Cost-effectiveness analysis
Freedom University has a company medical plan that has not included coverage related to breast cancer, but Freedom now wants to address breast cancer for its female employees age 50 and over. These employees can be expected to live to age 80 if they do not develop breast cancer. Currently, 8.2% (of female employees age 50 and over) can be expected to develop breast cancer, and 3.6% (of female employees age 50 and over) will die from breast cancer. The University has 1,000 female employees approaching age 50. The company has done some research, and has identified two alternatives to the current approach of doing nothing: a screening plan and a treatment plan.
Screening plan: Screen women for breast cancer from age 50 to 64. This will catch some cancers earlier and reduce the proportion of employees who will die from breast cancer to 2.9%. It costs $1195 per employee to implement this plan (over the entire 15 years of screening).
Treatment plan: Provide women who develop metastatic breast cancer with high-dose chemotherapy and autologous bone marrow transplantation (HDC-ABMT) until age 65. This reduces the proportion of deaths to 3.2%, and costs $1506 per employee treated.
a. Calculate the cost-effectiveness ratio for the screening plan relative to the current plan of doing nothing. (Hint! Express the benefits of each plan in terms of the number of women who live.)
b. Calculate the cost-effectiveness ratio for the treatment plan relative to the current plan of doing nothing. (Hint! Express the benefits of each plan in terms of the number of women who live.)
c. Plot the three options (do nothing, screening plan, treatment plan) on a graph with costs on the horizontal axis; then draw the cost effectiveness frontier. (Hint! The treatment option costs $123.50 per employee.) Under what circumstances will the university choose the screening option?