Guidelines for Economic Evaluations in Italy: Recommendations from the Italian Group of Pharmacoeconomic Studies

A new approach for estimating the indirect costs of disease, which explicitly considers economic circumstances that limit production losses due to disease, is presented (the friction cost method). For the Netherlands the short-term friction costs in 1990 amount to 1.5-2.5% of net national income (NNI), depending on the extent to which short-term absence from work induces production loss and costs. The medium-term macro-economic consequences of absence from work and disability reduce NNI by an additional 0.8%. These estimates are considerably lower than estimates based on the traditional human capital approach, but they better reflect the economic impact of illness.

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.

The friction cost method has been proposed as an alternative to the human-capital approach of estimating indirect costs. We argue that the friction cost method is based on implausible assumptions not supported by neoclassical economic theory. Furthermore consistently applying the friction cost method would mean that the method should also be applied in the estimation of direct costs, which would mean that the costs of health care programmes are substantially decreased. It is concluded that the friction cost method does not seem to be a useful alternative to the human-capital approach in the estimation of indirect costs.