996 database, which contains information for all Medicare beneficiaries using hospital inpatient services. The authors used codes for "major skin disorders", "minor skin disorders", "skin grafting/debridement for ulcer and cellulites", "skin ulcer" and "cellulitis", and found that in 1996, Medicare reimbursement was US$52 million for dermatology-specific DRGs and US$840 million for dermatology-related DRGs, a combined total of US$892 million.

Cost analysis is useful as a source of rigorous cost accounting and as the basis for other pharmacoeconomic studies. However, cost analyses do not account for outcomes and potential side-effects. Without accounting for the outcomes, the value of the therapeutic intervention cannot be easily measured. A costly medication that does not work well and does not provide quality outcomes has very little value. On the other hand, a costly medication that routinely improves lives may have very high value.

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