How to calculate indirect costs in economic evaluations

Abstract

This article describes the components that should be included as indirect costs to be consistent with economic theory in studies conducted from a societal perspective. The recently proposed method of how to estimate indirect costs, the friction-cost approach, is shown to exclude many aspects of these indirect cost components. Furthermore, it is demonstrated that this approach rests on very strong assumptions about the individual's valuation of leisure and about the labour market. This approach does not, in most realistic circumstances, have a foundation in economic theory. It also shows that all indirect costs cannot be assumed to be included in the individual's reported utility weight for a health state [used to determine quality-adjusted life-year (QALY) values], as recently suggested by the US Panel for Cost-Effectiveness Analysis of Health and Medicine. Therefore, to be consistent with economic theory, neither the friction-cost approach nor the QALY approach can be recommended over the more commonly used human capital-cost approach for estimating the indirect costs of a disease in economic evaluations from a societal perspective.