Dr. Anderson explained how to calculate the break-even point for a program, determine whether the program is targeting theoretical or risks, evaluate programs where odds can be calculated and each decision has a value, assign dollar values to costs and benefits to determine if program benefits exceed costs, assign dollar values to benefits to determine which program is cost effective in a per-unit outcome and compare alternatives where program benefits are expressed with a quality-of-life adjustment.
Break-even analysis (BEA) identifies the volume at which point operations change from being a loss to profitable. Costs are classified as either fixed or variable, depending upon whether they vary with the volume of output. Profits occur when total revenues exceed total costs – fixed costs plus variable costs. The break-even point is the point at which total revenue is equal to total costs. In one scenario, Dr. Anderson explained when it is beneficial to continue programs that don’t break-even and strategies on how to price appropriately.
Risk management (RM) attempts to maximize areas where one has control over the outcome while minimizing areas where one has little control. It should be realized that risks can’t be eliminated only reduced. Dr. Anderson provided insight on the risks of allocating funds targeting unlikely risks (bio-terrorism) at the expense of likely dangers (vaccines). Expected value (EV) provides a rational means for selecting the best alternative if the odds can be calculated and each decision has a value. Dr. Anderson evaluated dozens of risk reduction measures to see if they valued out (exceeds 100%) and provided insight on determine if a healthcare service or prevention program values out (exceeds 100%).
Cost benefit analysis (CBA) assigns dollar values to costs and benefits to determine whether the benefits realized exceed costs for a particular a program. Results of CBA are expressed as net benefits (benefits minus costs). Dr. Anderson showed us how to calculate and determine if the economic benefits exceed the costs (exceeds 100%) for a variety of programs: stop smoking programs, weight management, vaccinations, etc.
Cost effectiveness analysis (CEA) is better than CBA in situations when assigning dollar values to benefits for which market prices do not exist, such as a person’s life. In these scenarios, CEA may be a more appropriate method since it uses a cost-per-unit outcome. Units of measurement for CEA might include disease prevented, head injuries averted, number of lives saved or cost per year of life. Dr. Anderson pointed out that government agencies assess the value of life at $7.5 million, but how much they spend money is an entirely different story. They will spend millions to save the life of a single miner trapped in a cave, but balk at an extra $20,000 on a highway guardrail that would save an average of one life per year. Superfund hazardous waste clean ups prevent cancer at a cost of $5 billion per life saved.
Cost utility analysis (CUA) compares alternate strategies where net benefits are expressed as the number of life years saved, with a quality-of-life adjustment. The common measurement for CUA is quality-adjusted life years (QALY). Rather than relying on implicit judgments about the quality of life, CUA makes these values explicit in the calculation. However, Dr. Anderson noted that QALY are subjective determinations, are difficult to measure and not universally accepted.