As you are probably aware, there is a great deal of asymmetric information shared within the healthcare and related industries. Come to think of it, the presence of asymmetric information is a common phenomenon in the corporate America. Asymmetric information is defined as is “…a situation in which one party to a transaction has better information about it than another” (Lee, 2015, p. 201). In the healthcare industry, the providers have asymmetric knowledge and information to that of their clients and other caregivers. Employees know more about the health status then the organizations that employ them or the insurance carriers. Whenever there is asymmetric information between two parties, there is the potential that the party with the asymmetric knowledge will act opportunistically. The phenomena of asymmetric knowledge and opportunistic behaviors are a common problem that management officials face and the genesis behind the creation and deployment of incentives within industry. In this unit, there will be a frank examination of the use of incentive-based payments, in general, and as applied within the healthcare industry. Like the phenomenon of asymmetric knowledge, we, healthcare professionals, fail to carefully examine alternatives before making capital investments in new structures, processes, and technologies. This is why it’s important for operations professionals to have the competencies necessary to properly execute cost-benefit analysis (CBA), cost-utility analysis (CUA), and cost-effective analysis (CEA). Economic analysis isn’t sufficient in and of itself when it comes to making capital investment decisions. In addition, to the appropriate economic evaluation of alternatives, there needs to be a capital budgeting analysis, and a thoughtful consideration of the ethical implications of whatever decision is ultimately made.

In this unit, you will gain a valuable insight into the interdependent nature of asymmetric knowledge and opportunism and how this has led to the creation and implementation of incentive-based payments to providers, provider organizations, and other personnel. In addition, an in-depth look into various forms of economic analysis will be presented with an emphasis on their role in evaluating alternatives of a clinical and operational nature. To gain a deeper appreciation for the impact that asymmetric knowledge, incentives, and economic analysis has on management decision-making you will be expected to complete the following end-of-chapter problems and mini-case:

Chapter 13: Case 13.2, Improving Total Knee Replacement at Brigham and Woman’s Hospital (pp. 213-214; Lee textbook); 13.4 and 13.9 (pp. 214-217)
Chapter 14: 14.5, 14.10, 14.11, 14.12, and 14.13 (pp. 233-234; Lee textbook)

Unit Learning Outcomes

ULO 1. Judge when cost minimization is appropriate. (CLO 3, 5, and 7)
ULO 2. Compare and contrast cost-benefit analysis (CBA), cost-utility analysis (CUA), and cost-effective analysis (CEA). (CLO 6 and 7)
ULO 3. Appropriately apply economic analysis in the evaluation of alternatives. (CLO 6 and 7)
ULO 4. Compare two strategies for aligning incentives. (CLO 2, 3, 5, and 7)
ULO 5. Examine challenges in limiting opportunism. (CLO 2, 4, and 7)


The students are expected to carefully read the assignment instructions, then thoroughly and explicitly address each question. Microsoft Excel will be used to perform the mathematical computations and graphs; however, the problems and their corresponding responses should be written up in a Microsoft Word document. Your responses to the assigned mini-case study should also be included in the same document. IMPORTANT: Make certain that there is a detailed description of how the calculations were performed. You will also need to include an interpretation of the results. While there is no minimum number of references that need to be utilized to support the completion of this assignment, it is generally understood that outside sources, including the text, will be necessary to complete the problems. The document must adhere to the APA writing style in terms of using in-text citations and the listing of sources on the references page. The Microsoft Word document and Excel spreadsheet are to be uploaded under the correct unit assignment page.

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