On the use of survival analysis techniques to estimate medical care costs

Measurement of treatment costs is important in the evaluation of medical interventions. Accurate cost estimation is problematic, when cost records are incomplete. Methods from the survival analysis literature have been proposed for estimating costs using available data. In this article, we clarify assumptions necessary for validity of these techniques. We demonstrate how assumptions needed for valid survival analysis may be violated when these methods are applied to cost estimation. Our observations are confirmed through simulations and empirical data analysis. We conclude that survival analysis approaches are not generally appropriate for the analysis of medical costs and review several valid alternatives. (C) 1999 Elsevier Science B.V. All rights reserved. JEL classification: C000 Mathematical and quantitative methods: general; C100 Econometric and statistical methods: general; C400 Econometric and statistical methods: special topics: general.