This paper reviews problems encountered in estimating the unit cost of services provided by innovative mental health programs and illustrates methods for addressing these problems.

Generally, the cost of a health care service is determined by identifying all resources used in its production and the cost of those resources.

These costs are divided by appropriate workload measures to determine the cost per unit of service or per client.

Issues that must be addressed include : 1) direct program costs ; 2) indirect costs (including administration and capital costs) ; 3) program resources used to support research and other non-program activities ; and 4) identification of « typical » workloads as the program is implemented.

Application of these methods is illustrated with data from a multi-site study of intensive psychiatric community care conducted at nine Department of Veterans Affairs Medical Centers in the Northeast.

A sensitivity analysis revealed that estimates of program costs vary by 59% over the entire program, and from 17% - 168% at individual sites, depending on which cost estimation methods were included.

The average cost of case management in this program varied considerably across sites, primarily reflecting differences in caseload size and staffing levels.

Adjusting for inflation, the cost of this program falls below the cost of other published intensive community programs.