Working Paper: NBER ID: w15174
Authors: Claudio Lucarelli; Sean Nicholson
Abstract: The average price of treating a colorectal cancer patient with chemotherapy increased from about $100 in 1993 to $36,000 in 2005, due largely to the approval and widespread use of five new drugs between 1996 and 2004. We examine whether the substantial increase in spending has been worth it. Using discrete choice methods to estimate demand, we construct a price index for colorectal cancer drugs for each quarter between 1993 and 2005 that takes into consideration the quality (i.e., the efficacy and side effects in randomized clinical trials) of each drug on the market and the value that oncologists place on drug quality. A naive price index, which makes no adjustments for the changing attributes of drugs on the market, greatly overstates the true price increase. By contrast, a hedonic price index and two quality-adjusted price indices show that prices have actually remained fairly constant over this 13-year period, with slight increases or decreases depending on a model's assumptions.
Keywords: colorectal cancer; price index; quality-adjusted
JEL Codes: I11; L10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| drug innovation (O35) | price adjustments (L11) |
| new drug introductions (L65) | market prices (P22) |
| quality adjustments (L15) | perceived value (D46) |
| pricing strategies (D49) | consumer welfare (D69) |
| naive price index (C43) | true price increase (P22) |
| hedonic price index (C43) | price dynamics (E30) |
| quality-adjusted price indices (C43) | price dynamics (E30) |
| new medical technologies (O33) | welfare increases (I38) |