Principles of Costing for Global Health

PrinciplesofCostingforGlobalHealth

CarolLevin,PhDDepartmentofGlobalHealth

• Revieweconomicprinciples• Reviewcostconcepts• Overviewofcostingprocessandmethods• Application:HPVvaccination–multi-countrystudy

Overviewoftoday’slecture

• Cost isageneraltermthatcanrefertothevalueofresources/inputsusedtoproduceagoodorservice.• Thiscanrefertofinancial,economic,unitoraverage,orothertypesofcostsdependingontheingredientsincluded.

Whatisacost?

I.Conceptsofcost,asusedbyeconomists

• TotalCost• AverageCost• MarginalCost• Fixedversusvariablecosts• Discountingthefuture• Monetarycostsversusopportunitycosts• IncrementalCost

Basiccostconcepts

Typicaltotalcostcurves

Typicalaverage&marginalcostcurves

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• Brooker etal.Costandcost-effectivenessofnationwideschool-basedhelminth controlinUganda• VerticaldewormingprogramthroughMOH• Beganwith5nationalworkshops• Districtlevelworkshopforteachersandcommunitydrugdistributors• Tabletsadministeredinschoolsbyteacherswithsupervision

Example:Deworming,Uganda*

*ExamplecourtesyofSueHorton,UniversityofWaterloo

• Averagecostperchildwas$0.52,butrangedfrom$0.41to$0.91bydistrict• Drugcostwas40%overall,balancelabor

Example:Costofdeworming

ExamplecourtesyofSueHorton,UniversityofWaterloo

• Usingschool-baseddewormingexample• Somecostsvaryeveninshort-runwithnumberofchildrentreated• Somecostsdonotvaryinshort-runwithnumbertreated• Inlongrun,somecostswhicharefixedinthelongrunbecomevariable

Fixedvs.VariablecostsI

ExamplecourtesyofSueHorton,UniversityofWaterloo

• Supposevariablecostis$0.20/child(drugs)• Fixedcostis$1000/district(trainingsession)• District1has5000kids• District2has2000kids

• Averagecostperchildis:• $0.40inDistrict1($0.20plus$1000/5000)• $0.70inDistrict2)0.20plus$1000/2000)

Fixedvs.VariableII

• Totalcost• District1:$1000+(5000*$0.20)=$2000(fixedplusvariablecosts)• District2:$1000+(2000*$0.20)or$1400(fixedplusvariablecosts)

• Marginalcosts• District1and2are$0.20($0.20moreperchild)

• Unlessrunoutofspaceattrainingsession• Otherfixedcostsincrease—reachinglastmile.

Totalandmarginalcost

ExamplecourtesyofSueHorton,UniversityofWaterloo

• Conceptof“economiesofscale”• Spreadfixedcostsovermorechildren/patients/outputthenaveragecostsmayfallasscaleincreases• Atacertainpointaveragecostsmayincreaseagain=>“diseconomiesofscale”

Average/marginalcostcurves

ExamplecourtesyofSueHorton,UniversityofWaterloo

• Inflation• Makesuredollarsareworththesameamountintermsofwhattheycanpurchase

• Discounting• Makesurethatthedollarvalueisexpressedintermsofthemoneythatisneededatthepresenttime,ratherthanthetotalcashflow.• Discountingtakesintoconsiderationtimepreference(nowisbetterthanlater)

• Relatedtorealinterestrate

Multipleyearcostcalculations

• Economicconceptof“opportunitycost”• “Thereisnosuchthingasafreelunch”- MiltonFriedman• Howmuchwouldtheresourcebeworthinitsnextalternativeuse.• Useittovaluedonatedgoods,volunteerlabororgoodsandservicesforwhichtheremaynotbeamarketprice.

Opportunitycost

• Incrementalcostsaredifferentthanmarginalcosts.• Weuseincrementalcostsalotinestimatingcostsofglobalhealthprograms.• Whatisthecostofaddinganewserviceortechnologyorinterventiontocurrenthealthservices?• Notwhatisthecostofreachingonemorepersonorproducingonemoreoutput(marginalcost).

Incrementalcosts

Incrementalvs.MarginalCost