Cost

While everyday understanding of ‘cost’ often equates to monetary price, in economic evaluation, cost is more accurately defined as the (monetary) value of anything that has to be sacrificed to obtain something. This encompasses not only the monetary price but also the value of other sacrifices, such as time. In health economics, costs usually represent healthcare system expenditures on resources like treatments, monitoring, staff time, and other consumables. However, a more nuanced perspective considers these as opportunity costs: the value of the benefits that could have been achieved if those same resources were used in their best alternative way. The true ‘cost’ can, therefore, depend on whether it was already being used to its full capacity.

Costs are often categorised into different types, such as direct and indirect costs (reflecting whether the costs fall to the health and social care provider or to other sectors) or fixed and variable costs (reflecting the initial payment for equipment and the additional cost per use of the consumables). Another important distinction is between the average cost and marginal cost; the latter (more important for economic evaluation) is the additional cost of one further unit of resource, which frequently declines as more resource units are consumed. Incremental cost, denoting the difference in overall costs associated with the use of an intervention compared with the use of an alternative, is usually a key output of an economic evaluation.