Final Exam

In each issue of Wharton Magazine, we’ll test your knowledge with a question taken straight from an actual Wharton course exam. Submit the correct answer and you might just walk off with a great prize—a Wharton Executive Education program.

This issue’s Final Exam question comes from Jagmohan S. Raju, the Joseph J. Aresty Professor of Marketing, and deals with… angioplasty. Yep. Angioplasty.

Curious? We thought you might be. Read on- and good luck.

The Basics:
Due to poor diet, lack of exercise and various genetic conditions, many people develop clogged arteries and required major medial intervention. The process of unclogging the artery and inserting a stent is called angioplasty. However, metal stents have several limitations. Some patients required repeat angioplasties. Others end up undergoing bypass surgery.

A well-know company, FLO-RESTOR, has developed a new kind of stent, the CUPER, which is superior to traditional metal stents. Data suggest that if all angioplasties were done using CUPER, 100,000 repeat angioplasties and 100,000 bypass surgeries could be prevented in the United States each year. Each angioplasty costs $10,000 and each bypass surgery costs $14,000.

Hospitals bill Medicare for all these procedures and Medicare pays the hospitals a fixed amount per procedure. Medicare currently reimburses hospitals $500 for metal stents, and this amount is part of the $10,000 paid to hospitals for an angioplasty. Assume 900,000 angioplasties are done each year with metal stents within the U.S.

Question:
What is the maximum amount that Medicare would be willing to reimburse per CUPER? Please explain your answer.

Answer: Maximum amount Medicare would be willing to reimburse per CUPER is $ 3500

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