Cost-Effectiveness Analysis in Health

 Cost-Effectiveness Analysis in Health

Questions One

A good research question must have several elements. The first element is specificity whereby the issue must have clear and defined objectives as well as processes. Secondly, the research question must be measurable. This element denotes the statistical or mathematical characteristic of the research question whereby its results remain testable. The third element of a good research question is attainability (Muennig & Bounthavong, 2016). This trait indicates the ability of the item to be attained through the possession of expertise and resources. The fourth element of a good research question is realistic. This element denotes the capability of the item to be attributed to specific rational physics and be completed in a reasonable time frame. Right research questions are also timely meaning the time frame used from inception to completion must be reasonable. Research questions whose conclusion takes too long cannot be considered as rational because of the time wasted and resources.

Question Two

Economists and financial managers consider opportunity costs as the costs incurred when one alternative gets overlooked for the sake of another one. The process results in the loss of the benefits or revenue missed out from foregoing the abandoned opportunity. Investors consider opportunity cost as the difference regarding the returns earned from a choice over another one that was given up for necessity or due to unavoidable circumstances.

Calculating opportunity costs is a relatively straightforward process as it involves two primary requirements. The first one is the cost of the foregone choice while the second is the cost of the chosen one (Muennig & Bounthavong, 2016). The difference between the returns of the most lucrative option and that which was selected for reasons such as necessity and risk yields the opportunity cost. One important consideration when calculating opportunity costs in investment scenarios is that it is a forward-oriented process. Therefore, the actual rate of returns of both the chosen investment option and that which was foregone are unknown.

Question Three

Micro-costs are the relatively little costs associated with changing from one option to another in investment or finance that are also relatively negligible. This scenario means that the customer or investor does not actively consider these costs as they are associated with the changeover from one alternative to another. Interestingly, the main reason why many of these consumers or investors will ignore these costs is that the costs involved do not affect their choice; which is usually the default one.

Gross costs mean the entire set of costs involved in making acquisitions as a consumer or an investor (Muennig & Bounthavong, 2016). Using the example of a foreign purchased industrial asset, the gross charges would involve purchase price, transport costs, handling costs, export and import taxes, insurance costs, and exercise duty at all ports of entry or exit.

The main difference between micro costs and gross costs is that the former do not influence the consumer’s choice as they remain on their default pick while gross costs may influence the choice of a consumer based on their size relative to the product’s utility.

Question Four

The net present value (NPV) is the actual difference between the total volume of cash inflows and the total volume of cash outflows over a period of time. Business and Financial environments that rely on capital budgeting such as investments management calculate the profitability of projects or investments using net present value.

The formula above is the method of calculating the NPV whereby Ct is the net flow of cash inwards over a specified period. Co is the total initial investment costs of the venture or capital purchase, while r and t are the discount rate and some time periods, respectively.

The future value of a cost is the future value of a cost being incurred currently at a future date based on the current rate of growth or decay (Muennig & Bounthavong, 2016). Most times the value of cost appreciates due to factors such as inflation and depreciation, fluctuation of exchange rates, and even wear and tear of equipment.

The future value of costs is calculated like that of the future value of an asset. There are two primary considerations to make, which are calculations based on compounded interest and simple annual interest.

FV = I * [1 + (R * T)]

FV = I * [(1 + R)T]

The first formula calculates the simple future value of cost based on simple annual interest whereby I is the initial investment, R is the interest rate, while T is the number of years. The second formula combines these factors with the addition of some marginal complexity.

Question Five

Within the healthcare environment, the cost-to-charge ratio is the total amount of cash necessary for running a hospital divided by the sum of all revenues accrued from patient care and other revenue sources.

Hospitals convert their costs into social costs or actual costs by dividing their total operating costs by the total revenues their patients bring in (Muennig & Bounthavong, 2016). Therefore, the total costs of running the hospitals are absorbed by the society through the revenue they bring to the institution in exchange for good quality healthcare.

References

Muennig, P., & Bounthavong, M. (2016). Chapter Four. In Cost-Effectiveness Analysis in Health: A Practical Approach (pp. 50-71). New York, NY: John Wiley & Sons.

Muennig, P., & Bounthavong, M. (2016). Chapter Three. In Cost-effectiveness analyses in health: A practical approach (pp. 36-43). NY: John Wiley & Sons.