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A Quality Adjusted Price Index for Colorectal Cancer Drugs

Claudio Lucarelli Cornell University

Sean Nicholson Cornell University and NBER

claudio.lucarelli@cornell.edu sean.nicholson@cornell.edu

March 2008

PRELIMINARY: PLEASE DO NOT CITE

bstract

The average price of providing a colorectal cancer patient with a 24-week chemother- apy drug regimen increased from $126 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 methods devel- oped by Berry (1994) and Nevo (2003), we estimate 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 e ects, as reported in clinical trials) of each drug on the market and the value that oncologists place on drug quality. We find that the nave price index, which makes no adjustments for the changing attributes of drugs on the market, greatly overstates the true price increase. Both the hedonic price index and quality-adjusted price index show that prices have actually remained fairly constant over this 13-year period, with slight increases or decreases depending on the model assumptions.

Acknowledgements: Excellent research assistance was provided by Brigid Farrell and Artem Gulish. The Merck Foundation, Pfizer, Inc., Johnson & Johnson, and AstraZeneca provided funding for the study. We thank IntrinsiQ, Andrew Epstein, and Scott Johnson for providing and interpreting data.

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