Cost Premium Research Articles

PRM153 - Rethinking Cost-Effectiveness In The Era Of Zero Healthcare Spending Growth

The global economic crisis imposes severe restrictions on healthcare budgets, limiting the coverage of new interventions, even when they are cost-effective. Our objective was to develop a tool that can assist decision-makers in comparing the impact of medical intervention alternatives on the entire target population, under a pre-specified budget constraint. We illustrated the tool by using a target population of 1,000 patients, and a budget constraint of $1,000,000. We compared two intervention alternatives: the current practice that costs $1,000 and adds 0.5 quality-adjusted-life-years (QALYs) per patient and a new technology that costs 100 % more, and provides 20 % more QALYs per patient. We also developed a formula for defining the maximum premium price for a higher-cost/higher-effectiveness intervention that can justify its adoption under a constrained budget. Using the new therapy will add 300 QALYs, compared to 500 QALYS when using the lower-cost, lower-effective intervention, despite a favorable incremental cost-effectiveness ratio (ICER) of $10,000. The maximum price for the higher-efficacy therapy that will preserve the target population outcomes is 20 % higher than the lower-cost therapy. Although an intervention associated with higher costs and higher efficacy may have an acceptable ICER, it could provide inferior outcomes in the target population under budget constraints, depending on the relative effectiveness and costs of the interventions. The cost premium that can be justified for a higher-efficacy intervention is directly correlated to its effectiveness premium. Using the proposed tool may assist decision-makers in improving overall healthcare outcomes, especially in times of economic downturn.

Absorption Refrigeration Cycle Turbine Inlet Conditioning

Ambient temperature markedly impacts combustion turbine performance. A typical aeroderivative turbine loses 25% of ISO capacity at 38°C ambient. There are two traditional options to mitigate that degradation: evaporative cooling and mechanical chilling. They boost turbine performance, but consume significant water and/or electric load. Also, the turbine requires separate anti-icing equipment for low ambient temperature operation (less than 4.4°C). This paper describes the Absorption Refrigeration Cycle Turbine Inlet Conditioning (ARCTIC) system that chills or heats the inlet air of a combustion turbine to maintain maximum turbine performance at all ambient temperatures. The ARCTIC unit is an ammonia–water absorption cycle that is powered by turbine exhaust heat. The design and performance of a 7034 kW (2000-ton) ARCTIC unit is presented. This ARCTIC achieved a new record for net power and heat rate from this model aeroderivative gas turbine in hot weather. It provides reliable and dispatchable hot day power at about half the cost of new plant. On a typical summer day (38°C dry bulb, 26°C wet bulb), ammonia refrigerant from the ARCTIC chills the inlet air to 8.9°C. The gas turbine power is increased from 40 to 51 MW. After allowing for the 230 kW electric parasitic load, the resulting net power is 2 MW more than the output of a comparable mechanically chilled gas turbine. As a result, the heat rate is also improved. On cold days the ARCTIC automatically switches to heating mode. The inlet air is heated by 11°C to eliminate inlet icing potential. Additional benefits include a lower exhaust temperature which is better for the Selective Catalytic Reduction (SCR) catalyst. The condensate recovered from the inlet-air chilling (up to 25 gallons per minute) can also be a valuable by-product. The ARCTIC system has a small cost premium relative to a mechanical chiller. However, when all the auxiliary functions are credited (anti-icing, tempering air, less switchgear, no 4160 volt service), the overall installed cost is comparable. The standout advantages are the increased hot weather power output, improved operating efficiency, and reduced maintenance, all obtained at minimal additional cost. Combined cycle and cogeneration configurations (both frame and aeroderivative) benefit even more from the ARCTIC due to the increased value of improved heat rate.

The Mediating Role of Consumer Satisfaction in the Relationship between Brand Equity and Brand Loyalty based on PLS-SEM Model

This paper implements a PLS-SEM model to investigate the relationship between brand equity, consumer satisfaction and brand loyalty. Based on a sample of 1840 Chinese sports brands customers, the findings of the model testing confirm that perceived quality, perceived value of cost and price premium are significant dimensions of brand equity. Among these three, perceived value of cost is the most important. The findings also suggest that behavioral loyalty and attitudinal loyalty are effective on brand loyalty, and attitudinal loyalty has more positive influence on brand loyalty than behavioral loyalty does. The current research indicates that brand equity has a positive relationship with consumer satisfaction, and consumer satisfaction has a positive influence on brand loyalty. Further, this study reveals that brand equity has positive influence on brand loyalty partially mediated by consumer satisfaction.

Optimal Inventory Control with Retail Pre‐Packs

A pre‐pack is a collection of items used in retail distribution. By grouping multiple units of one or more stock keeping units (SKU), distribution and handling costs can be reduced; however, ordering flexibility at the retail outlet is limited. This paper studies an inventory system at a retail level where both pre‐packs and individual items (at additional handling cost) can be ordered. For a single‐SKU, single‐period problem, we show that the optimal policy is to order into a “band” with as few individual units as possible. For the multi‐period problem with modular demand, the band policy is still optimal, and the steady‐state distribution of the target inventory position possesses a semi‐uniform structure, which greatly facilitates the computation of optimal policies and approximations under general demand. For the multi‐SKU case, the optimal policy has a generalized band structure. Our numerical results show that pre‐pack use is beneficial when facing stable and complementary demands, and substantial handling savings at the distribution center. The cost premium of using simple policies, such as strict base‐stock and batch‐ordering (pre‐packs only), can be substantial for medium parameter ranges.

Valuing lead time

When do short lead times warrant a cost premium? Decision makers generally agree that short lead times enhance competitiveness, but have struggled to quantify their benefits. Blackburn (2012) argued that the marginal value of time is low when demand is predictable and salvage values are high. de Treville et al. (2014) used real-options theory to quantify the relationship between mismatch cost and demand volatility, demonstrating that the marginal value of time increases with demand volatility, and with the volatility of demand volatility. We use the de Treville et al. model to explore the marginal value of time in three industrial supply chains facing relatively low demand volatility, extending the model to incorporate factors such as tender-loss risk, demand clustering in an order-up-to model, and use of a target fill rate that exceeded the newsvendor profit-maximizing order quantity. Each of these factors substantially increases the marginal value of time. In all of the companies under study, managers had underestimated the mismatch costs arising from lead time, so had underinvested in cutting lead times.

Modeling Management Strategies for Clinical Stage I Seminoma: Direct and Indirect Costs for the First 5 Years

IntroductionClinical stage I seminoma can be managed with surveillance, chemotherapy or radiotherapy with similar survival rates. However, costs and side effects vary among these treatment modalities. We created a model to estimate the direct and indirect costs during the first 5 years of treatment for the 3 treatment strategies. MethodsMarkov model based analyses were conducted to compare the costs of the 3 management strategies during the first 5 years. In this model clinicians and patients were assumed to be 100% compliant with the 2012 NCCN Guidelines® for testicular cancer. Model parameters were collected from the Washington State CHARS (Comprehensive Hospital Abstract Reporting System), published literature and Medicare reimbursement amounts. A 5% annual health inflation rate was assumed. ResultsThe model predicts an initial cost premium for carboplatin (1 cycle—$9,199.49; 2 cycles—$10,613.85) and radiotherapy ($9,532.80) compared with surveillance ($9,065.31). Radiotherapy (145.8 hours) and surveillance (123.0 hours) require more patient time than carboplatin (1 cycle—93.2 hours, 2 cycles—106.3 hours). When the direct and indirect costs are considered, the least expensive management strategy is surveillance. ConclusionsSurveillance is the most cost-effective management strategy for clinical stage I seminoma during the first 5 years of treatment. Although not evaluated in this analysis, costs of late side effects associated with radiotherapy and chemotherapy should be considered. Due to potentially minimal late side effects and superior cost-effectiveness, surveillance represents a safe, cost-effective and time effective option for the management of stage I seminoma.

Development of a simple analytical model to quantify the PV module cost premium associated with module efficiency and cell technology

Abstract A simple analytical model and corresponding analytical equations were developed to rapidly determine the module cost premium associated with module efficiency, temperature coefficient (γ), irradiance weighted operating cell temperature (Tiwoct), and balance of system (BOS) cost. The model provides guidelines for selecting the most appropriate photovoltaic (PV) module for a given application and establishes the price of various modules without affecting the LCOE. Analytical calculations in this paper were verified with the more elaborate PV system analysis program called the System Advisor Model (SAM) from National Renewable Energy Laboratory (NREL). For example, it is shown that 16% efficient $1/W module with area-related BOS cost=$1/W, total BOS cost=$2/W, γ= −0.45%/°C, and Tiwoct=47.3 °C is equivalent to a 20% $1.20/W module if BOS, γ, and Tiwoct remain the same. This corresponds to a premium of $0.20/W due to a higher efficiency. If the 20% efficient module has γ of −0.40%/°C instead of −0.45%/°C, then it will produce more energy, so the module cost can be increased to $1.24/W without altering levelized cost of electricity (LCOE). This corresponds to an additional price premium of $0.04/W due to γ. If Tiwoct is reduced to 42.3 °C instead of 47.3 °C by cooling or changing location, then another $0.06/W premium can be added on the module cost.

The Effect of Competition on the Efficient–Responsive Choice

In determining their operations strategy, a firm chooses whether to be responsive or efficient. For firms competing in a market with uncertain demand and varying intensity of substitutability for the competitor's product, we characterize the responsive or efficient choice in equilibrium. To focus first on the competitive implications, we study a model where a firm can choose to be responsive at no additional fixed or marginal cost. We find that competing firms will choose the same configuration (responsive or efficient), and responsiveness tends to be favorable when demand uncertainty is high or when product competition is not too strong. Intense competition can drive firms to choose to be efficient rather than responsive even when there is no additional cost of being responsive. In such a case, both firms would be better off by choosing to be responsive but cannot credibly commit. We extend the basic model to study the impact of endogenized production timing, multiple productions and product holdback (or, equivalently, postponed production). For all these settings, we find structurally similar results; firms choose the same configuration, and the firms may miss Pareto‐improvements. Furthermore, through extensions to the basic model, we find that greater operational flexibility can make responsiveness look less attractive in the presence of product competition. In contrast to our basic model and other extensions, we find it is possible for one firm to be responsive while the other is efficient when there is either a fixed cost or variable cost premium associated with responsive delivery.

Cost-effectiveness of alternative powertrains for reduced energy use and CO2 emissions in passenger vehicles

This work analysed the cost-effectiveness of avoiding carbon dioxide (CO2) emissions using advanced internal combustion engines, hybrids, plug-in hybrids, fuel cell vehicles and electric vehicles across the nine UK passenger vehicles segments. Across all vehicle types and powertrain groups, minimum installed motive power was dependent most on the time to accelerate from zero to 96.6km/h (60mph). Hybridising the powertrain reduced the difference in energy use between vehicles with slow (tz-60>8s) and fast acceleration (tz-60<8s) times. The cost premium associated with advanced powertrains was dependent most on the powertrain chosen, rather than the performance required. Improving non-powertrain components reduced vehicle road load and allowed total motive capacity to decrease by 17%, energy use by 11%, manufacturing cost premiums by 13% and CO2 emissions abatement costs by 15%. All vehicles with advanced internal combustion engines, most hybrid and plug-in hybrid powertrains reduced net CO2 emissions and had lower lifetime operating costs than the respective segment reference vehicle. Most powertrains using fuel cells and all electric vehicles had positive CO2 emissions abatement costs. However, only vehicles using advanced internal combustion engines and parallel hybrid vehicles may be attractive to consumers by the fuel savings offsetting increases in vehicle cost within two years. This work demonstrates that fuel savings are possible relative to today’s fleet, but indicates that the most cost-effective way of reducing fuel consumption and CO2 emissions is by advanced combustion technologies and hybridisation with a parallel topology.

Optimal Inventory Control with Retail Pre-Packs

A pre-pack is a collection of items used in retail distribution. By grouping multiple units of one or more stock keeping units (SKU), distribution and handling costs can be reduced; however, ordering flexibility at the retail outlet is limited. This paper studies an inventory system at a retail level where both pre-packs and individual items (at additional handling cost) can be ordered. For a single-SKU, single-period problem, we show that the optimal policy is to order into a �band� with as few individual units as possible. For the multi-period problem with modular demand, the band policy is still optimal, and the steady-state distribution of the target inventory position possesses a semi-uniform structure, which greatly facilitates the computation of optimal policies and approximations under general demand. For the multi-SKU case, the optimal policy has a generalized band structure. Our numerical results show that pre-pack use is beneficial when facing stable and complementary demands, and substantial handling savings at the distribution center. The cost premium of using simple policies, such as strict base-stock and batch-ordering (pre-packs only), can be substantial for medium parameter ranges.

Rural Household’s Risk Attitude and Credit Rationing: The Case of Chongqing in China

This paper identifies farmers’ risk attitude through ELCE method and problem design that conducts a survey of 237 rural households in Chongqing Municipality, and empirically studies the relationship between risk attitudes and credit rationing by utilizing Probit and Logit model. The results show that farmers’ risk attitude and credit rationing are a significant positive correlation. The stronger farmers’ risk aversion is, the more serious the demanded credit rationing becomes. Risk attitude which is determined the risk cost and risk premium, thus affects the credit behavior and credit rationing degree. In addition, distance of peasant’s residence away from the city and their land amount have a positive significant influence on credit rationing, while the factors, such as farmers’ education level, income, family labor force, have a negative significant effect on credit rationing. Based on these findings, the paper further analyzes the relationship between farmers’ credit using and credit rationing to farmers with different risk attitudes. Measures to relieve the farmer’s credit rationing must be taken from government, financial institutions and farmers respectively.

Could Low Carbon Capacity Standards be More Cost Effective at Reducing CO2 than Renewable Portfolio Standards?

Abstract We examine the implications of lowering electricity sector CO 2 emissions in PJM through a Low Carbon Capacity Standard (LCCS) instead of a renewables portfolio standard (RPS). An LCCS would create a requirement for load-serving entities to procure new low carbon capacity (GW). The LCCS would provide a greater balance of energy and capacity supply than a renewable portfolio standard, which requires only the supply of energy (and excludes non-renewable low carbon generators). Approximately 25 GW of PJM generation capacity is scheduled to retire by 2019 and the RPSs currently in place in PJM will supply only 5 GW of Equivalent Load Carrying Capability (ELLC). An LCCS, providing the same amount of low carbon energy, would supply 13 to 16 GW of ELCC. We estimate the required reduction of capacity prices required to cover the investment cost premium low carbon capacity would require from consumers. For example, if the energy from an LCCS costs on average $20/MWh more than energy from an RPS, the annual premium would be approximately $2.2 B. In order for consumers to be better off with an LCCS in this example, capacity prices would have to decrease by $40/MW-day. We find that if an LCCS were adopted, coal fired power plants with carbon capture, utilization, and sequestration (CCUS) would likely have the lowest cost per MW of capacity of all low carbon technologies, based on net Cost of New Entry (CONE) estimates.

Economic comparison of white, green, and black flat roofs in the United States

White and “green” (vegetated) roofs have begun replacing conventional black (dark-colored) roofs to mitigate the adverse effects of dark impervious urban surfaces. This paper presents an economic perspective on roof color choice using a 50-year life-cycle cost analysis (LCCA). We find that relative to black roofs, white roofs provide a 50-year net savings (NS) of $25/m2 ($2.40/ft2) and green roofs have a negative NS of $71/m2 ($6.60/ft2). Despite lasting at least twice as long as white or black roofs, green roofs cannot compensate for their installation cost premium. However, while the 50-year NS of white roofs compared to green roofs is $96/m2 ($8.90/ft2), the annualized cost premium is just $3.20/m2-year ($0.30/ft2-year). This annual difference is sufficiently small that the choice between a white and green roof should be based on preferences of the building owner. Owners concerned with global warming should choose white roofs, which are three times more effective than green roofs at cooling the globe. Owners concerned with local environmental benefits should choose green roofs, which offer built-in stormwater management and a “natural” urban landscape esthetic. We strongly recommend building code policies that phase out dark-colored roofs in warm climates to protect against their adverse public health externalities.

Discovery of Internal and External Factors Causing Military Construction Cost Premiums

AbstractEach year, the United States invests $30 billion in federal construction. Military construction (MILCON) represents 40% ($12 billion) of that capital investment. This study confirmed the existence of MILCON cost premiums compared with private sector construction through an analysis of existing research. This study also evaluated two nearly identical projects and used expert interviews and surveys to determine which factors influence the cost premiums. The projects represented a rare opportunity to compare projects that had the same end requirement: method of execution and acquisition, design/build and firm-fixed price; and location but differed by government construction agent. In addition to identifying the 28 factors that moderately or largely influence cost premiums, five overarching cost-premium themes emerged: failing to balance risk, additional public-sector requirements, stifling or not applying innovation, selection of construction specifications, and parameterization of the execution proc...

Assessment of Crumb Rubber Concrete for Flexural Structural Members

To address the ever-increasing quantity of scrap tires produced in the United States, a study is conducted on the use of crumb rubber in concrete for enhancement of structures against blast effects. Crumb-rubber concrete (CRC) is produced by replacing a volume percentage of the traditional coarse and/or fine aggregate with crumb-rubber particles. Crumb rubber is produced in various gradations from used vehicle tires. The research program characterizes the mechanical properties of CRC and provides an assessment of the capability of CRC in providing flexural resistance for structural applications. The experimental and analytical investigation found the following four results: (1) crumb rubber replacement of coarse and fine aggregate is done at a cost premium of approximately 0.75 times the replacement percentage; (2) the addition of crumb rubber results in a decrease in unit weight, compression strength, splitting tensile strength, and elastic modulus, which are linearly related to the addition of rubber; (3) the modulus of rupture was not sensitive to replacement of up to 40% rubber aggregate; and (4) flexural failure modes occur at lower demand levels due to the use of rubber replacement. The reductions are consistent with the material property conclusions previously discussed.

An Industrial Organization Theory of Risk Sharing

Examining the global reinsurance market, we propose a new theory of optimal risk sharing that finds its inspiration in the economic theory of the firm. Our model offers a theoretical foundation for two empirical regularities that are observed in the reinsurance market: (1) the choice of specific attachment (the deductible) and detachment points (the policy limits or the retrocession); and (2) the vertical and horizontal tranching of reinsurance contracts. Using a two-factor cost model, we show how reinsurance should be optimally layered (with attachment and detachment points) for a given book of business in order to minimize the cost and total premium associated with catastrophic events.

Cost-Effectiveness of a Novel Blood-Pool Contrast Agent in the Setting of Chest Pain Evaluation in an Emergency Department

We evaluated three diagnostic strategies with the objective of comparing the current standard of care for individuals presenting acute chest pain and no history of coronary artery disease (CAD) with a novel diagnostic strategy using an emerging technology (blood-pool contrast agent [BPCA]) to identify the potential benefits and cost reductions. A decision analytic model of diagnostic strategies and outcomes using a BPCA and a conventional agent for CT angiography (CTA) in patients with acute chest pain was built. The model was used to evaluate three diagnostic strategies: CTA using a BPCA followed by invasive coronary angiography (ICA), CTA using a conventional agent followed by ICA, and ICA alone. The use of the two CTA-based triage tests before ICA in a population with a CAD prevalence of less than 47% was predicted to be more cost-effective than ICA alone. Using the base-case values and a cost premium for BPCA over the conventional CT agent (cost of BPCA ≈ 5× that of a conventional agent) showed that CTA with a BPCA before ICA resulted in the most cost-effective strategy; the other strategies were ruled out by simple dominance. The model strongly depends on the rates of complications from the diagnostic tests included in the model. In a population with an elevated risk of contrast-induced nephropathy (CIN), a significant premium cost per BPCA dose still resulted in the alternative whereby CTA using BPCA was more cost-effective than CTA using a conventional agent. A similar effect was observed for potential complications resulting from the BPCA injection. Conversely, in the presence of a similar complication rate from BPCA, the diagnostic strategy of CTA using a conventional agent would be the optimal alternative. BPCAs could have a significant impact in the diagnosis of acute chest pain, in particular for populations with high incidences of CIN. In addition, a BPCA strategy could garner further savings if currently excluded phenomena including renal disease and incidental findings were included in the decision model.

CONDITIONAL INVESTMENT-CASH FLOW SENSITIVITIES AND FINANCING CONSTRAINTS

We study the sensitivity of investment to cash flow conditional on measures of q in an adjustment costs framework with costly external finance. We present a benchmark model in which this conditional investment–cash flow sensitivity increases monotonically with the cost premium for external finance, for firms in a financially constrained regime. Using simulated data, we show that this pattern is found in linear regressions that relate investment rates to measures of both cash flow and average q. We also derive a structural equation for investment from the first-order conditions of our model, and show that this can be estimated directly.

To LEED or Not to LEED: Analysis of Cost Premiums Associated With Sustainable Facility Design

:Many organizations have established policies authorizing a “green” cost premium to fund sustainable design. In order to determine whether or not this practice is supported, we collected construction, cost, and utility data on a sample of 160 LEED certified buildings. Using simple correlation and descriptive statistics to analyze the resulting database, we found operating costs in LEED certified buildings were $0.70 per square foot less than non-LEED buildings, energy costs were 31% lower, and cost premiums ranged from 2.5 to 9.4% with a mean of 4.1%. Correlation analysis suggests there are very few statistically significant correlations among the design variables.

Learning by playing – teaching energy simulation as a game

Being able to read thermal simulation results and to adapt one's design accordingly has become an essential skill for graduating and practicing architects. This article proposes and evaluates an innovative way of how this skill can be taught via a 90-min in-class exercise or ‘game’ based on DesignBuilder/EnergyPlus. The game was tested in a class of 47 architecture students who competed to generate the lowest energy use intensity (EUI) for an office building in Boston. Design upgrades were associated with a cost premium and the overall upgrade budget was capped. The EUIs of the 10 final submissions were 22–31% below the base variant. While student essays revealed a clear preference for game-based learning vis-a-vis conventional teaching methods, the authors further propose that the game nourishes the emergence of an energy modelling ‘culture’ within schools of architecture that may lead to enhanced communication between architects and energy modellers.