2. General principles and recommendations

This manual identifies the types of resources that are relevant to economic evaluations in submissions to the PBAC, together with the natural unit of measurement and the unit cost for each resource type. The list of resource types is not exhaustive; if other resource types are considered relevant, a case can be made in a submission to include these.

The original objective of the manual was to strike a balance between comparability and accuracy in the determination of unit costs. To some extent, this reduces the accuracy of these unit costs – for example, by adopting average rather than true marginal costs for hospital episodes and residential care.

Comparability of unit costs provides for a ‘reference case’ across economic evaluations considered by the PBAC. This means that decisions to list a medicine on the PBS are influenced by the medicine itself, rather than the selection of unit costs. It also improves transparency, because all sponsors preparing submissions to the PBAC can be confident that all other submissions are referring to the same set of costs.

Other advantages to this approach are that the unit costs are independently verifiable, accessible, and from sources that are regularly maintained (where possible) to ensure that the vast majority of unit costs are up to date.

Version 5.0 of the manual maintains the objective of balancing comparability and accuracy, but is now also based on the experience of applying the manual for more than two decades. History indicates that resources and their unit costs have had a varying impact on the conclusions of economic evaluations. Some types of resources (eg over-the-counter medicines) have rarely, if ever, had a pivotal impact on these conclusions. For other types of resources (eg medical services and other PBS medicines), costing issues usually arise from the number of resources changed, rather than the unit cost of each resource. Occasionally, the unit cost becomes important (eg claims of heterogeneity across hospital services within an Australian Refined Diagnosis Related Group [AR‑DRG]), and variations have been included in submissions. These are considered on a case-by-case basis.

Where the manual does not identify a particular resource, or where an alternative to the recommended unit cost may be more accurate and relevant for the PBAC’s decisions, the preferred approach is to prepare two base-case presentations of the economic evaluation and to ensure that the base case can be fully respecified. Present one base case according to the unit costs recommended in the manual (to promote comparability of PBAC decisions) and one base case that uses the alternative costs. Justify the use of alternative unit costs, and present two sets of sensitivity analyses, one for each base case. This helps the PBAC to assess the importance of the unit cost to its decision.

Resources could be included in an economic evaluation that are not included in this manual, and for which the only unit cost available has not been recently updated. The Australian Bureau of Statistics has recommended that the most appropriate deflator in these circumstances is the Implicit Price Deflator for government final consumption expenditure on hospital and clinical services.