Health Economics: Types of Cost

Since we are dealing with scarce/ limited resources, the emphasis is always on efficiency. Efficiency has been defined as ‘maximising well-being at the least cost to society’.

Inherent in the definition is the notion of cost. From a health economics perspective, the following broad types of cost may be described:

1. Direct costs: These relate to the use of resources as a direct result of the treatment and health care process.

They include:

Cost of nursing, cost of equipment and material used in providing services, drug acquisition costs, medical and other staff time involved in delivering care and administering procedures, allocation of organisational overheads to the particular service


costs to other agencies/ organisations involved in the process


cost to patients, in terms of

time costs, transport costs, and out-of-pocket expenses

Note: Direct costs may be sub-divided into direct medical and non-medical costs.


2. Indirect costs: These relate to any ‘losses’ incurred to society as a result of the impact of disease, illness and treatments.

They include losses incurred from an inability to engage in normal daily activities, work, domestic responsibilities and social and recreational/ leisure engagements.


3. Intangibles: These relate to the suffering, anxiety, distress and impact on Quality of Life (QOL) resulting from illness, poor health and their treatments.

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