HERC: Average Cost
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Average Cost



HERC estimates the cost of inpatient and outpatient care and these data are known as the HERC Average Cost data.  The underlying method involves using non-VA relative value weights to distribute aggregate-level VA cost to encounter-level VA utilization.  We call this the "average cost" method because it assumes that all encounters with the same observed characteristics have the same average cost.

A limitation with this method is precision.  Because all encounters that share the same characteristics receive the same average cost estimate, the HERC Average Cost data may not be ideal if a researcher needs very precise data, such as when comparing close substitutes that may share many of the same characteristics.

The accuracy of the average cost estimate depends on three parts:

  1. The accuracy of the aggregate cost data.  The aggregate cost data must include all costs relevant for the study and capture all resources used to provide patient care
  2. The accuracy of the relative value weights.  If the weights do not reflect relative resource consumption then the final cost estimates will be biased.
  3. The accuracy of the encounter level utilization data.  It is important that the ulization data reflect the entirety of the patient care.

Note that items 1 and 3 must reflect, in aggregate, totals for the same population and the same time period.

Subtotals: VA provides different types of services.  Hence, we use the average cost method to estimate 11 types of inpatient care and 12 types of outpatient care.

National and local costs: VA has many different facilities.  HERC creates cost estimates for each facility (a local cost) and estaimtes at the national level (a national cost).  We recommend that most researchers use the national cost.


Availability of HERC Average Cost Estimates

HERC has created inpatient and outpatient average cost data for FY98-FY17.  These data have been made available via the VA Informatics and Computing Infrastructure (VINCI) and the SAS Grid, and are documented by a handbook that describes their limitations and appropriate use. Below are the files that HERC creates on an annual basis and the approximate months of when they are uploaded to VINCI each year. Though we strive to meet these deadlines, we occasionally may have unexpected delays. Detailed information on each of these datasets can be found in HERC guidebooks. HERC datasets were migrated from the Austin Information Technology Center mainframe to the VA Corporate Data Warehouse (CDW)/VINCI environment in 2013.

Availability of HERC Average Cost Estimates
HERC Average Cost Data Available Date
Inpatient average cost estimates July 1st
Outpatient average cost estimates July 1st

Acces to the HERC Average Cost data

Access to the HERC Average Cost Data on VINCI is managed through DART (Data Access Request Tracker) on the VA Intranet.


Outpatient Visits

For outpatient care, we use the relative values of all Current Procedures and Terminology (CPT) codes assigned to the visit. We use the relative values from the Resource Based Relative Value System (RBRVS), which is used to reimburse providers for services provided to Medicare patients. We assign every VA visit to one of 12 different categories of outpatient care. For each category, we find a specific factor to convert the relative value to a VA cost estimate. We assume that the resources used to provide VA outpatient care are proportionate to the relative values assigned in the Medicare reimbursement.

Outpatient Pharmacy

HERC does not estimate the cost of outpatient pharmacy.  We recommend people use DSS data for that purpose.

Inpatient Non Medical/Surgical Care

To find the cost of inpatient stays in rehabilitation, domiciliary, psychiatric, substance abuse, and intermediate medicine treatment units, we find the average cost of a day of stay, and apply it to estimate the cost of care. This makes the assumption that every day of stay has the same cost, that is, that costs are proportionate to the length of stay.

Long-Term Care

Long-term care: For FY98-00, we found the cost of long-term stays by incorporating the relative values for resource utilization from Resource Utilization Groups (RUGs; see Technical Report #11 - Intranet only - https://vaww.herc.research.va.gov/files/RPRT_185.pdf). For FY01-present, we calculated costs based on an average daily rate.

Inpatient Medical/Surgical Care

To find the cost of medical/surgical care, we use relative value units (RVUs) from the non-VA sector (Medicare). Our RVUs are based on a regression model that uses DRG weight, ICU days, length of stay and patient characteristics to estimate cost-adjusted charges.

Clinic Stop to HERC Category of Care Assignments*
HERC Category
of Care Name
Clinic Stop Number**
21 Outpatient Medicine 101-103, 110, 116, 130, 131, 139, 142-144, 149, 153, 158, 159, 182, 185-188, 231, 301-326, 329-333, 335-342, 345, 346, 348-353, 369-373, 394, 434, 436, 437, 439, 450-485, 511, 674, 683-686, 690-692, 694, 695, 706, 709, 710, 712
22 Outpatient Dialysis 602-604, 606-608, 611
23 Outpatient Ancillary Services 111, 117, 120, 122-125, 147, 160, 161, 163-169, 708, 711, 714, 999
24 Outpatient Rehabilitation 195-199, 201-211, 213, 214, 216-225, 228-230, 240, 241,  250, 438, 715
25 Outpatient Diagnostics Services 104-109, 115, 126-128, 145, 146, 148, 150-152, 154, 212, 334, 701-705, 717, 718
27 Outpatient Prosthetics 417, 418, 423, 425, 449
28 Outpatient Surgery 327, 328, 401-416, 419-422, 424, 426-433, 435, 441, 486-489, 716
29 Outpatient Psychiatry 156, 157, 501, 502, 504-506, 509, 510, 512, 515, 516, 520-522, 524-540, 542, 546, 550-554, 557-559, 561-584, 589-592, 731
30 Outpatient Substance Abuse Treatment 507, 508, 513, 514, 517-519, 523, 543-545, 547, 548, 555, 556, 560, 586-588, 593-599, 707
31 Outpatient Dental 180, 181
32 Outpatient Adult Daycare 190, 191
33 Home Care 118, 119, 121, 170-179, 215, 347, 354, 503, 670, 680-682, 725-730
91 Contract Extended Care 650-652, 654, 656
92 Other Contract Care 610, 640-643, 653, 655, 658, 669
99 Unassigned 712, 801, 802, 900, 998

*Please refer to HERC's Outpatient Average Cost Dataset for VA Care guidebook (Intranet only) for further information on this table.
**Clinic stops 290-297 are not included because they are observation codes.

Learn More

Finding the HERC Cost of Outpatient Visits by Cohort

VA researchers may find the cost of outpatient care received by participants in a research study only if they have obtained permission from a human subjects' protection committee and VA officials, and follow Federal privacy regulations.

Detailed information on the mechanics of identifying members of the cohort and using their encrypted identifier to find cost estimates in the HERC average cost database is provided on the Intranet version of this page (https://vaww.herc.research.va.gov/include/page.asp?id=average-cost#cohort).


Wagner TH, Chen S, Barnett PG. Using Average Cost Methods to Estimate Encounter-Level Costs for Medical-Surgical Stays in the Va. Med Care Res Rev. 2003 Sep;60(3 Suppl):15S-36S.

Yu W, Wagner TH, Chen S, Barnett PG. Average Cost of Va Rehabilitation, Mental Health, and Long-Term Hospital Stays. Med Care Res Rev. 2003 Sep;60(3 Suppl):40S-53S.

Phibbs CS, Bhandari A, Yu W, Barnett PG. Estimating the Costs of Va Ambulatory Care. Med Care Res Rev. 2003 Sep;60(3 Suppl):54S-73S.