Spreadsheet Question for Medicult

This is the spreadsheet analysis that all students need to do for the case, ‘Medicult, which will be
discussed in class on Wednesday, May 6. I would suggest that you work with your study group when
doing this exercise. Please read the document ‘notes on value based pricing’ before attempting this
question. This is not an assignment that you would need to submit; however, I expect that all of you
would have done the spreadsheet analysis before coming to class. I might ask one of the students to
discuss his/her spreadsheet analysis in front of the entire class.

Assume the following while doing the spreadsheet analysis:

1) Although the case talks about pricing in European countries, we will only focus on pricing in USA.
Thus, in the question, you only need to consider the EVCs of segments in USA.
2) In USA, the insurance companies and the government do not cover the cost of IVM medium and the
costs of the different steps in the IVF/IVM process. They only foot in the bill for the hospitalization
expenses for those cases when patients need to be hospitalized due to severe adverse reactions to the
IVF process.
3) Since the patients are fairly well informed, the role of the clinics is minimal. If any clinic decides to
buy and sell IVM, assume that the clinic will simply add a mark up to the price it (‘it’ means the
clinic) pays to Medicult (for the IVM medium), which is 40% - for example, if the price that a clinic
pay to Medicult for a single dosage of IVM is $2000, then the clinic will charge 2000*(1+40%) =
$2800 to the patients.
4) The lab work costs in the IVF process (see Table A) are the same across all women - that is, these lab
work costs do not vary across women who try out the IVF process. Further, these lab work costs are
also the same across all women for the IVM process (see Table B) – that is, these lab work costs do
not vary across women who try out the IVM process.
5) It is given in the case that the average miscellaneous costs (as given in tables A and B) consist of (i)
additional doctor visits, (ii) work days lost, (iii) cost of hospitalization and (iv) the ultrasound
monitoring costs. Assume the following as far as the miscellaneous costs are concerned:
a. Note that the costs related to (i), (ii) and (iii) do not apply in the case of IVM - which
implies that in the IVM process, the miscellaneous costs only consist of the ultrasound
monitoring costs.
b. The average hospitalization costs for the IVF process (averaged across all women, and
paid for by the insurance companies/government) are $100. Note that these costs are
averaged across all women who try out the IVF process (that is, the $100 average
hospitalization costs do not represent the average across only those women who need to
be hospitalized while using the IVF; instead it represents the average across all women
who try out the IVF).
c. The ultrasound monitoring costs do not vary across women who try out the IVF process
(see table A); further the ultrasound monitoring costs do not vary across women who try
out the IVM process. Finally, for any given woman, these ultrasound monitoring costs do
not change across the IVF and IVM processes. Said differently, these ultrasound
monitoring costs are not only the same across all women, but are also the same regardless
of whether a woman tries out IVM or IVF.
d. The costs related to the additional doctor visits and workdays lost in the IVF process only
apply to 10% of women who become sick due to overstimulation and they are the same
across all women in this category (note that this 10% includes the 2% of women who
require hospitalization as a result of over-stimulation).

While deciding to choose between IVM and IVF, the value drivers of patients (the women) can be
classified into two categories:
  The first category of value drivers consists of the physical/psychological hassles of using the IVF,
which are mentioned on page 2 of the case. These are: general discomfort, reduced sexual desire,
extreme mood swings, nausea, the trauma of falling sick due to over-stimulation, the trauma of
being hospitalized due to over-stimulation, the hassle of injecting the hormones or getting the
hormones injected, etc.
 The second category of value drivers consist of those value drivers whose direct monetary impact
is given in the case (note that the value drivers in the first category, viz., the
physical/psychological hassles, also have a monetary value, but the case does not give
information on that; however, the case gives us information on the exact monetary value of the
second category of value drivers). The value drivers in this second category are the different
constituents of the costs given in Tables A and B pertaining to the IVM and the IVF processes
(i.e., the miscellaneous costs, costs of hormones, lab work costs, and cost of the IVF treatment).

Given this information, do the spreadsheet analysis for the following question:
Q. For this question, consider only the second category of value drivers (that is, ignore the value drivers
in the first category). Based on how the value drivers in the second category differ across the patients,
how will you segment the patient base? Note that you will segment the patient base in a fashion such that
(i) within each segment, the monetary values of the different constituents of the costs (i.e., the
miscellaneous costs, costs of hormones, lab work costs, and cost of the IVF treatment) are the same
across all patients, and (ii) across segments, the values of at least some of the constituents of the costs are
different. Following that, for each segment of patients that you have identified, compute the EVC for one
dosage of IVM medium.

Hint: while doing this exercise, it will be useful too first break down the different constituents of the
average miscellaneous costs for the IVF and IVM, then see which of these costs differ across consumers
(in order to vertically segment), and then assess the EVC of each of the vertical segments. As discussed
before, the different constituents of the miscellaneous costs are (i) additional doctor visits, (ii) work days
lost, (iii) cost of hospitalization and (iv) the ultrasound monitoring costs. In what follows, I will help you
with the breakdown of these average miscellaneous costs for IVM and IVF; you would need to do the
vertical segmentation and the EVC analysis yourself.

Breakdown of the different constituents of the average miscellaneous costs for IVM and IVF: Note that
from assumption 5a and from the miscellaneous costs given in Table B in the case, the average ultrasound
monitoring costs are $250 for IVM, and the costs for the other three constituents are zero for IVM. From
assumption 5c, it follows that the ultrasound monitoring costs are $250 for IVF. This implies that the
average miscellaneous costs for IVF that are related to work days lost, additional doctor visits and
hospitalization will be $500 (=the total average miscellaneous costs for IVF, see Table A) - $250 (= the
ultrasound monitoring costs for IVF)= $250. Finally, the average miscellaneous cost related to work days
lost and additional doctor visits for IVF will be $250 (=average miscellaneous costs related to work days
lost, additional doctor visits and hospitalization for IVF) - $100 (=average hospitalization costs for IVF;
see assumption 5b) = $150