Constrained Moments Simulation of Healthcare Capital Acquisitions

A. Narsing
Samuel Frimpong, Missouri University of Science and Technology
J. Whiting

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Summary form only as given. Two analytical techniques which evaluate capital acquisitions in healthcare are the method of generating system moments and Monte Carlo simulation. Generating system moments enables the user to determine an estimate of the expected cost from a user-supplied function. Furthermore, the user can determine, from a variance component analysis, the sensitivity of the user-supplied function to marginal changes in the random variables by expanding the function about its mean using the Taylor series expansion to the second order. Calculating the magnitude of partial derivatives of each random variable with respect to the user-supplied function indicates the relative importance of each random variable to the function. VARSIM is an interactive program which is used to calculate the system moments. An add-in program to an Excel spreadsheet is used to invoke a Monte Carlo simulation, whose results are useful for assessing potential risks associated with a capital investment. The results from VARSIM indicate that the expected cost per MRI exam is $350 with a standard deviation of $11.81. Operating hours are increased from 50 to 126 hours per week. The simulation results indicate that there is a 55.2 percent probability that this cost level will be achieved and ultimately its annual target number of exams. Thus, the systematic approach presented in this paper provides a solid basis which hospitals can use to perform a thorough assessment of their capital equipment needs, and thereby, present their findings in a more objective manner to decision-makers