ABSTRACT
The simplest approach to calculating costs lists all the inputs into a service, multiplies each by the unit cost, and thereby calculates total cost. The analyst who ignores patient costs will conclude that hospital-based care is producing health benefits from the health service budget more efficiently than home-based care. A good understanding of current provision can also help to identify whether there is any spare capacity, which might allow the service to be expanded at low cost. It can be important to assemble information about technology and organisational structure at different scales of provision. The costs we are aiming to estimate will usually be associated with adding a new service or expanding an existing service. When average cost is being used as an estimate of long-run incremental cost, it is important to check that the change in activity is unlikely to lead to a major change in the most efficient technology of provision.
