Microcosting

Microcosting is a detailed costing approach used in health economics and related fields to estimate the true cost of a health care intervention by identifying and measuring each unit of resource consumed. Rather than applying aggregated average costs to broad categories, microcosting assembles resource use at the most granular level and assigns unit prices to each item, to produce a total cost that reflects actual practice in a given setting. The method is often contrasted with gross costing, which relies on averages or national tariffs.

Methodology and data sources include primary data collection and careful costing of resources. Data sources can include time-and-motion studies, direct observation, chart reviews, staff interviews, electronic health records, supply logs, and financial records. Resource categories typically cover personnel time, procedures and tests, drugs and consumables, medical equipment and depreciation, facility overhead, and ancillary services. Unit costs are drawn from wage schedules, price lists, depreciation calculations, and tariff structures. Costs can be estimated prospectively during a trial or study, or retrospectively from existing records. Results are often reported as total cost per patient, per episode, or per unit of activity, with sensitivity analyses to reflect price changes or utilization variability.

Applications include economic evaluations such as cost-effectiveness and cost-utility analyses, particularly for new or complex interventions with limited prior cost data. It supports budget impact analyses and policy decisions by providing precise resource-use estimates.

Advantages and limitations: microcosting offers high accuracy for specific settings and interventions and helps identify cost drivers, but is resource-intensive to collect, may introduce measurement error, and can have limited generalizability due to local price structures and coding schemes.

Relation to other methods: it is often used alongside macro costing or activity-based costing, with hybrid approaches applying microcosting to key processes while using broader costing for less critical elements.