HAP 425

Week 6 Assignment

Problem 1:

The following treatments exist to reduce chronic back pain.In recent years, extensive surveys of patients takingthese treatments have revealed the average pain reductions for the different treatments as shown in the table below.The price for each treatment is also shown.

OptionYearly PriceAverage percentage reduction

in pain

No Treatment$00

Treatment A100010

Treatment B90013

Treatment C170027

Treatment D140031

Treatment E240062

Treatment F220065

a)Graph the Cost Effectiveness Frontier for these treatment options.Remember that the cost (price)goes on the x axis and effectiveness,which in this case is measured by percentage reduction in pain, goes on the Y axis.You can use the graph at the end of the homework or create own.

b)What treatments are on the Cost Effectiveness Frontier and why?

c)Which treatments are the dominated treatments and why?

d)Calculate the Incremental Cost Effectiveness Ratio (ICER) for Treatment D compared to getting no treatment.Show your work

e)Now Treatment D is withdrawn from the market due to previously unknown safety issues.What is the effect on the treatment options as a result (i.e. what are the changes in the cost effectiveness frontier and the dominated treatments).Be specific.

f)Now,in addition, Treatment E loses its patent protection.Generic drug producers begin to produce and sell the treatment at half its previous price.Explain what happens to the Cost Effectiveness Frontier and dominated treatments as result.Be specific.

Problem 2:

Traders brought infected goods to market and a new disease is spreading through the population. The disease is not fatal, but is severely disfiguring. Assume no time discounting of future years.

A survey is done and respondents claim to be indifferent between living 8 years without the disease and 10 years covered with scars. Most respondents do not want to live with the stigma of scars.

a) What is the implied quality weight, q, for a year lived in the aftermath of the infection? Show your work.

b) A new drug is developed that reduces scarring and costs $10,000 for a full course of treatment. The quality weight improves from your answer to part a (the quality weight without the treatment) to 0.9 with the treatment. What is the ICER for taking the drug over doing nothing for a 20-year-old victim? Use QALY as a measure of effectiveness in your calculation, with individuals expecting to live until they are 70 years old. In one sentence interpretation of your results.

c) The residents believe that a QALY is worth $5K. Will a 20-year-old decide to take the treatment?

d) Will a 69-year-old decide to take the treatment?

Problem 3:

a)In class, we discussed 5 policy options for how a national health care system might structure their health insurance market. Define adverse selection in the context of the health insurance market and explain how each of these options addresses the problem of adverse selection.

b)Categorize the five options in terms of the option that produces the most amount of adverse selection, the option that produces the least amount of adverse selection, and the options that are in the middle. Explain your answers.

c)Provide one reason why it may not be appropriate to evaluate a nation's health care system by comparing its relationship between health spending and health outcomes to the relationship between health spending and health outcomes in another nation's health care system.