Elsevier

Health Policy

Volume 77, Issue 1, June 2006, Pages 51-63
Health Policy

Review
Cost-of-illness analysis: What room in health economics?

https://doi.org/10.1016/j.healthpol.2005.07.016Get rights and content

Abstract

Cost-of-illness (COI) was the first economic evaluation technique used in the health field. The principal aim was to measure the economic burden of illness to society. Its usefulness as a decision-making tool has however been questioned since its inception. The main criticism came from welfare economists who rejected COIs because they were not grounded in welfare economics theory. Other attacks related to the use of the human capital approach (HCA) to evaluate morbidity and mortality costs since it was said that the HCA had nothing to do with the value people attach to their lives. Finally, objections were made that COI could not be of any help to decision makers and that other forms of economic evaluation (e.g. cost-effectiveness, cost-benefit analysis) would be much more useful to those taking decisions and ranking priorities. Conversely, it is here suggested that COI can be a good economic tool to inform decision makers if it is considered from another perspective. COI is a descriptive study that can provide information to support the political process as well as the management functions at different levels of the healthcare organisations. To do that, the design of the study must be innovative, capable of measuring the true cost to society; to estimate the main cost components and their incidence over total costs; to envisage the different subjects who bear the costs; to identify the actual clinical management of illness; and to explain cost variability. In order to reach these goals, COI need to be designed as observational bottom-up studies.

Introduction

Cost-of-illness (COI) analysis represents the earliest form of economic evaluation in the health care sector. The principal aim was to evaluate the economic burden illness impose on society as a whole in terms of the consumption of health care resources and production losses. The implicit assumption was that the economic costs of illness represented the economic benefits of a health care intervention had it eradicated the illness.

COI studies have been widely debated and its usefulness as a decision-making tool has been questioned by many health economists. Nevertheless, COIs are among the commonest economic studies in healthcare in Italy [1] and abroad and are commonly used by organisations, such as World Bank, WHO [2], and the US National Institute of Health [3].

The principal aims of this paper are to shed light on this inconsistency in economic evaluation analysis and try to conceptualise COI within health economics in order to assess whether COI studies are worthy doing. The paper also aims at presenting a systematic picture of COI studies by analysing the methods used to carry out COIs, illustrating the different types of COIs, and discussing the most important issues that have characterised the debate around COIs in the last decades (e.g. Human Capital Approach versus Willingness-to-Pay). It finally tries to position COI in health economics and healthcare management as a useful economic tool for decision-making.

Section snippets

Methodological issues to carry out COIs study

Although some COI analysis made their appearance well before the mid-1960s, it is only in that period however that health economists, as Rice [4] first spelled out in great detail the methodology for costing illness. Some years later, Hodgson and Meiners [5] provided guidelines for those who intended to undertake COI studies. More recent position papers [2], [6], [7] on COIs still refer to these authors when the methods of the technique is at issue. These works used to classify the economic

Types of COI studies

COI studies can be described according to the:

  • 1.

    epidemiological data used: prevalence versus incidence approach;

  • 2.

    methods chosen to estimate the economic costs: top-down versus bottom-up;

  • 3.

    the temporal relationship between the initiation of the study and the data collection: retrospective versus prospective studies.

Cost evaluation in COIs

The cost-of-illness is estimated by identifying the cost-generating components and by attributing a monetary value to them. The monetary value is the opportunity cost, the value of the forgone opportunity to use in a different way those resources that are used or lost due to illness. Direct costs and production losses are the cost categories that should be valued to assess the total economic costs of illness.

As to direct costs evaluation, the controversy over the inclusion and evaluation of

Productivity costs

Productivity costs measure production lost because of morbidity and mortality. The theoretical grounds on which productivity cost estimation can be traced to is the human capital approach (HCA). Expected future earnings are used on the assumption that they reflect the individual's potential contribution to the economy, or more precisely, that a worker's wage equals the value of his marginal product. Although its basic principles have been used at least since the 17th century [24], the

Do COIs still have a role in health economics?

COI studies can have an important role in health economics as a decision-making tool. A major error has been that of continuing to consider COI analysis as a sort of CBA. Put it in this way, the majority of the efforts made by health economists in the last 30 years have been directed either to demonstrate how far COI studies are from the well accepted body of welfare economics or to find relationships between COI and the WTP techniques that could give credibility to COIs [56]. It is here

Conclusion

COI was the first economic evaluation technique used in the health field. The principal aim was to measure the economic burden of illness to society. COIs have been traditionally retrospective prevalence-based studies conducted by allocating national health care expenditures to different broad disease categories. The informative power of such an economic study relied upon the implicit assumption that the economic costs of illness would represent the economic benefits of a health intervention

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