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Business Analysis and Econometric Application: Poonam Singh National Institute of Industrial Engineering

1. Mission Hospital was considering adopting package pricing for treatments to attract health tourism and accommodate government schemes. 2. A simple linear regression model was developed with total treatment cost as the dependent variable and body weight as the independent variable. 3. The regression analysis found that body weight explained 80% of the variation in treatment costs and was a statistically significant predictor based on the t-test. 4. Given a patient's body weight of 50kg, and a 95% confidence level, the maximum estimated cost of treatment using the regression model would be within the calculated confidence interval range.

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27 views

Business Analysis and Econometric Application: Poonam Singh National Institute of Industrial Engineering

1. Mission Hospital was considering adopting package pricing for treatments to attract health tourism and accommodate government schemes. 2. A simple linear regression model was developed with total treatment cost as the dependent variable and body weight as the independent variable. 3. The regression analysis found that body weight explained 80% of the variation in treatment costs and was a statistically significant predictor based on the t-test. 4. Given a patient's body weight of 50kg, and a 95% confidence level, the maximum estimated cost of treatment using the regression model would be within the calculated confidence interval range.

Uploaded by

akhil sharma
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Business Analysis and Econometric

Application
Poonam Singh
National Institute of Industrial Engineering
Module V
Package Pricing at Mission Hospital
• Background

• Mission Hospital started its operations on April 2008 with the aim of providing
highest quality healthcare facilities at affordable rates

• Location: Durgapur, West Bengal

• Specialty: Cardiac Surgeries

• Patients: nearby states, neighbouring countries mostly covered by some health


scheme
Package Pricing at Mission Hospital
• Problem Statement:
• Among Hospitals in India, flat rate of treatment is becoming very popular owing to health
tourism and various government schemes

• Dr. Satyajit Bose, Chairman of Mission Hospital was considering adoption of package pricing
implying patients would be offered a flat rate of treatment at the time of admission

• Package price needs to calculated accurately on the basis of patient’s clinical and non clinical
information available during admission
• Hospital stands to lose if they are not able to accurately estimate the treatment cost of a
patient
• Hospital faces the challenge of identifying the key factors that drive the total cost of
treatment so that it can quote an appropriate price to the patient
Simple Linear
Regression
Model
• Dependent Variable: Total
cost of treatment
• Independent Variable:
Body Weight
Y = a + b * Body Weight
Goodness of fit
• R-squared
• The coefficient of determination (R-
squared or R2) provides a measure
of the goodness of fit for the
estimated regression equation.
• Values of R2 close to 1 indicate
perfect fit, values close to zero
indicate poor fit.
• R-squared interpretation: if R-
squared=0.8 then 80% of the
variation is explained by the
regression and the rest is due to
error. So, we have a good fit.
Adjusted R-squared
• Problem: R2 always increases when a new independent variable is added.
This is because the SST is still the same but the SSE declines and SSR
increases.
• Adjusted R-squared corrects for the number of independent variables and
is preferred to R-squared.

• where p is the number of independent variables, and n is the number of


observations.
t-test for significance of one coefficient
Question
At the time of admission, a patient’s body weight is 50 kg. At 95% confidence
interval, what will be the maximum cost of treatment for this patient?
Confidence Interval
• A confidence interval is an estimate of an interval in statistics that may contain a population parameter.

• The unknown population parameter is found through a sample parameter calculated from the sampled
data.

• For example, the population mean μ is found using the sample mean x.̅

• The interval is generally defined by its lower and upper bounds.

• The confidence interval is expressed as a percentage (the most frequently quoted percentages are 90%,
95%, and 99%.

• The percentage reflects the confidence level.


Confidence Interval
F test
p value
•y
Assumptions of the OLS estimator:
• Linear in Parameters

• Exogeneity of Regressors

• Homoscedasticity

• Uncorrelated observations

• Inference: Normal Distribution

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