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Plots and Regression Lines For

(1) The document presents two linear regression models relating medical supply costs to the number of procedures and to patient-hours. (2) The regression using patient-hours has a stronger relationship (r2=84%), a highly significant independent variable, and better satisfies the assumptions of the linear regression model. (3) The patient-hours model is preferred as it is a more economically plausible driver of medical supply costs than procedures alone.

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Elliot Richard
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40 views

Plots and Regression Lines For

(1) The document presents two linear regression models relating medical supply costs to the number of procedures and to patient-hours. (2) The regression using patient-hours has a stronger relationship (r2=84%), a highly significant independent variable, and better satisfies the assumptions of the linear regression model. (3) The patient-hours model is preferred as it is a more economically plausible driver of medical supply costs than procedures alone.

Uploaded by

Elliot Richard
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Plots and Regression Lines for (a) Medical Supplies Costs and Number of Procedures and (b)

Medical Supplies Costs and Number of Patient-Hours


 

(a)

(b)

3.
Number of Setups Number of Setup Hours
Economic  A positive relationship  A positive relationship between
plausibility between medical supplies costs  medical supplies costs and the
and the number of procedures  number of patient-hours is also
is economically plausible. economically plausible, especially
since the time taken to serve
patients is not uniform. Patient-
hours is more likely to capture the
true level of activity in the hospital
since it accounts for the mix of
procedures performed.
Goodness of r = 36%
2
r = 84%
2

fit Standard error of regression = $52,999 Standard error of regression =


Reasonable goodness of fit. $26,452
Excellent goodness of fit.
Significance of The t-value of 2.37 is significant at the The t-value of 7.25 is highly
Independent 0.05 level. It is not significant at the significant at the 0.05 and 0.01
Variables 0.01 level. levels.

Specification  Based on a plot of the data, the Based on a plot of the data, the
analysis of linearity assumption holds, but there is assumptions of linearity, constant
estimation some possibility that the constant variance, independence of residuals
assumptions variance assumption does not hold.  (Durbin-Watson = 1.91), and
The Durbin-Watson statistic of 2.48 normality of residuals hold. 
suggests the residuals are However, inferences drawn from
independent.  The normality of only 12 observations are not
residuals assumption appears to hold.  reliable.
However, inferences drawn from only
12 observations are not reliable.

4.  The regression model using number of patient-hours should be used to estimate medical
supplies costs because the number of patient-hours is a more economically plausible cost driver
of medical supplies costs (compared to the number of procedures performed).  The time taken to
prepare medical facilities and to actually deal with patient issues (surgery, post-procedure care,
etc.) is different for different procedures.  The more complex the procedure, the more time is
taken with the patient to analyze and manage the problem, and the greater the supplies costs
incurred. As such, patient-hours might serve as a better driver of medical supplies costs. The
regression of number of patient-hours and medical supplies costs also has a better fit, a
substantially significant independent variable, and better satisfies the assumptions of the
estimation technique used.

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