1. Introduction There are currently 40 General Dental Practices (GDP) in the Scottish Highlands and Islands serving a population of around 250,000. The GDPs deal with all routine dental care, but each year a few hundred patients have to travel a considerable distance to hospital in Aberdeen for specialist advice, diagnosis and a treatment plan to manage complex restorative, prosthetic or periodontal problems.
The National Health Service (NHS) is considering two alternative proposals, starting in 2006, to reduce the number of hospital visits required and instead to treat a significant number of these patients at the GDPs:
The Outreach Project proposed by the NHS Scottish Division, would provide for specialists to travel from Aberdeen to provide treatment at 8 selected GDPs located in regional centres;
The Teledentistry Project proposed by a Canadian company, would provide, maintain and operate video conferencing equipment which would enable local dentists to provide specialist care at the local GDPs with the guidance of specialists located in Aberdeen.
It is estimated that under either proposal there will be 400 patients who can be treated locally or regionally in 2007 instead of having to travel to Aberdeen. The amount of specialist time involved in treating patients under either proposal will be the same as under the existing system, but the Outreach Project will involve extra specialist time in the form of travel. Because of changes in population size and structure the number of specialist patients eligible for local treatment is estimated to rise by 10 each year starting in 2008.
2. THE OUTREACH PROJECT The NHS Scottish Division proposes to fund an upgrade of space and equipment at eight GDPs located in regional centres to enable specialists traveling from Aberdeen to treat cases at these GDPs. Specialist treatment is provided at no cost to the patient and GDP costs are reimbursed by the NHS.
The Scottish Division proposes to up-grade the eight regional GDPs in 2006 and to commence the Outreach Project in 2007. It is estimated that 50% of the eligible 400 patients can be treated in 2007 and 100% thereafter. The project will run for 15 years from 2007.
Capital Costs (at 2006 prices) The NHS will incur a cost of £4250 in up-grading each of the 8 Regional GDPs in 2006. Of this sum 40% will be spent on specialist equipment, which is imported and subject to a 20% tariff. The equipment has a life of 5 years and a salvage value of 10%. The remainder of the funds will be spent on refurbishing GDP work space; the refurbishements also have a life of 5 years, but no salvage value.
Operating Costs (at 2006 prices) These costs are reported in Table 2.
3. THE TELEDENTISTRY PROJECT A Canadian Company, Telemedicine Services Incorporated (TSI), proposes to facilitate the treatment of specialist cases using its teledentistry service: PC based videoconference hardware and software coupled with medium band width ISDN lines provide live audio and video transmission between a referring dentist and patient in a remote location and a specialist at the base hospital. The referring dentist provides the treatment at the local GDP under the supervision of the specialist in Aberdeen. Each GDP will require an up-grade of equipment costing £1000 (in addition to capital costs incurred by TSI) in 2006, and funded by the NHS. Specialist treatment is provided at no cost to the patient, although under the Teledendistry project there is a fee for the initial consultation with the local dentist, and GDP operating costs are reimbursed by the NHS.
TSI proposes to set up the system in 2006 with a capacity to treat 600 patients per year (to allow for the projected increase in patient numbers) and operate it from 2007-2021 (15 years). The company proposes to facilitate treatment of 50% of eligible patients in 2007 and then 100% of eligible patients from 2008 onwards.
TSI Revenues and Costs Capital Costs Table 1. Capital Costs for Teledentistry (at 2006 prices)
Note: 40 GDP units and 3 hospital units will be required. All items, except the ISDN connection will have to be up-graded in years 2011 and 2016 at a cost of 7.5% of initial capital cost. Salvage value at the end of the project is 10% of initial cost (except for the ISDN connection). Costs of equipment and software include 20% import duties. Equipment and software (including the 5 yearly up-grade) can be depreciated at 20% of initial cost per annum over 5 years for tax purposes. Company tax rate is 30% and TSI has profits from other UK operations against which any losses on the Teledentistry Project can be deducted.
GDP dentists and specialists will need to be trained in videoconferencing procedures: training costs of £1475 will be incurred in 2006.
Operating Costs (at 2006 prices) Annual videoconferencing training: cost of £40 per year per GDP and hospital unit starting in 2007
Telephone charges: line rental £152 per GDP
Equipment operator in Aberdeen: 1 Technician at an annual salary of £20,000
Repairs and maintenance cost: £30 per unit (GDP and hospital).
Financing TSI will receive a £10,000 Grant from Scottish Highlands and Islands Development Board (SHIDB) in 2007.
TSI will borrow £80,000 from the Scottish Development Bank (SDB), a State Bank, in year 2006 repayable over 5 years at a concessional rate of interest (5% real rate of interest per annum).
TSI estimates its cost of capital at a real rate of 12% p.a.
Revenues (at 2006 prices) The NHS envisages that it will pay TSI a fee of £140 per patient treated under the teledentistry program. TSI hopes to negotiate a higher fee.
Equipment cost is at 2006 prices and is inclusive of 20% import duty.
4. VARIABLE COSTS OF THE TWO PROPOSALS AND THE CURRENT HOSPITAL PROGRAM Table 2. Variable costs per patient incurred by patients and NHS (at 2006 prices)
Costs to Patient
Diagnosis and treatment plan (i)
Travel costs (ii)
Travel and consultation time (iii)
TSI fee per patient
Nurse and administration costs
Patient travel&accommodation (iv)
Specialist travel time (vi)
(i) fee paid to NHS
(ii) cost of return car or bus travel from home to local or regional GDP
(v) based on £650 return travel and accommodation costs per 5 patients treated
(vi) based on one day’s travel time per 5 patients. Travel time valued at the specialist wage of £112.50 per day
5. NHS Hospital Capital Cost
Under both the Outreach and Teledentistry Programs there will be between 400 and 600 fewer patients per annum treated in Aberdeen. The NHS estimates that this will free up one fully equipped 75m2 consulting facility from 2008 for other uses. NHS estimates its opportunity cost of consulting facilities at £3500/m2, at 2006 prices, with a life of 20 years. It uses the equivalent annual cost method to work out an annual cost to estimate any long-run cost saving.
6. Instructions You are required to conduct a benefit-cost analysis of the Outreach and Teledentistry proposal, each of which proposes remote treatment of a given number of patients instead of treatment in hospital in Aberdeen. Your spreadsheets should contain a Variables Table plus Project, Private, Efficiency and Referent Group analyses for both proposals. The Project analysis should detail the cost of hospital treatment, provide a breakdown of the Teledentistry proposal into its TSI and NHS components, and analyze the Outreach proposal, but it should ignore patient costs. The Private analysis concerns TSI only. The referent group consists of the residents and government of the United Kingdom. Net referent group benefits are to be disaggregated into those accruing to the NHS, the tax office, financial institutions, and patients.
The proposals should be assessed against the costs of the current treatment regime using real rates of discount of 6%, 9% and 12%. The NHS wishes to know which if either of the two proposals should be implemented, and in the case of the Teledentistry program the level at which TSI’s fee should be set. The sensitivity of the results to values of key variables, including the TSI fee, the value of patient time, and any other variables you consider to be important, is to be assessed. Your recommendation to the NHS should include some discussion of factors not covered by the analysis, such as changes in waiting times for treatment, and suggestions for further work on the analysis.
While the Teledentistry and Outreach Proposals involve the same amount of specialist treatment time as the current hospital treatment system, the Outreach Project involves additional specialist time in the form of travel. The NHS is concerned about the increasing shortage of dental specialists which is likely to result in a significant rise in the cost of specialist time. It has been estimated that the cost of specialist time is likely to rise at an annual rate of 8 - 10% above the rate of inflation starting in 2007. Perform a sensitivity analysis of this scenario and indicate how it would affect the relative net benefits of the two proposals.
7. The Format of the Report The report is to be presented in a format similar to that of the ICP Case Study reported in Chapter 14 of the text. It should begin with an executive summary of approximately one page in length. The main body of the report should not be more than 10 pages in length (1.5 spacing, font size 12) including your summary tables of results. Marks may be deducted for failure to observe these requirements. The printouts of the spreadsheets, including the Input Data should be in a separate appendix. You should only print the spreadsheets for the base case scenario. Try to condense these so all years fit on one A4 page (landscape). You must also enclose a floppy disk containing all your Excel spreadsheets, with each file clearly labeled.
8. Grading The final grade will based on the following weights: (i) Accuracy: 25%; (ii) Statement of approach and methodology 15%; (iii) Presentation and discussion of results: 40%; (iv) Sensitivity analysis and conclusions: 20%.
NOTE: While it is acceptable for students to do the spreadsheeting on a group basis the report writing itself must be undertaken on an individual basis. There will be severe penalties if reports, or parts of reports, are considered by the examiners to be too similar to be treated as independent work.