Cost-Benefit Analysis

Assignment #8: Cost-benefit Analysis and Related Topics

1. Suppose you are the primary decision-maker (with input from the board, of
course) in the healthcare corporation known as Medical Care at Your Doorstep
(MCYD). The clinics operated by MCYD are located in areas that underserved
by hospitals and the mission of the clinics is to provide extended hours of service
and walk-in appointments so that those living in the area of a clinic site can avoid
extended ER waits when needing unscheduled care. MCYD has two clinics in a
certain city, and it has come to the attention of administration that one of these
clinics has become unprofitable. The main cause of this change (from profitability
to not being profitable) is that a competing company, Docs in a Box (DIB), has
recently opened a clinic in close proximity to the MCYD one that is currently having
trouble, and DIB has some new customer incentives in place. The decision you are
faced with at this point is whether to:

a) continue doing business as you have been for the last several years hoping that
customer loyalty will return when the novelty of DIB has worn off; or

b) close the unprofitable clinic and send the patient records to the reminding clinic,
hoping that patients of the closed clinic will visit the one that is still open when the
need arises.

Your goal as the primary decision-maker in this scenario is to use cost-benefit analysis to weigh the two options. In order to apply CBA to this problem, you first need to determine the costs and benefits of each option. (Hint: think of costs and benefits not only in terms of the MCYD Corporation financial picture, but also the costs and benefits to the other parties that will be impacted by this decision, including patients and employees). Consider each of the two decisions separately and answer the following:

a. Name 2 benefits for each of the two decisions

b. Name 2 costs for each decision

c. Name one method you could use to assign a dollar value to a cost or benefit that is not measured in money (e.g., patient satisfaction with health care access).

d. Once you have estimated the total costs and total benefits associated with each decision using the CBA method, how will you decide which of the two options to implement?

e. If the board of directors decides CBA is too hard to understand and instead insists that you base this decision of whether or not to close the underperforming clinic on the cost per patient (i.e., if the second clinic remains open this would be the total cost to run both clinics for the year divided by the total number of patients seen at both sites in the same time period versus the cost of running only the profitable one during the year divided by the number of patients seen at that clinic during the same time period), what is the cost divided by the number of patients called, and what method is being used to make the decision?