Estimating Differential Value and Relative Worth:
The Differential Value-In-Use Path (Continued)
Lowparin's differential value-in-use
Based just on their performance in avoiding the two types of problems, Lowparin bests standard
heparin by $90. But that is not the whole story. There are other differences in costs associated
with the use of one vs. the other. Standard heparin generally requires 2 more doses than
Lowparin in a course of treatment. Lowparin's two-dose advantage saves a hospital $4 in the
cost of giving injections. Lowparin also has an advantage over standard heparin in that it does
not incur lab and monitoring costs. That is another $50. When we add that $4 and $50 to
Lowparin's performance advantage, we get a differential value-in-use for Lowparin compared
to standard heparin of $144 per course of treatment. To translate that $144 into a measure of
differential value-in-use per dose, we simply divide it by the 2 doses in Lowparin's standard
course of treatment. That gives us a per unit differential value-in-use of $72.
Lowparin's relative worthSo, at the unit level of analysis, Lowparin's differential value vis-A-vis standard heparin is $72. To go from that number to Lowparin's relative worth compared to heparin, we simply add it to the going price of standard heparin, making whatever adjustments are needed to equalize for different dosage quantities.
As already noted, with standard heparin, the dosage is usually 4 doses for a course of treatment, while for Lowparin it is 2. So we multiply 4 doses times $3 each to get $12. Then we divide that $12 by 2 doses for Lowparin. That gives us a reference price of $6 (2 doses of standard heparin for each dose of Lowparin). We add that $6 to Lowparin'_ differential value of $72, and that gives us $78. Lowparin's relative worth per dose vs. heparin is $78.
Conclusion
As you can see, the differential value path in this type of analysis is more economical than the total value approach. It involves fewer steps and fewer numbers. For many, however, it also seems a bit less straightforward. For some, it seems much less explicit. Because of that, it can sometimes be more difficult to see clearly the logic that stands behind it. Focusing just on differentials can sometimes make it more difficult to figure out how to fit the appropriate pieces together for the analysis that needs to be done. For that reason, when you are first learning how to do business case value analyses, it is often a good idea - where possible - to try to do both.
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