1. Mohammad Aljawadi PharmD, PhD Clinical Pharmacy Department King Saud University PHCL 431 Sep, 2015

2. Upon completing this chapter, the pharmacy learner will be able to:  Define different costing terms.  Categorize types of costs.  Determine the perspective of a study based on types of costs measured.  Understand when adjusting for timing of costs is appropriate.  Calculate net present value.  Compare average costs with marginal or incremental costs.  List common sources for obtaining cost data.

3.  Cost are used to estimate the resources (or inputs) that are used in the production of a good or service.  Resources used for one good or service are no longer available to be used for another.  Opportunity Cost:  Defined as the value of the best-forgone option= the value of the “next best option.”

4.  In a private hospital  New pharmacy (inpatient, outpatient)  should hire a pharmacy technician (PT) for the inpatient pharmacy  instead, the director used one of the full time pharmacists in the outpatient pharmacy to cover the PT job.  What is the cost to the pharmacy at the end of the day? The cost of the outpatient pharmacist (No of hours worked * cost per hour) + the cost of the forgone Rxs that the pharmacist would have filled had he/she was in the outpatient pharmacy.

5.  Due to limitation in budget, a PT committee decided to purchase a new medication for treating hypertension over a new medication for treating DM?  What is the cost to the hospital? The cost of new medication + Health care costs associated with not providing the new treatment for DM

6.  A female clinical pharmacist covering an anticoagulation clinic is going for two months maternity leave.  What is the cost to the hospital? Cost for two months salary + Cost of the forgone savings due to suspension of services provided by the clinical pharmacist

7.  Cost of production: Cost of the resources (or inputs) that are used in the production of a good or service.  Price or charge: The monterey value that is asked by the seller for a good or a service  Reimbursed amount =allowabale charge: the amount that a payer “allows” to be charged for a specific product or service; the monetary amount the payer agrees to reimburse (pay).

8.  Price or Charge  Reimbursed amount  Cost of Production The highest The lowest

9.  Complements Two goods for which an increase in the price of one leads to an decrease in the quantity demanded of the other.  Substitutes Two goods for which an increase in the price of one leads to an increase in the quantity demanded of the other.

10.  Inslulins and subQ injections  Two ACEIs  A lab test that is essential to guide a treatment dose adjustment in patients with a chronic disease  Sulfonylureas and metformin

11.  Direct medical costs  Direct non-medical costs  Indirect medical costs  Intangible costs  Patients and family direct costs  Health care sectors costs  Other sectors costs  Productivity costs.

13.  Direct medical costs  Direct non-medical costs  Indirect medical costs  Intangible costs  Patients and family direct costs  Health care sectors costs  Other sectors costs  Productivity costs.

14.  These are medically related inputs used directly to provide the treatment.  Pharmaceuticals  Diagnostic tests  Physician visits  Pharmacist visits  Emergency department visits  Hospitalizations

15.  Costs to patients and their families that are directly associated with treatment but are not medical in nature.  Cost of traveling to and from the physician’s office, clinic, or the hospital  Child care services for the children of a patient  Food and housing required for the patients and their families during out-of-town treatment.

16. Indirect CostIntangible Cost  Costs that result from the loss of productivity because of illness or death  Cost of closing the shop to receive treatment  Absence from work  Cost of suffering, pain, anxiety or fatigue associated with an illness  Willingness to Pay  Utility

18.  Direct medical costs  Direct non-medical costs  Indirect medical costs  Intangible costs  Patients and family direct costs  Health care sectors costs  Other sectors costs  Productivity costs.

19.  Direct medical costs  Direct non-medical costs  Indirect medical costs  Intangible costs  Patients and family direct costs  Health care sectors costs  Other sectors costs  Productivity costs.

20.  Costs to the patient and his or her family without regard to whether they are medical or nonmedical in nature.

21.  Medical resources consumed by health care entities; these do not include direct medical costs paid for by the patient or other sectors.

22.  Costs related to a disease but not medical in nature, such as housing, homemaking services, and educational services.

23.  Costs related to missing work or being less productive because of health conditions.

24.  It depends on the perspective  Perspective:  An economic term that describes whose costs are relevant (being measured) based on the purpose of the study  Types of perspectives: Patient Hospital or provider Payer (insurance company or employer) Society

25.  Societal:  The most comprehensive but the most difficult and the most time consuming.  Hospital or provider/Payer (insurance or employer):  The most common  Usually interested in the differences between two alternatives

26.  Price or Charge  Reimbursed amount  Actual cost of a service  Hospital  Patient  Insurance company  Societal

28.  Standardization of Costs:  A method used to value costs that are collected over 1 year to one point in time. 2013 2014 2017 2016 2013 2017 2015

29.  Standardization of Costs:  A method used to value costs that are collected over 1 year to one point in time. 2013 2014 2015 2013 2017

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31. 2013 2014 2015 20142015 2015 ] 2014 ] X 2015

32.  Standardization of Costs:  A method used to value costs that are collected over 1 year to one point in time. 2013 2014 2017 2016 2015 2013 2017

33.  Standardization of Costs:  A method used to value costs that are collected over 1 year to one point in time. 2017 2016 2015 2013 2017

34.  What Do you prefer?  SR1000 after a year or SR950 today  Future Money worth less than todays money. Why?  I can take the money and enjoy it i.e. maximize my utility  I can take the money and invest it in a project  There is no guarantee that I will live to next year to get the money  There is no guarantee that the company will give me the money after a year.  I will not lend a person 1000 and take it 1000 after a whole year i.e. I have to benefit from the deal  I should get more than 1000 because of the inflation and to give up the 1000 today. Not in Islam

35.  Discounting: The process of determining the present value of a payment or a stream of payments that is to be received in the future (investtopia.com)  The discount rate: the percent reduction used to bring future cost to current present time.  Usually 3%-5%  Present value= cost X ∑ 1/(1+r) t r= discount rate t= number years in the future that the cost or savings occur

36.  Assuming that cost incurred at the beginning of the year Net value=5000 X 1/(1+0.05) 0 + 3000 X 1/(1+0.05) 1 + 4000 X 1/(1+0.05) 2 + = 5000+2,857+3,628=11,485 2015 2016 2017 2015 2016 2017

37.  Assuming that cost incurred at the end of the year Net value=5000 X 1/(1+0.05) 1 + 3000 X 1/(1+0.05) 2 + 4000 X 1/(1+0.05) 3 + = 5,762+2,721+3,455=10,938 2015 2016 2017 2015 2016 2017

40.  Medications:  Saudi Food and Drug Authority (SFDA) Price to the public  Wholesale price Discounted price to retail pharmacies  Claims Data Reimbursed amount

41.  Hospitalizations:  Per Diem An overall estimate of costs for a day in the hospital without regard to the reason for the hospitalization. This is the least precise method of estimating hospital costs.  Disease specific per diem Uses an overall estimate of costs for a day in the hospital for a specific disease or condition.  Diagnosis related disease The method used to classify clinically cohesive diagnoses and procedures that use similar resources.  Micro-costing Collecting information on resource use for each component of an intervention.