A new pneumonia vaccine has been developed which is a little more effective but

Question

A new pneumonia vaccine has been developed which is a little more effective but more expensive to produce than the old vaccine. Medicare covers 100% of the cost of pneumonia vaccinations for everyone who is age 65 or older. Now that a new and better vaccine is available Medicare would like to perform a cost-utility analysis to determine the opportunity cost of covering 100% of the cost for the new vaccine.

The old vaccine used to cost $16 per dose to produce. The new vaccine costs $35 per dose to produce. But the cost of catching pneumonia is very high. If either vaccine fails, the cost of treating an infected elderly person is, on average, $1870.

The following are the conditional probabilities of success and failure for both vaccines:

Old Vaccine: Success Rate = 0.84

Old Vaccine: Failure Rate = 0.16

New Vaccine: Success Rate = 0.85

New Vaccine: Failure Rate = 0.15

Question : Expected Value Costs What is the expected value cost of the old vaccine? What is the expected value cost of the new vaccine?

Explanation / Answer

Expected Value of Cost of Old medicine =0.84*16+0.16*1870 = 13.44+299.2 = 312.64

Expected Value of Cost of new medicine = 0.85*35+0.15*1870 = 29.75+280.5 = 310.25

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