A Quality-Adjusted Price Index for Colorectal Cancer Drugs

47 Pages Posted: 28 Jul 2009 Last revised: 19 Jun 2021

See all articles by Claudio Lucarelli

Claudio Lucarelli

Cornell University - Department of Policy Analysis & Management (PAM)

Sean Nicholson

Cornell University - Department of Policy Analysis & Management (PAM); National Bureau of Economic Research (NBER)

Date Written: July 2009

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

Lucarelli, Claudio and Nicholson, Sean, A Quality-Adjusted Price Index for Colorectal Cancer Drugs (July 2009). NBER Working Paper No. w15174, Available at SSRN: https://ssrn.com/abstract=1438850

Claudio Lucarelli

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States

Sean Nicholson (Contact Author)

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States
607-254-6498 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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