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A Quality-Adjusted Price Index for Colorectal Cancer Drugs

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  • 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.

Suggested Citation

  • Claudio Lucarelli & Sean Nicholson, 2009. "A Quality-Adjusted Price Index for Colorectal Cancer Drugs," NBER Working Papers 15174, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15174
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    Cited by:

    1. Fatiha Shabaruddin & Li-Chia Chen & Rachel Elliott & Katherine Payne, 2013. "A Systematic Review of Utility Values for Chemotherapy-Related Adverse Events," PharmacoEconomics, Springer, vol. 31(4), pages 277-288, April.
    2. Anne E. Hall, 2015. "Adjusting the Measurement of the Output of the Medical Sector for Quality: A Review of the Literature," BEA Working Papers 0122, Bureau of Economic Analysis.
    3. Ivan Frankovic & Michael Kuhn & Stefan Wrzaczek, 2020. "On the Anatomy of Medical Progress Within an Overlapping Generations Economy," De Economist, Springer, vol. 168(2), pages 215-257, June.
    4. Abe Dunn & Eli Liebman & Adam Hale Shapiro, 2015. "Implications of Utilization Shifts on Medical‐care Price Measurement," Health Economics, John Wiley & Sons, Ltd., vol. 24(5), pages 539-557, May.
    5. David H. Howard & Peter B. Bach & Ernst R. Berndt & Rena M. Conti, 2015. "Pricing in the Market for Anticancer Drugs," NBER Working Papers 20867, National Bureau of Economic Research, Inc.
    6. Abe Dunn, 2012. "Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 167-189, July.
    7. Claudio Lucarelli & Sean Nicholson & Minjae Song, 2010. "Bundling Among Rivals: A Case of Pharmaceutical Cocktails," NBER Working Papers 16321, National Bureau of Economic Research, Inc.
    8. Ana Aizcorbe & Nicole Nestoriak, 2010. "Price Indexes for Drugs: A Review of the Issues," BEA Working Papers 0050, Bureau of Economic Analysis.
    9. Karen N. Eggleston & Nilay D. Shah & Steven A. Smith & Ernst R. Berndt & Joseph P. Newhouse, 2011. "Quality Adjustment for Health Care Spending on Chronic Disease: Evidence from Diabetes Treatment, 1999-2009," American Economic Review, American Economic Association, vol. 101(3), pages 206-211, May.
    10. Seidu Dauda & Abe C. Dunn & Anne E. Hall, 2019. "Are Medical Care Prices Still Declining? A Systematic Examination of Quality-Adjusted Price Index Alternatives for Medical Care," BEA Working Papers 0166, Bureau of Economic Analysis.
    11. Dauda, Seidu & Dunn, Abe & Hall, Anne, 2022. "A systematic examination of quality-adjusted price index alternatives for medical care using claims data," Journal of Health Economics, Elsevier, vol. 85(C).
    12. Lucarelli, Claudio & Nicholson, Sean & Tilipman, Nicholas, 2022. "Price Indices and the Value of Innovation with Heterogenous Patients," Journal of Health Economics, Elsevier, vol. 84(C).
    13. Jing Gu & Neeraj Sood & Abe Dunn & John Romley, 2019. "Productivity growth of skilled nursing facilities in the treatment of post-acute-care-intensive conditions," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-14, April.
    14. Abe Dunn & Anne Hall & Seidu Dauda, 2022. "Are Medical Care Prices Still Declining? A Re‐Examination Based on Cost‐Effectiveness Studies," Econometrica, Econometric Society, vol. 90(2), pages 859-886, March.

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    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L0 - Industrial Organization - - General

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