Reference unit cost of medical services for health economic evaluation in vietnam development and application

This study is aimed at developing a list of reference unit costs of medical services in provincial hospitals, then to this apply to the reference unit cost of the medical services for th

DEVELOPMENT AND APPLICATION

VO QUANG TRUNG

A THESIS SUBMITTED IN PARTIAL FULFILLMENT

OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY

(SOCIAL, ECONOMIC AND ADMINISTRATIVE PHARMACY)

FACULTY OF GRADUATE STUDIES

MAHIDOL UNIVERSITY

2016

COPYRIGHT OF MAHIDOL UNIVERSITY

ACKNOWLEDGEMENTS

It is my great honor to behold my dream granted, to be awarded with Doctor of Philosophy Degree here in the Faculty of Pharmacy, Mahidol University In the light of this unforgettable event, I would like to express my heartfelt gratitude to the university’s generous educational program, as well as to my major professor, Assoc Prof Arthorn Riewpaiboon Without his guide, insight, compassion and vision,

I would never be capable of successfully conducting and completing the problems with such global perspective

Secondly, I am also pleased to express my most sincere gratitude and appreciation to Assoc Prof Usa Chaikledkaew, and Assoc Prof Hoang Van Minh, whose practical and consistent support kept me going to the end of my PhD journey It would be a mistake to not mention the helpful advice and constructive feedback of the external examiner of my Thesis Committee, Dr Naiyana Praditsitthikorn

Moreover, I really appreciate the offer from the Project Health Human Resource Development Program (HHRDP) - Ministry of Health of Vietnam with a PhD scholarship to study in Thailand Without such scholarship patrons willing to support medical education, it would be impossible for me to pursue advanced healthcare degrees Also, I would like to specially address my appreciation for providing me with the financial support in data collection progress through Medisch Comite Nederland-Vietnam (MCNV), and Hanoi Medical University (HMU), Vietnam

Last but not least, from the bottom of my heart, I would like to show my appreciation to my family, colleagues, undergraduate students, and hospital staffs where thesis data were collected It is your enthusiasm and positive attitude that encouraged me and balanced my life through times of difficulties

Once again, I thank you for giving me precious opportunity to complete

my educational pursuits I am now committed to my education and to the health care field in an attempt to help people learning about community services and contributing

to the evolution of social healthcare in Vietnam

Vo Quang Trung

REFERENCE UNIT COST OF MEDICAL SERVICES FOR HEALTH

ECONOMIC EVALUATION IN VIETNAM: DEVELOPMENT AND

APPLICATION

VO QUANG TRUNG 5536821 PYSP/D

Ph.D (SOCIAL, ECONOMIC AND ADMINISTRATIVE PHARMACY)

THESIS ADVISORY COMMITTEE: ARTHORN RIEWPAIBOON, Ph.D.,

USA CHAIKLEDKAEW, Ph.D., HOANG VAN MINH, Ph.D

ABSTRACT Measurement of cost is employed to determine economic burdens due to sickness, then, in outcome and economic evaluation This economic information is pivotal in health policy and management This study is aimed at developing a list of reference unit costs of medical services in provincial hospitals, then to this apply to the reference unit cost of the medical services for the estimation of the costs of influenza, and to evaluate the health economic impact of influenza vaccinations for children in Vietnam

Regarding research methods, the reference unit cost of medical services was estimated by employing a standard costing method with micro-costing conducted

in two provincial hospitals For the cost of illness, this study was designed as an incidence-based cost of influenza using a retrospective hospital database review from

2013 to 2015 In addition, a prospective study in five provinces covering 658 participants at 15 community pharmacies, 3 private clinics, and the outpatient department of one hospital A decision-tree model analysis with one-year time horizon was applied to assess the economic analysis of influenza vaccinations in children aged under 15 years old from healthcare provider and social perspectives

The study results included the reference unit cost of 1,464 medical services For the cost of influenza, the average direct cost of influenza per inpatient was 112.58 USD from hospital perspective Meanwhile, from the social perspective, the average total costs were 58.00 USD, 158.84 USD, and 158.84 USD for pharmacy, clinic, and hospital OPD, respectively For the influenza vaccinations, the incremental cost-effectiveness ratio is USD 25.31 per QALY gained averted from the social perspective, and 31.03 per QALY gained averted from the healthcare perspective To cover vaccination savings for the vaccinated children under aged 15, the result of cost saving from healthcare perspective was 38.7 million USD

The results of the present study could be provided as information for setting up health economic analysis that is an important tool to determine the best use

of scarce resources for interventions in the future in Vietnam

KEY WORDS: UNIT COST / MEDICAL SERVICE / HOSPITAL SERVICE / INFLUENZA / COST OF ILLNESS / VACCINATION /

HEALTH ECONOMIC EVALUATION / VIETNAM

195 pages

2.3 Reference unit cost of healthcare services 21 2.4 Benefit of cost information for management 22

2.8 Situation of health economic evaluation studies in

Vietnam

33

3.1 Reference unit cost analysis of hospital medical

services

57

3.4 Modelling the health economic impact of influenza

vaccination for children under aged 15

4.4 Modelling the health economic impact of influenza

vaccination for children under aged 15

5.4 Modelling the health economic impact of influenza

vaccination for children under aged 15

149

CHAPTER VI CONCLUSION AND RECOMMENDATION 153

2.9 Assessment about the costing methodology in Vietnam from 2003 to

2012

29

2.10 Two major distinguishing characteristics of health economic evaluation 30

2.12 The number of Vietnam economic evaluations published in English per

LIST OF TABLES (cont.)

2.15 Recommendations for good reporting of EE studies in Vietnam (n=23) 37 2.15 Comparison of the proportion of DALYs by major disease categories

and the proportion of EE publications in Vietnam from 2003 to 2013

(DALY = disability-adjusted life-year)

39

2.18 Epidemiology of influenza type and PCR test for patients with ILI in

Vietnam

45

2.19 The characteristic of economic analysis on influenza studies (n=48) 50

3.3 List of select co-morbidities and their ICD codes associated with

increased risk of severe influenza

66

3.4 Input variables and costs used to calculate the economic impact of

influenza-related events for decision model

82

4.3 Full cost determination without drug of ACCs in Ha Nam hospital

(2012, VND)

94

4.4 Sample unit cost of each service (VND) provided by Laboratory cost

center (A2) calculated by micro-costing method in Ha Nam hospital

98

4.6 Sample of adjusted unit cost of services (medical procedures) provided

by different departments (2014)

101

LIST OF TABLES (cont.)

4.9 Overview of demographics for the surveyed patients from 2013-2015,

Hospital for Tropical Disease, Ho Chi Minh city

108

4.10 Total cost (Mean±SD) per influenza/ILI case (USD in 2015) - inpatients

with cases between 2013 and 2015 at Hospital for Tropical Disease, Ho

Chi Minh city

113

4.11 Total cost per influenza case (USD in 2015) - patients with other

diseases

115

4.13 Cost of illness of influenza-like-illness (ILI) in 2016 (US Dollar) 124

4.15 Sensitivity analysis of the main variables that may affect the results 130 4.16 Costs and outcomes for with changes in vaccine efficacy and strain

mismatch

131

4.17 Cost saving of getting vaccination compare to not getting vaccination

from children under 15 years old (USD)

136

4.18 Cost saving of getting vaccination compare to not getting vaccination

from the whole cohort birth

137

4.19 Cost benefit analysis for an influenza vaccination program in children

under aged 15

139

4.20 Comparison of budget impact analysis to coverage influenza

vaccination for children under 16 years old and children under 15 years

old

142

2.3 Cost components in the progress and treatment of diseases 24

2.6 The percentage of respiratory specimens that tested (+) by influenza 44

2.9 Decision diagram for getting vaccination versus no vaccination

(treatment only)

80

3.1 Analysis process based on unit cost analysis of hospital services 59 3.2 The process of developing reference unit cost of medical services 62

3.4 Survey provinces map for data collection in Southern of Vietnam 74 3.5 Decision diagram for getting vaccination versus no vaccination

(treatment only)

80

4.1 Process of development a list of hospital medical services 99 4.2 Components of hospitalization costs of influenza related illness in HTD 117 4.3 Sensitivity analysis of cost-of-illness for influenza treatment to change

4.5 Cost of get vaccination and cost QALY gained due to influenza

4.6 The incremental cost of the vaccination program among two

LIST OF ABBREVIATIONS

LIST OF ABBREVIATIONS (cont.)

CHAPTER I INTRODUCTION

Costing is an essential component of health economics On the other hand, measurement of cost, which is applied in EE and outcome research, is employed to estimate economic burden because of illness Creating a set of reference unit cost to be used in health economic evaluations may help limit the introduction of bias health economic studies In conceptual and practical terms, cost figures from cost of illness (COI) studies are also used in economic evaluation studies of healthcare For instance, three cost-effectiveness analysis (CEA) studies (2-4) of rotavirus vaccination with diversified models use the cost figures in 2005 from a health care cost of diarrheal

disease COI study by Fisher et al (2)

At present, EE studies is great of important role to ameliorate decisions about apportion of human resources in healthcare EE of drugs, medical devices, services and interventions is a useful tool for assessing important decisions regarding the optimal utilization of scarce resources Furthermore, it is important to make efficient and effective use of the limited resources to reduce the burden on the population (5, 6)

During the past decades, health care expenditures in developing countries

as well as in Vietnam have been rapidly increasing trend while resources are inadequacy Since December 1986, the Vietnamese government had provided to shift

in political and economic policies, namely Doi moi (Renovation), and development

strategy based on the conversion from a centrally planned economy to form of market

socialism After thirty years of Renovation policies, Vietnam is a country undergoing a healthcare reform requiring health economic information Seen from within, it looks like a huge revolution with the purpose of opening and varying the market of health care system (7)

Spending for Vietnamese healthcare was about US$ 142.37 per capita in

2014, which is equivalent to 390.5 US Dollar (USD) per capita when calculated in purchasing power parity terms Total health expenditure compared to GDP has increased almost every year between 2008 and 2014 and from 2008 has only reached

at 5.5% of GDP, reaching 7.17% of GDP in 2013 From 2013 to 2014, this proportion slightly decreased from 7.17 percent to 7.07 percent (8) Results are shown in Table 1.1

Table 1.1 The percentage of healthcare expenditure to compare with GDP, 2008-2014

* Source: World Health Organization

According systematic review on situation analysis of costing studies in Vietnam from 2003 to 2012, an increasing number of publications reporting costing studies has increased significantly with 24 studies during this period 2003-2012 For economic evaluation (EE) papers, the number of published economic evaluations is recorded at 18 between 2003 and 2012 and the largest number of articles (7 papers) was published in 2012

To take control of health care costs, the government established through health economic evaluation methods For health economic evaluation, reference unit cost of medical services analysis plays an important role for determining reimbursement by social security system in low- and middle income countries The great importance of making unit cost of medical services information available on a country particular and hospital-level basis in the hospital is also needed to inform

various types of decision-making in health policy Until now, especially for low- and middle-income countries as Vietnam, the reference unit cost of medical services data for key actives is not often available (9, 10)

To review the national reference unit costs or standard unit cost lists, these lists have developed in various countries in the world including Australia (11), Canada (12, 13), the Netherlands (14), the United Kingdom (15), Philippines (16), Thailand (17), and India (10) The national reference unit costs or standard unit cost list will be published and up-dated year by year in case of allowing adjustments to alteration and incorporation of new findings

In unit cost analysis (17), there are several methods for unit cost

calculation such as the average method, the micro-costing (MC) method, the ratio of costs to charges (RCC) method, and the relative value unit (RVU) or weight procedure method For unit cost calculation of medical services, the RVU method is widely used

in a number of countries Calculation of the RVU method is based on the weight of resources used in term of each service Although calculation by RVU method (18)

may be not accurate as the MC method, however it requires saving times Moreover,

the results of this method are more accurate than the average method, and RCC methodology For these reasons, the RVU method is advisable the appropriate one to develop the standard unit costs of hospital services (19, 20)

For standardizing healthcare economic evaluation programs (21), the application of reference unit costs of hospital services has a great of important role Despite many visible limitations, it leads to the easement of certain differences between trials where distinct unit costs were used The use of the list of standard unit costs is limited to procedures and services for which these costs are calculated

The reference unit costs of hospital medical services list should be consisted of different items including pharmaceuticals and medical materials consumed in hospitals, inpatient care, outpatient care, and diagnosis-related group (DRG) which data obtained by large costing researches which various hospitals attended

1.2 Objectives

General objectives

To develop the reference unit cost of medical services and apply in a cost

of illness study, and health economic evaluation study in Vietnam

Specific objectives

1 To develop method and calculate unit cost of hospital medical services

2 To develop the reference unit cost of medical services from provincial hospitals

3 To apply the reference unit cost of medical services for estimation of cost of influenza at various facilities, and evaluate the health economic impact of influenza vaccination strategy for children under aged 15 in Vietnam

Expected outcomes and benefits

The results of this study could be provided as information for:

1 Setting up guidelines on methodologies of unit cost analysis of hospital services

2 Providing reference unit cost of hospital services that is important tool

to determine the best use of scarce resources for supporting the health economic evaluation studies in Vietnam context

3 Being used for financial and budget management, efficiency medical services and health policy

4 Being a tool for health policy decision-makers to evaluate worthiness in health technology assessment

Scope of the study

The study covered the provincial hospitals in different regions of Vietnam and the costs were recorded on the whole year 2014 values for unit cost of medical services, and from to January 2015 to April 2016 for treatment cost of influenza, and health-economic impact of influenza vaccination strategies for children under aged 15

in Vietnam Only these hospitals including Ha Nam General Hospital, Thu Duc

General Hospital, and Hospital for Tropical Disease, Ho Chi Minh City that met efficiency criteria were included The researcher has compiled data from the database

at individual department and general administration; accordingly, the reliability and validity of the calculation depend on the records of the database

1.3 Definition of terms

Micro-costing (MC)

Micro-costing is a cost estimation method that allows for precise

assessment of the economic costs of health interventions (22)

Ratio of Cost to Charge (RCC)

The ratio of costs to charge (RCC) is also a useful contextual tool that provides information on the revenue capacity of the practice This method is particularly useful when detailed cost data are not available but cost estimates are needed quickly, for example, to evaluate potential contracts (23)

Relative Value Unit (RVU)

A number that relates one service to all other services based on the amount

of resource consumption In this study, development will base on the price list of medical services which use activity-based costing (ABC) method (24-26)

Cost center

Cost centers are the smallest areas of responsibility for which consume resources and produce outputs A cost center may be a department or a group within a department (24-26)

Transient cost center (TCCs)

“Transient cost centers or called as general service departments, are cost centers, which provide supporting services to other cost centers Direct costs of these cost centers will be allocated to other cost centers they support.” (27)

Absorbing cost center (ACCs)

“Absorbing costs centers or called as service producing departments, are cost centers that receive costs allocated from the transient cost centers” (27)

Consumer Price Index (CPI) factor

The price of a particular set of goods and services is monitored through time Changes in the price are used to calculate the overall inflation rate in a country (30)

Annuity factor

The factor used to determine how much one received or paid annually for

x year is worth today (31)

Direct medical cost

Direct medical costs are the costs incurred for medical products and services used to prevent, detect, and/or treat a disease (32)

Direct non-medical cost

Direct non-medical costs are any costs for non-medical services that are results of illness or disease but do not involve purchasing medical services (32)

Indirect cost

Indirect costs are the costs of reduced productivity (e.g., morbidity and mortality costs) To estimate indirect costs, two techniques typically are used: (1) human capital (HC) and (2) willingness-to-pay (WTP) methods (29, 32, 33)

Cost of illness study (COI)

To provide an estimate in monetary terms of the total economic impact (cost) and to communicate a measure of total expenditure of a particular disease or health condition on societal viewpoint through the identification, measurement, and valuation of all direct and indirect costs This form of research focuses on costs and does not address questions relating to treat efficiency (34, 35)

Economic evaluation (EE)

The basic task of EE is to identify, measure, value, and compare the costs and consequences of the alternatives being considered The two distinguishing characteristics of EE are as follows: (1) Is there a comparison of two or more alternatives?, and (2) Are both costs and consequences of the alternatives examined (36)

CHAPTER II LITERATURE REVIEW

The literature review of this study consisted of three parts including: Part I Cost and cost analysis concept

Part II Cost of illness (COI)

Part III Economic evaluation (EE)

Part IV Overview of influenza

Part I Cost and cost analysis concept

This part will provide the information such as (1) cost concept; (2) unit cost analysis of medical services; (3) National reference unit cost of healthcare services: international experiences; and (4) The benefit of cost information for the management

2.1 Concept of cost analysis

The definitions

“Cost refers to the sacrifice of alternative benefits made when a given resource is used for any purpose (e.g consumption or production)” There are various sub terms of costs such as fixed cost, variable cost, total cost, average cost and marginal cost (37-39)

The definition of cost analysis is as “the process of manipulating or rearranging the data or information in the existing accounts in order to obtain the costs

of services rendered by the hospital” (40)

On the other hand, “cost analysis is the review and evaluation of the separate cost elements and profit/fee in an offertory’s or contractor's proposal (including cost or pricing data or information other than cost or pricing data), and

application of judgment Cost analysis is used to determine how well the proposed costs represent what the cost of the contract should be, assuming reasonable economy and efficiency”

According Berman et al (1982), the definition of cost analysis is as “the process of manipulating or rearranging the data or information in the existing accounts

in order to obtain the costs of services rendered by the hospital” (40)

Table 2.1 The definitions of cost analysis

Terms Explanation of terms

“Fixed cost”

“The type of cost that does not vary with the amount of output produced and generally includes investment such as equipment and land that cannot be obtained or traded in the short run”

“Variable cost” “To be composed of material expense and wages that can shift

according to the amount of output produced.”

“Total cost” “Total cost of production equals the sum of fixed cost and

variable cost.”

“Average cost” “Total cost divided by quantity of output”

“Marginal cost” “To refer to the extra cost of producing an additional unit of

output”

The perspective

Due to the perspective of study could affect a key point of view; the type

of costs should be determined by study perspective (35, 41) For example, Jegers et al (2002) mentioned that the impact when calculated direct non-medical cost (for example travel, meal and so on), the researchers should be concerned to take into account or whether not they are reimbursed

On the other hand, societal perspective should be included or not the costs

of safe houses, nursing homes or home modification (42) These perspectives of COI study measure slightly different costs information to a particular group (43)

Table 2.2 provides an important point of cost analysis should be precise and explicit about the costing exercise is carried out as follows:

Table 2.2 Costs included in cost of illness studies by perspective

Perspective Medical

costs

Morbidity costs

Mortality costs

Transportation/

Nonmedical costs

Transfer payments

Societal All costs All costs All costs All costs -

Lost productivity (presentism/

Out-of-Lost wages/

Household production

Lost wages/

Household production

Out-of-pocket costs

Amount Received

* Source: Adapted from Luce et al (41, 44, 45)

Time horizon

The time horizon of costing studies could have impacts as selected perspective in various ways For example, an important issue of the time horizon is (1) the time horizon will determine which costs should be concerned in costing study and (2) the shift of costs with time when calculate

Moreover, the appropriate time horizon of studies could be ensured when costs are measured and compared in the same period time The time horizon is identical for all the interventions being compared It relies on the natural history of the

disease, the chronology of the interventions, the occurrence of changes of health effects and costs related to the interventions compared (46)

2.2 Unit cost analysis of medical services

Overview of unit cost analysis

Unit cost analysis (47)

Unit cost analysis is calculated by distributed full cost of absorbing cost centers (ACC) to a unit of each cost product For decades, hospitals have used one of four methods to compute the cost of medical services including the average method, the MC method, RCC method, and RVU or weight procedure methodology are basically categorized based on the characteristics of the production

However, both methods are highly flawed Full cost of absorbing cost centers (ACC) is calculated by the sum of total direct cost (TDC) and all of indirect costs (IDCs)

Full cost (FC) = Total direct cost (TDC) + Sum of indirect costs (IDCs)

Unit cost analysis of medical services

For decades, there are two major methods approaches such as based costing (ABC) and standard costing method for implementing the hospital services studies on unit cost (17)

activity-The allocation method commonly was used the standard costing to calculated unit cost of medical services Study sites consist of regional/provincial hospital or district hospital When calculated unit cost of hospital, the FC were computed by the summation of capital, labor, and material costs apart from pharmacy cost (48)

Discounting rate is namely adjusting for differential timing, which is reducing any costs and consequences that may occur with the process in the future rejoin to present value, recommended by experts is typically between 3% and 8% per

annum Nevertheless, the rate of discounting, which represent the rates of bank interest

or yearly inflation, used appear to be 3% per year in health economic evaluation (28, 49)

Figure 2.1 Analysis process based on reference unit cost analysis of medical service

* Source: (17)

Reference unit cost analysis of medical services employs standard costing method composed of six steps which is as follows:

Transient cost centers

Transient cost centers total direct

cost

Transient cost centers indirect cost

Absorbing cost centers total direct cost

Absorbing cost centers

Absorbing cost centers full cost

Services cost per unit

Step 1 Study design

Step 4 Indirect

cost determination

Step 5 Full cost

determination

Step 6 Unit

cost calculation

Step one - Study design and planning This step requires to identify

objectives, cost objects (or cost products), perspective, level of the organization involved, time horizon and cost component to be defined

Step two - Organization analysis and cost center classification

Structure of hospital organization is analyzed and classified into two groups: Transient cost centers (TCCs) that are cost centers supporting other cost centers and absorbing cost centers (ACCs) that are cost centers providing services to be calculated

Step three - Direct cost determination Direct costs of each cost centers

are determined by accumulating the values of its capital costs; labor costs and material cost Add capital cost method and useful years Some more how distribute shared cost

Step four - Indirect cost determination In this step, allocation criteria

are used to rearrange and allocate the cost allocation In this study, they are several methods, i.e direct allocation, step-down allocation, double allocation, and simultaneous allocation Simultaneous allocation; most accurate method, was employed in this study Allocation criteria of transient cost centers (T1, T2, T3) were applied full time equivalent to department of administration, personnel, and finance; amount of infectious garbage, revenue were used to allocate for cost center of infection control including laundry (T6), planning (T4), respectively

Step five - Full cost determination Full cost (FC) of ACC is calculated

from the summation of total direct cost (TDC) & all indirect cost (IDCs)

Full cost (FC) = Total direct cost (TDC) + Sum of indirect costs (IDCs)

Step six - Unit cost of hospital services In unit cost analysis, the unit

cost calculation is defined by using multiple methods such as the average method, the

MC method, the RVU or weight procedure method, and the RCC method

In the case where the absorbing cost center produces only one output (a cost object) or a number of homogeneous outputs (for instance, out-patient service), average unit costs are used For multi-product cost centers, a number of methods are available, the most accurate but requires more workload of which is the micro-costing method, since this is based on actual resource use (19, 50)

This method first determines the direct cost of each service (the amount of countable resources that are used in the provision of the service) The second method

is the ratio of costs to charges (RCC) method (19, 20) This method is relatively less accurate but less workload The ratio of cost to charges is computed based on historical records It is used to estimate the cost of each service from the relevant charge information obtained from patient bills

The average method

Based on the measurement unit of output, the average method is classified

to three forms via per product, hourly rate and per diem For per product form, this form is to distribute full cost to final cost product The form of hourly rate uses minutes or hours of each service supplied as a measure for the resource consumption For per diem form, this form is used for some cost centers consuming daily resources equally except for patient characteristics through the cost per patient-day, or the per diem cost

Unit cost of service is computed by dividing the full cost of a particular cost center by the total of outputs (units of services provided)

Unit cost of service = Full cost (FC) / Total units of output(s)

Table 2.3 The pros and cons of the average method

Calculation by this method is

convenient, requires less time

and cost to implement than the

other methods

It assumes that each service consumes exactly the same amount of resources Additional, this method is not appropriate for cost center that produces several cost products

* Source: Adapted from Finger SA, Koopitakkajorn T (24, 51)

For multi-product cost centers, a number of methods are available The most accurate of which is the MC method (50), since this is based on actual resource use This method first determines the direct cost of each service (the amount of countable resources that are used in the provision of the service) Following this, a calculation is made on the indirect cost of services (the full cost of each department subtracted by the sum of the total direct costs of all services), which is then allocated

to each service using either the average method or by calculating the proportion of the direct cost of each service

For the MC method, it is the most appropriate for calculating various different unit cost services (cost products) since it is based on the most realistic resource consumption (17) The method begins by collecting the summation of total direct costs for individual similar product to direct cost determination (capital, labor, and material cost) of each service in cost center The indirect cost is defined that the results of full cost is subtracted by the total direct cost determination of cost center Afterward to determine indirect cost of services outputs, the indirect cost is allocated

by the average method or via the rate of direct cost in each service Nevertheless, this method requires more data collection and time of collection than other methods (50, 52)

Table 2.4 The pros and cons of the MC method

This method reflects resource

consumption more accurately than the

other methods

This method requires more time and cost to implement and maintain than

the others

* Source : Adapted from Koopitakkajorn T (51)

The second method is RCC method (17, 24, 51) Revenue producing cost centers are used in this method, which is divided by three steps First step is that the unit of price of each services is multiplied by its quantity produced (the number of service outputs) and to achieve the results of expected revenue After that, the second step is obtaining the ratio of costs to charges by dividing the full cost by the summation of expected revenue Lastly, the unit cost of services is computed by multiplying each unit price and the RCC

The RCC is computed based on historical records It is used estimate the cost of each hospital service from the relevant charge information obtained from patients’ invoices However, this calculation can be fairly simple

For instance, in any given period, the RCC will be 0.75 when total costs

=150 million VND and total charges = 200 million VND The ratio will then be used for determining the costs for services eg., unit cost of each service is calculated by multiplying each service charge and the RCC (0.75)

Table 2.5 The pros and cons of the RCC method

It is convenient to access

and analyse the data

Charges are set on the basis of a variety of internal and external factors which may not reflect the actual costs

of a service accurately The precision and reliability of the resulting cost estimates are diminished

* Source: Adapted from Koopitakkajorn T (51)

The third method is the RVU method, which uses the standard relative value unit (RVU) of each output in the calculations (17) The RVU method concentrates on the ratio of resources used for all services in each department The total number of all RVUs for all outputs is calculated (standard RVU of output x total number of such output) and the cost per RVU is then calculated by dividing the total hospital cost by the total hospital RVUs Finally, the cost per RVU is multiplied by the number of RVUs of each output

Table 2.6 The pros and cons of RVU

This method is simple and flexible It

enables the managers to compare

resource consumption and related costs

across procedures and services

The accuracy of resource - use estimation and relation between the values of each service is required

* Source: Adapted from Koopitakkajorn T (51)

Relative Value Unit (RVU)

Overview of Relative Value Unit

According unit cost calculation of hospital medical services, the relative value unit method is widely used in many countries For assessing RVU, the difficulty

of this method needs high cost when conduct observation of each service and convert the various factors into units appropriate

Prior to the introduction of RVUs in United States, the Health Care Financing Administration (HCFA) engages Harvard School of Public Health to develop new methodology in 1985, namely Resource-Based Relative Value Scale (RBRVS) In 1988, relative value units (RVUs) were developed physician fee schedule in Medicare programs On December 1989, Omnibus Budget Reconciliation Act (OBRA) was signed by President George Bush that enacted RBRVS as payment methodology and had expanded an extensive view since its initiation on January 1992

as a new methodology of a physician payment mechanism The RVUs usages were divided into three categories consist of productivity, cost, and benchmarking in a worth tool of practice healthcare management, which is a great of important role in healthcare system (53, 54)

According to a survey implemented in 2006, the Medicare RBRVS methodology calculates the amount of human resources of physician need to provide a particular service under by the Centers for Medicare and Medicaid Services (CMS) for American Medical Association project The total amount of physician resources is measured to as “relative value” of the service The relative value of service is measured on the basis of three elements including the work of physician service; practice expense; and professional liability insurance through determining the Medicare RBRVS to define the “relative value units” (RVUs) of the service

The survey is obvious that the percentage of average RVU of each physician service is recorded at 52 of the total RVUs The work of physician are affected various factors to determine RVU, for instance the time-performance per each service; the professional competency skill, the effort of physicality and mentality, and the native good judgment need to implement the service; and the high pressure on the

potential-risk result of physician to the patients The RVUs of physician work has shifted and updated year by year in medical practice (55)

With the purpose of measuring and quantifying the comparison of the traditional productivity and productivity of medical practice's physicians, healthcare administrators measure consist of office visits, net charges, net collections, and so on The healthcare administrators have been an active negotiation about revenues, analyse expenditures, and controlled costs of services via the knowledge, and the power of RVU of cost analysis For various applications of RVU in costing analysis, Diagnostic Related Group (DRG) is one of example The Diagnosis Related Groups (DRGs) are a patient classification scheme providing a means of relating the type of patients a hospital gives medical cares (i.e., its case mix) to the costs incurred by the hospital Other example in RVU application, the various financial applications of RVU costing give group practice administrator’s meaningful information about the cost of providing services which could be applied to various management areas

RVU cost accounting that uses RBRVS, can be used to decide the cost to produce given services and decide appropriate physician fees The calculations came from RVU costing have additional applications, such as analyzing fee schedules, evaluating the profitability of third-party payer reimbursement, calculating a floor capitation rate, and distributing capitation payments within the group (54, 56)

Methods used to develop the RVU

A process to develop RVU is comprised of four steps These steps concern

in below graph (17)

The total RVUs used by the hospital = (Results of the standard RVU) *

(the number of services for all hospital services)

Cost per RVU = the full cost (FC) / (the total RVUs of the hospital)

Unit cost of services = (cost per RVU) * (the number of RVUs for each

service)

Figure 2.2 The process of developing the RVU

Development of standard relative value unit of medical services

Reference relative value unit (RVU) of medical services can be developed based on a ranking method or on an objective data method (57-59)

The ranking method employs a subjective technique of comparing the

amount of resources used, commencing from the least amount and then estimating the subsequent amounts in multiples of the first one By comparing each service to the first service, this method is arranged in order of various relative consumption of resources On the other hand, magnitude estimation can defined with a survey-based methodology through measuring subjective perceptions and judgments by the rate of

consumption in diversified services

For instance, the cost of a reference service, which is called by service X

in the hospital, is accounted for 100,000 VND Suppose of the cost of service Y is equal 0.25 times, if it compares with cost of service X, resulting in cost of service Y about 25,000 VND The ranking methodology needs an expert group through ranking

and estimating the relative consumption of resources accurately

The objective data method is to determine the RVU from database that is

based on the real resource consumption: either on consumption of a major selected resource such as fee, price, cost, time required or material use to perform each service,

To calculated by multiplying the results of the standard RVU by the number of services for all medical services

To calculate by dividing the full cost

by the total RVUs of the hospital

Standard RVUs of

all services are developed

The total RVUs used

by the hospital

Cost per RVU

Unit cost of service

or on costing data came from other studies In case of assigning to service the unit cost

is divided by a number of currency resulting RVU

For instance, unit costs of service X and Y are 10,000 VND and 40,000 VND RVUs of service A and B are 5 RVUs (10,000VND/ 2,000VND), and 20 RVUs (40,000 VND/ 2,000 VND), respectively Alternatively, RVUs of service X and Y can

be 1 RVU (10,000VND / 10,000VND) and 4 RVUs (40,000 VND/ 10,000 VND), respectively

Analysis of unit cost of hospital services by RVU method and its application

Costing method used in this step is the RVU method (7, 11) This method requires reference RVU of each output The calculation starts from summation of total RVUs (reference RVU of output x total number of such output) of all outputs Then, cost per RVU is calculated from division of total hospital RVUs Finally, unit cost of each service is calculated by multiplying number of RVU of each output and cost per RVU

At each study hospital, total hospital cost is calculated In parallel, total RVUs of the hospital is calculated by sum of total RVUs of each medical service Total RVUs of each medical service is a result of total number services multiplied by reference RVU

For instance, annual services of service X and Y are 7,000 services and 5,000 services, respectively Total RVUs of services X and Y are 7,000 RVUs (7,000 services x 1 RVU per service) and 20,000 RVUs (5,000 services x 4 RVU per service), respectively

Then, total hospital RVUs is 27,000 (7,000+20,000) Supposedly if, total hospital cost is 405 million VND, cost per RVU is 15,000 VND (405 million VND/ 27,000 RVUs) Finally, cost per services of X and Y are 15,000 VND (15,000 VND x

1 RVU) and 60,000 VND (15,000 VND x 4 RVUs), respectively

RVU methodology is also as an important tool for reimbursement calculation in various countries including United States, Germany, Hungary and Japan In the application of reimbursement calculation, in United States, from the

AMA’s perspective, the author will provide information how Medicare reimbursement

in calculated based on relative value units

2.3 Reference unit cost of healthcare services

This part tries to provide a comparative analysis of international experiences about national reference unit cost or standard unit cost of healthcare/medical services

For many countries especially developing countries in the world, EE in healthcare is a standard instrument that is used to inform the importance of evidence-based decision making in health policy development A number of countries were mentioned about national reference unit cost or standard unit cost of healthcare services, including Australia (11), Canada (12, 13), the Netherlands (14), the United Kingdom (15), Philippines (16), Thailand (17), and India (10) In low- and middle- income countries, standard unit cost of medical services has been introduced into EE analyses or deciding reimbursement by social security systems However, there are just some studies that have been implemented on the economics of different level of hospitals

With purpose of observing reference unit cost or standard unit cost studies, some studies describe detailed information, as follow:

In Netherland, the first manual for costing was published in 2000 (60), followed by an updated version in 2004 The purpose of the Manual is to facilitate the implementation and assessment of costing studies in economic evaluations New developments necessitated the publication of a thoroughly updated version of the Manual in 2010 (14) New topics in the Manual concern medical costs in life-years gained (LYG) the database of the Diagnosis Treatment Combination (DTC) case mix System, reference prices for the mental healthcare sector and the costs borne by informal caregivers Updated topics relate to the friction cost method, discounting future effects and options for transferring cost results from international studies to the Dutch situation

In Thailand, the first set of standard cost lists for health economic evaluation have developed by Arthorn Riewpaiboon and have published in 2014 (17) for three of different level facilities including provincial, regional, and district hospital

The standard cost list consists of four parts such as standard RVUs of medical services, unit cost of medical services at regional/provincial hospitals, unit cost of medical services of district hospitals, and direct non-medical cost of outpatients

at all levels of health facilities from a survey of 3,901 medical items

For direct non-medical cost of outpatients, a survey has conducted with

905 participants in three regions including health center, district hospital and provincial/regional hospital

In India (10), from a provider perspective, unit cost of hospital services has published in 2013 This preliminary study costing estimated the overall operating costs of the study hospitals and the unit costs of medical services in five hospitals

2.4 Benefit of cost information for the management

At present, controlling the resources - people, time, facilities, equipment, and knowledge - is a huge concern of managers when faced to scarce, and competition for these resources is constantly increasing Moreover, cost analysis studies are an important tool that gives useful information for all organizations and health economic evaluations

The benefits are including enhance budgeting by monitoring cost; to enhance the efficiency of the intervention by distinguishing potential cost savings; to estimate the resources required to keep up the intervention by searching an precise estimate of the budget necessary to keep it; and to estimate the resources required to broaden the intervention (27)

Part II Cost of illness

2.5 Cost of illness

This part is to provide a basic introduction the cost of illness analysis Over the past decades, numerous COI studies have been conducted when our ability could be treat multiform diseases with the application of new technologies As a natural consequence, costs of healthcare have been increasing while healthcare resources are still finite COI studies measure the economic burden of a disease or diseases and estimate the maximum amount that could potentially be saved or increased if a disease were to be eliminated Many of those studies have been instrumental in public health policy debates because they emphasize the magnitude of the impact of an illness on society or a part of society (35, 61) On the other hand, COI studies analyze act as points of references for health economic evaluation, especially cost effectiveness analysis (CEA) and cost benefit analysis (CBA) Nevertheless, only one part of cost analysis for the cost estimation in these analyses, COI studies can provide a framework (35, 41)

Costing studies can be performed either on an incidence basis or on a prevalence basis (62-64) In incidence based studies, which estimate lifetime costs for

a patient with the disease, calculate the costs of an illness from diagnosis to cure or, in chronic disease, to death within the stage of the study, usually one year Incidence costs consist of the discounted, lifetime medical, morbidity, and mortality costs for the incident cohort On future costs, COI research serves the purposes of estimating the effect of a treatment For instance, chronic disease costing studies that span decades are difficult to perform and often to limit costs per case in long-term period

Prevalence-based studies, which estimate annual costs, calculate the costs

of an illness in one period, usually a year, except for the date of onset based studies consist of all medical care costs and morbidity costs for a disease within the study year Nevertheless, the mortality and permanent disability costs of prevalence-based studies are measured distinctly from the other costs Prevalence-

Prevalence-based studies are far more major because they require less data and fewer assumptions than incidence-based studies

For costing methodology, in general, the sources of resource use data can

be identified the primary data or secondary from many ways such as healthcare statistics, patient registers, cohort studies, insurance databases, charts of patient COI

is performed “top-down”, “bottom-up”, or “econometric approach” The “top-down” approach compels additional data about the causal pathway to calculate the population-attributable fraction The “top-down” approach is sometimes the only feasible option In addition, the top-down approach is cheaper and faster than a bottom

up approach Furthermore, it can be more inclusive (including all the relevant costs) than MC (63)

However, a top-down approach is less detailed and so precise can suffer It does not permit detailed analysis of cost structure or patient level analysis The

“bottom-up” approach unites unit cost data with utilization data, which means it can be useful for less general illnesses Costs are collected retrospectively or prospectively by following sample using medical records, surveys, questionnaires or other reliable databases This methodology is great difficult to a firm guarantee for unbiased and representative of the overall of patient sample A bottom-up approach is used such as

in Canada to measure hospital costs (63)

The “econometric approach” is most appropriate with a large, national dataset and is especially useful for risk factors This method approach estimates the distinction in costs between a cohort of the population with the illness and a cohort of the population without the illness

Cost components can be determined commonly through three types including direct cost (direct medical cost, direct non-medical cost), and indirect cost as Figure 2.3

Figure 2.3 Cost components in the progress and treatment of diseases

* Source: (17)

2.6 Costing studies in Vietnam

This part provides a systematic review to analyze the trend and situation of costing studies in Vietnam from 2003 to 2012 Analyses are composed of the quantitative of costing studies including number by year, the perspective, the study setting, type of study, researchers On the other hand, this study is to explore costing studies in Vietnam such as general characteristic and the quality of costing studies in Vietnam

Time cost of care-givers Costs of transportation, meal, hotel, facilities

Time cost of patient

dead

Reco -very

Treatment cost

Direct medical cost

cured Home health

care

disabled

Time