Cost as a Dimension of Evidence-Based Practice





The healthcare industry is facing increasing pressure to improve value through the provision of higher quality and/or more efficient care. Value is the balance between the quality of care a patient receives and the cost of the care. The cost component of value has received increased attention because healthcare spending represents roughly 17.7% of the gross domestic product of the United States and is one of the single most expensive budget items that businesses face today (Centers for Medicare & Medicaid Services [CMS], 2018; Congressional Budget Office [CBO], 2019). For example, the cost to the U.S. federal government for the Medicare, Medicaid, and State Children’s Health Insurance Program (CHIP) accounts for 28% of the federal budget, with future projections estimating that spending on these programs could reach as high as 41% of the budget by 2049 (CBO, 2019; CMS, 2018). Thus, it is important for healthcare researchers and practitioners to be conscious of the cost implications of their research and practice by including cost measurement in addition to quality-of-care measurement. The purpose of this chapter is to introduce the concept of cost, to describe how to incorporate cost methodology into research and practice, and to improve the critical evaluation of cost findings published in research and practice publications.


Before integrating cost into research and practice, the definition and perspective must be clearly defined. Most people outside the field of economics refer to cost as the monetary value paid by a purchaser (e.g., a consumer, a provider, a payer, a government, a society) for goods or services. The monetary value, referred to in economics literature as the price, is certainly one aspect of cost, but is not the only aspect. Cost is more accurately defined as the resources that are expended for goods or services. These resources may or may not have an associated or measurable monetary value (Drummond et al., 2005; Gold et al., 1996). By defining cost in this broader sense of resource expenditure, it allows us to consider the fact that the acquisition of goods or services occurs within a complex, multifaceted environment where the resources that must be expended involve multiple parties. It also allows us to consider that not all goods and services include a price that is paid, in part or in full, by the individual or group receiving the goods or services. For example, a patient rarely pays the full price of their medical care services, yet the patient is the one who benefits from those services.

330A single good from a healthcare situation illustrates this complex relationship: What is the cost of 1 hour of nursing care for a hospitalized patient? To answer this question, you might start by asking yourself the cost to whom? One hour of nursing care could involve the participation of five different parties: the nurse, the hospital, the patient, the patient’s family, and the insurance carrier. Table 17.1 demonstrates the resources that each party would expend for 1 hour of nursing care. These resources can be conceptualized into two primary categories: time (e.g., nurse, other healthcare professionals and staff, patient, patient’s family, insurance carrier employee) and resources (e.g., supplies, utilities, space).

Definition: Cost

Cost is defined as the resources that are expended for goods or a service. The resources may or may not have an associated monetary value.


The Cost of Time

The cost of time is usually characterized as opportunity cost. Opportunity cost is the resource trade-off a person faces when deciding how to allocate their time. People face resource trade-off decisions to determine how to allocate their time every day. For example, a person chooses between watching a favorite television program and going to the gym, or chooses to work overtime instead of having dinner with a friend. In each instance, the person weighs the resources that would need to be expended for each choice. Perhaps the favorite television show is selected over the gym because the gym requires that the person drive 30 minutes, whereas the television program only requires that they walk to the den. Working overtime may be selected over dinner with a friend, because working overtime right now allows them to spend the whole weekend with the friend later. Each decision about how to allocate time incorporates the process of measuring and valuing the opportunity cost of each choice. The selected choice will have the most favorable opportunity cost to the individual making the decision.

Opportunity cost can present a measurement challenge given that every person has a complex decision-making process for how they spend time. In research and practice, researchers and providers also need to systematically measure opportunity cost using a standard unit of measure, and this is ideally reported in monetary terms. Therefore, economists define the measurement of opportunity cost as the monetary value of the next best alternative choice. Thus, in the “1 hour of nursing care” example, the nurse’s opportunity cost was the nurse’s decision to spend time at work versus some other activity they might enjoy (Table 17.1). The monetary value of that opportunity cost is the compensation they received for the additional hour spent at work instead of pursuing another paid or unpaid activity.

The Cost of Resources

The cost of resources is characterized as the cost of equipment, supplies, and other “objects” expended to provide the good or service. Using our example, the cost to provide the bed that a hospital uses for a patient is the monetary value the hospital paid to purchase, install, maintain, and replace the bed so that it would be available for the patient for their 1 hour of nursing care. The cost of a resource is generally allocated over the life span of that object. Using the bed as an example, the cost for that 1 hour of the bed would be the total cost of purchase, installation, and maintenance for the bed divided by the number of hours the bed is expected to be in use. Thus if the bed cost $500 to purchase, $300 to install, and $400 to maintain over its life span, then the total cost of the bed would be $1,200. If the bed was expected to be in use for 10,000 hours, then the cost of the bed for that 1 hour of care would be $1,200/10,000 or $0.12 per hour of use.


332Direct and Indirect Cost

Once the time and resources used to provide a good or service are identified, then you can further classify each resource based on how they contribute to the delivery of that good or service. Costs can be classified as direct, indirect, or intangible costs. If the resource is absolutely integral to the delivery of the good or service, then that resource would be considered a direct cost. Using the example of 1 hour of nursing care, the cost of the bed would be a direct cost for a hospitalized patient because the bed is absolutely necessary for the delivery of care to the hospitalized patient. If the resource is needed but not an integral part of the delivery of the good or service, then that resource would be considered an indirect cost. Using the example of 1 hour of nursing care, the cost of the hospital maintenance worker would be an indirect cost for a hospitalized patient. It is considered indirect because all patients must use the service of the maintenance worker in some way because they ensure that the beds are available; however, this work is not absolutely necessary for the delivery of care to any one individual hospitalized patient. Another indication of an indirect cost is if the cost is distributed equally regardless of the actual use by any given individual. For example, if a bed breaks during the care of one patient, that patient might use more maintenance resources than a patient whose bed continues to function properly. Both patients are allocated the same amount of maintenance worker resources when the final costs of their respective stays are calculated. Another example is a hospital finance specialist who processes the patient’s insurance claim. The time the finance specialist spends processing the claim does not change substantively based on the insurance provider. Thus, each patient receives the same charge for a finance specialist. Indirect costs in healthcare are sometimes called overhead costs.

Intangible Cost

The last type of cost is the intangible cost. An intangible cost is the cost for resources that do not have a clear and direct value, monetary or otherwise. Some examples of intangible costs include the cost of lost life due to a medical error and the cost of pain and suffering the patient experiences during care. It is clear that patients can experience pain and suffering during care, but there is not a uniform, straightforward way of placing value on that experience. For most intangible costs, there are standardized approaches to assign monetary values. These systems are most often developed by actuaries, but can also be products of process (such as the legal system) or by other types of professionals. For example, in legal cases the value of lost life due to a medical error might be valued at the lost wages estimated over one’s life span.


In the nursing care example, time and resources from five different perspectives all contributed to the cost of 1 hour of nursing care. However, before measuring the monetary value of these costs, the decision concerning which perspective to use must be made. That decision is often dictated by who commissioned the measurement activity. The perspectives that might be used in any given cost analysis are the individual consumer; the program, corporation, or business (e.g., 333hospital, healthcare provider, health insurer); the government; and society as a whole. The societal perspective as a whole is the most encompassing view of cost because it considers all of the potential perspectives. In the United States, a consensus was developed in the late 1990s by the Cost Evaluation Taskforce to use the societal viewpoint for all healthcare cost studies to maximize the ability to compare costs across studies (Weinstein et al., 1996) and is the “gold standard” for economic evaluations. Thus, unless the cost measurement is commissioned from a distinct perspective (e.g., the provider), the societal perspective should be used when measuring costs or should be reported in conjunction with other perspectives. Once you have identified the perspective of the costs, all of the individual personnel time and resources are identified. The exact process of identification and measurement is determined by the type of cost analysis performed.


Drummond et al. (2005) identify eight types of cost analyses: (a) cost description, (b) cost–outcome description, (c) cost, (d) cost minimization, (e) cost consequence, (f) cost-effectiveness, (g) cost–utility, and (h) cost–benefit analysis. The type of cost analysis that should be used depends on two factors: (a) whether a single activity or multiple alternative activities will be compared, and (b) whether costs alone or costs and their associated outcomes or consequences (e.g., improved health and reduced length of hospitalization) will be measured. Figure 17.1 presents a flow diagram for selecting the type of cost analysis. The next section explores each of the eight types of analyses in further detail.

FIGURE 17.1Flow diagram to select type of cost analysis.

QALYs, quality-adjusted life years.

Cost Description and Cost–Outcome Description

The cost description and the cost–outcome description analyses measure the cost of a single activity. The cost description solely measures the cost of the activity, whereas the cost–outcome measures both the cost and the outcome that results from the activity. The outcome of an activity is also referred to as the consequence, effect, or benefit. The cost and the cost–outcome descriptions are useful tools for researchers and practitioners, because they help quantify the cost implications of a single type of activity. Both are used widely in healthcare to examine the economic magnitude of disease because they can be used to answer questions such as: “How much does hospitalization for a heart transplant cost?” or “What is the hospital cost for stroke treatment and how long will I be hospitalized if I experience it?” The initial example of the cost of 1 hour of nursing care would be considered a cost description because it measured a single activity—an hour of nursing care—and did not seek to identify any outcomes that might result from that activity (e.g., the patient living 1 day longer than they would without the care). Some examples of cost description and cost–outcome description from the published literature are Johnson et al. (2013), American Diabetes Association (2013), and Gross et al. (2013).

Further, the cost and cost–outcome description analyses are so prevalent in healthcare that the Agency for Healthcare Research and Quality (AHRQ) has a free online tool, HCUPnet, that researchers and practitioners can use to identify the mean and median cost and length of stay for almost any type of inpatient hospitalization (HCUP Databases, 2012). The tool allows users to specify the cost they want by a specific diagnosis-related group (DRG), an individual diagnosis code (International Classification of Diseases [ICD]-9), or a procedure code (HCUP Databases, 2012). This is a particularly useful tool for researchers and practitioners to use when first examining which diseases are the largest contributors to overall healthcare costs at the national and/or state level or when trying to present the “big picture” case for why developing interventions for a particular disease is important.

Cost Analysis

A cost analysis is an analysis that solely measures the monetary cost of two or more alternative activities. A cost analysis does not consider any consequences or benefits that may result from each activity. Cost analysis can be especially useful to researchers and practitioners when the cost implications of two or more alternative activities have not been previously measured. The cost analysis is the first step in exploring the cost implications of each alternative. These analyses are often followed by more comprehensive cost studies that compare the costs and consequences of each alternative activity. Examples of cost analyses in the literature are Jegier et al. (2010), Leendertse et al. (2011), and Chan et al. (2014).

Cost-Minimization Analysis

A cost-minimization analysis, like a cost analysis, also compares the monetary value of two or more alternative activities. However, cost minimization assumes that the consequences of each alternative activity are equal, whereas the cost analysis does not measure the consequences or formulate any assumptions about them. Cost-minimization analyses are particularly useful when comparing two different treatment modalities for delivering the exact same 334treatment, for example, intravenous compared to oral delivery of a specific pain medication. In this example, the consequence of the pain medication (e.g., pain relief) should theoretically be equal; however, the cost to administer a drug orally versus intravenously would drastically differ. A cost-minimization analysis is also useful when effectiveness studies have already been completed to demonstrate that the outcomes are equal. This type of analysis identifies the lowest cost alternative, and it would be the recommended alternative. Some examples of cost-minimization analyses in the published literature are Dasta et al. (2010), Schuurman et al. (2009), and Behera et al. (2012).

Cost-Consequence Analysis

A cost-consequence analysis also compares the costs and the consequences of two or more alternative activities. The cost-consequence analysis, however, does not assume that the consequences all have equal worth. Instead, the cost and each consequence are presented to the reader or audience. The audience or reader must then decide which alternative to choose using their own judgment regarding the balance between the cost and the consequences for each alternative activity. A cost-consequence analysis would be presented as follows—cost activity 1: consequences of activity 1. Cost consequence can be particularly helpful if there are multiple possible consequences and/or if there is disagreement over the value of any consequence. The reader is allowed to weigh the relationship between the costs and consequences and consider that multiple consequences are possible. Examples of a cost-consequence analysis in the published literature are Kroese et al. (2011) and Jegier et al. (2016).

Cost-Effectiveness Analysis

A cost-effectiveness analysis compares the monetary costs with the consequence of two or more alternative activities. The cost-effectiveness analysis measures the consequences of each alternative using a clinical outcome as the unit of measure. For example, if a new program claims to reduce the length of hospital stay, a cost-effectiveness analysis would compare the costs and outcomes of the new program to other existing programs. Cost-effectiveness analysis is particularly useful for clinical providers because it breaks down the costs to a cost per clinical outcome, and this clinical outcome is usually the most important outcome from a clinical or practice perspective. For example, a cost-effectiveness analysis might identify the cost per day of hospitalization saved. This can be quite powerful when presenting a business case for a new clinical program because it ties the cost and clinical outcomes together. Some examples of cost-effectiveness analyses in the literature are Behl et al. (2012), Petrou et al. (2011), and Patel et al. (2013).

Cost–Utility Analysis

A cost–utility analysis builds on the framework of a cost-effectiveness analysis. Specifically, cost–utility incorporates a standardized measure of quality of life as the consequence being measured. Thus, the typical consequence that is measured in cost–utility analysis is the quality-adjusted life year (QALY; pronounced KW-ALL-EE) or the disability-adjusted life year (DALY; pronounced DA-LEE). There are many different techniques for quantifying QALYs and DALYs; however, there are three scales that are typically used in clinical research. They are the Quality of Well-Being (QWB) Scale (Kaplan & Anderson, 1988; Kaplan et al., 1996); the EuroQol 5-D (EuroQol Group, 1990; available at; or the Short Form 36 (SF-36; Brazier et al., 2002). The use of QALY and DALY in the cost–utility analysis can be very helpful to healthcare providers, 335particularly when counseling patients, because it allows the provider to present the quality of life added by a treatment rather than just the raw time alone. This also allows comparison of the cost-effectiveness across different types of programs or interventions. Some examples of cost–utility analyses in the literature are Kaimal et al. (2011), Smith et al. (2012), and Leung et al. (2016). See also Exhibit 17.1.

336EXHIBIT 17.1


PROMIS is a U.S. federal initiative funded through the National Institutes of Health that provides standardized tools for measuring quality of life from the patient’s perspective (Cella et al., 2007; Revicki et al., 2009). The tools are free for research use and provide researchers with a way to capture physical, mental, and social well-being using a series of validated and standardized questionnaires. These tools offer a unique opportunity to incorporate greater quality measures into research particularly because they include an electronic data collection system.

More information about PROMIS is available at

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Oct 17, 2021 | Posted by in NURSING | Comments Off on Cost as a Dimension of Evidence-Based Practice
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