This paper reviews methodologies andinternational experience related to costing and pricinghealth services. Several factors affect the determination ofthe prices purchasers pay for health services. Theseinclude: the method of provider payment; the availability ofinformation on costs, volumes, outcomes, and patient andprovider characteristics; methods used to calculateproviders' costs; and characteristics of purchasers andproviders-including the regulatory environment, providerautonomy, negotiating power, and the degree of competition.The paper focuses on methods for setting levels of paymentunder different provider payment mechanisms. Line item andglobal budgets remain the most common reimbursement methodsin developing countries. However, many of these countriesare implementing mixed payment systems that have greaterinformation demands. The principal payment types used inhigh-income countries-capitation, payments per case ordiagnosis, and fee-for-service-are reviewed here, andimplications for low- and middle-income countries discussed.To minimize incentives for under- or over-utilization,prices that purchasers pay for health care services shouldbe related to the unit costs of services. However,establishing the true unit cost of health services iscomplicated, and detailed data needed to correctly allocateindirect costs to the units of services are not generallyavailable in developing countries. The organizationalcharacteristics of health care providers and theirrelationships with purchasers strongly influence the wayprices for health services are determined. Pertinentcharacteristics include provider autonomy, providernegotiating power, and the degree of competition. Theprincipal constraint on the development of provider paymentssystems in developing countries is the limited availabilityof information on costs, volumes, and patientcharacteristics. However, international experiences reveal avariety of options for setting prices for health carepurchasers in developing countries that are reforming theirpayment systems.