Cost Effectiveness Analysis - Its Role
in Medical Equipment Purchases
When preparing to make capital investments, most companies conduct
a return on investment (ROI) calculation to see if the investment will be economically
beneficial. In healthcare, the situation becomes more complex because there are
various clinical outcomes based on acquisition of new devices or technologies
that ultimately affect the cost of healthcare delivery and overall economic
efficacy beyond the direct investment versus returns. In such cases the straight ROI calculation is
not an adequate representation of the true economic impact to the medical
program or the organization.
In these instances, Cost-Effectiveness Analysis (CEA) is a
much better and more robust method of determining the utility of a new
purchase. An example would be the purchase of a new robotics instrument for the
operating room of a hospital. At first glance there is the total cost (down
payment and financing) and then the extra revenue generated by more surgeries.
However, the situation is more complicated than it first appears. These robotic
instruments can increase the efficiency of the surgery and thus decrease
operating room time. They can also decrease the complications of surgery done
by hand and its resultant additional costs. It can lead to decreased length of
stay and better patient satisfaction/quality of life. Furthermore, it may
increase demand for the hospital as it becomes a state of the art facility
within its local community. This can not only increase demand for surgical
services, but other services as well since patients will migrate to a hospital
that they perceive as state of the art. A classical ROI model does not have the
capability to analyze all these factors. CEA on the other hand can take into account
the Broad Data™ and more accurately assess the situation
Using decision tree modeling, CEA can take all of these
aspects into consideration, quantify them, and organize them in such a way that
one can figure out just how much of a difference the new robotic instrument can
really make. Since it quantifies the result, a decision can be made as to how
much the hospital is willing to pay for the instrument in order to make
economic sense. In the new era of decreased reimbursements and quality-based
payment models, it becomes critical to invest in technology that will really
pay off in the long run. CEA is a giant step forward in being able to accurately
measure and to achieve this goal.
About William L.
Matzner, M.D., PhD, FACP
Dr.
William Matzner works in the area of healthcare economics consulting at
Healthcare Analytics, LLC, in California. He graduated Phi Beta Kappa from
Stanford University. He received his M.D. with Honors from Baylor College of
Medicine. In 1988, he was the Solomon Scholar for Resident Research at Cedar
Sinai Medical Center. Dr. Matzner subsequently was awarded a PhD in Neuro
Economics from Claremont Graduate University. He is board certified in Internal
Medicine and Palliative Medicine. He has researched and published extensively
on the issue of reproduction and immunology in medical literature. He has been
in private practice since 1989, specializing in Reproductive Immunology and
Internal medicine.
Website: https://drwilliammatzner.com
Consulting Website: http://healthcareanalytics.biz
William Matzner, MD (Simi Valley, California), has been practicing medicine since 1989, Internal Medicine and Reproductive Immunology. M.D. with Honors from Baylor College of Medicine.
