Question

PART I

The following treatments exist to reduce chronic back pain. In recent years extensive surveys of patients taking these treatments have revealed average pain reductions for the different treatments as shown in the table below. The Price for each treatment is also shown.  

Option                                                 Yearly Price                         Percentage Reduction in Pain

No Treatment $0                                                 0

Treatment A         1000                                                   10

Treatment B                                           900                                                   13

Treatment C                                            1700                                                  27

Treatment D                                          1400                                                  31

Treatment E                                         2400                                                  62

Treatment F                                            2200                                                  65                   

1. Graph the treatment options (as shown in the textbook and demonstrated in class).  Remember that the Cost (price) goes on the x axis and E (Effect), which in this case is measured by percentage reduction in pain, goes on the Y axis. You can use the graph below or create your own.

2. Which treatments are on the Cost Effectiveness Frontier?

3. Which treatments are the dominated treatments?

4. Calculate the Incremental Cost Effectiveness Ratio for Treatment D. Show your work

5. In your own words define precisely what your answer means. See if you can do it in one sentence (imagine you are talking to someone who is not taking this course!).    

6. Now Treatment D is withdrawn from the market due to previously unknown safety issues. What is the effect on the treatment options as a result (i.e. changes in the cost effectiveness frontier and the dominated treatments). Be specific.

7. Now, in addition, Treatment E loses its patent protection. Generic drug producers begin to produce and sell the treatment at half its previous price. Explain what happens to the Cost Effectiveness Frontier and dominated treatments as result. Be specific.  

Answer 1