Tahoe Healthcare has been approached by a healthcare analytics company, Xaltra, about a new system for managing readmissions. The CEO of Tahoe believes the initial success with the CareTracker system could be enhanced through the use of better predictive analytics and is intrigued by Xaltra's approach. The Xaltra system merges data from a variety of hospital systems to provide state-of-the-art predictions of readmissions risk. It uses up to 50,000 variables and generates its predictions using advanced machine learning algorithms. Xaltra has been adopted by a number of hospitals throughout the country. The price for the Xaltra system is $250,000 in up-front license and integration fees plus an ongoing $135,000 per year fee for maintenance and support. The expected lifetime of the system is 10 years. Xaltra requested a sample of data to test their systems's performance against Tahoe's current logistic regression method. Tahoe provided Xaltra with the same dataset used in our class session, Tahoe_Healthcare_Data.xlsx, which includes admissions and outcome data for all AMI patients treated by Tahoe in the last year. The ROC curve results for the Xaltra test are provided in the tab Pb1_ROC. For convenience, these are shown alongside the ROC curve for Tahoe's current logistic prediction system.

a) Given these ROC test results, what is your estimate of the total readmissions and CareTracker costs for AMI patients for the past year if Tahoe had used the Xalta system? Explain your estimate.

Columbia Business School B6101 Business Analytics Homework 2