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Estimates of costs associated with disease states are required to inform decision analytic disease models to evaluate interventions that modify disease trajectory. Increasingly, decision analytic models are developed using patient-level data with a focus on heterogeneity between patients, and there is a demand for costs informing such models to reflect individual patient costs. Statistical models of health care costs need to recognize the specific features of costs data which typically include a large number of zero observations for non-users, and a skewed and heavy right-hand tailed distribution due to a small number of heavy healthcare users. Different methods are available for modelling costs, such as generalized linear models (GLMs), extended estimating equations and latent class approaches. While there are tutorials addressing approaches to decision modelling, there is no practical guidance on the cost estimation to inform such models. Therefore, this tutorial aims to provide a general guidance on estimating healthcare costs associated with disease states in decision analytic models. Specifically, we present a step-by-step guide to how individual participant data can be used to estimate costs over discrete periods for participants with particular characteristics, based on the GLM framework. We focus on the practical aspects of cost modelling from the conceptualization of the research question to the derivation of costs for an individual in particular disease states. We provide a practical example with step-by-step R code illustrating the process of modelling the hospital costs associated with disease states for a cardiovascular disease model.

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