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A number of health economics studies require patient cost estimates as basic information input. However, the accuracy of cost estimates remains generally unspecified. We propose to investigate how the allocation of indirect costs or overheads can affect the estimation of patient costs and lead to improvements in the analysis of patient cost estimates. Instead of focussing on the costing method, this paper will highlight observed changes in variation explained by a methodology choice. We compare four overhead allocation methods for a specific Spanish population adjusted using the Clinical Risk Groups model. Our main conclusion is that the amount of global variation explained by the risk adjustment model depends mainly on direct costs, regardless of the cost allocation methodology used. Furthermore, the variation explained can be slightly increased, depending on the cost allocation methodology, and is independent of the level of aggregation in the classification system.

This paper analyses the application of hybrid risk adjustment versus either prospective or concurrent risk adjustment formulae in the context of funding pharmaceutical benefits for the population of an integrated healthcare delivery organisation in Catalonia during years 2002 and 2003. We apply a mixed formula and find that, compared to prospective only models, a hybrid risk adjustment model increases incentives for efficiency in the provision for low risk individuals in health organisations, not only as a whole but also within each internal department, by reducing within-group variation of drug expenditures.