Economic Analysis for Health Services
1. A new manager of a children's services program is assigned the task of administering two ongoing programs; one that provides immunizations and one that provides diabetes screening. The total amount she can spend is $60,000. The following table shows the expenditures and benefits of the two programs. (Hint: what are the cost/opportunity cost of the programs)
a. The previous manager allocated the $60,000 evenly between the two programs. What was the total benefit? Is this the optimal allocation? Why or why not?
b. How should the new manager allocate the available funds?
c. A nurse urges the new manager to increase the level of spending in the immunization program $50,000 because of a prevailing unmet need. How should the new manager respond to the nurse's request?
d. A government consultant informs the new manager that the benefits of immunizations are 10% lower than those indicated above. Given this new information, what new allocation should the manager make?
2. A hospital director is considering two alternative investment programs. Both have costs of $5,000 in year 1 only. Project 1 provides benefits of $2,000 in each of the first 4 years only. Project 2 provides benefits of $2,000 for years 6 to 10 only.
a. Compute the net benefits using a discount rate of 6 percent.
b. Knowing that the calculations are dependent on the discount rate, conduct a sensitivity analysis by re-calculating with a discount rate of 12 percent. Based on your calculations, which investment program should the director choose?
3. The dominant hospital system in a market is considering various options to reduce the number of emergency room visits. A local health care consultant proposed that the hospital distribute a "Healthy Living and Preparedness" manual providing basic information on improving health and how to avoid unnecessary emergency room visits. The consultant explains that the manual has met with substantial success in a neighboring municipality. The program would rely on the hospital's volunteers both to distribute the manuals to community groups and train those groups on the manual. The volunteers would be trained by hospital employees. Suppose you are assigned the task of conducting an economic evaluation. The evaluation would compare the efficiency of the wellness manual with the alternative of doing nothing.
a. What type of information do you need before deciding whether an economic evaluation of the wellness manual makes sense?
b. Should your evaluation be a cost-benefit or a cost-effectiveness analysis? Why?
c. Propose an indicator that can be used to capture the outcome of the program?
d. Whose costs and what costs of the net program should be included in the analysis?