Price Indices and the Value of Innovation with Heterogenous Patients.

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Date: July 2022
Publisher: Elsevier B.V.
Document Type: Report; Brief article
Length: 277 words

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Abstract :

Keywords Innovation; Cost-of-living; Healthcare cost; Heterogeneity Abstract Many countries use uniform cost-effectiveness criteria to determine whether to adopt a new medical technology for the entire population. This approach assumes homogeneous preferences for expected health benefits and side effects. We examine whether new prescription drugs generate welfare gains when accounting for heterogeneous preferences by constructing quality-adjusted price indices in the market for colorectal cancer drug treatments. We find that while the efficacy gains from newer drugs do not justify high prices for the population as a whole, innovation improves the welfare of sicker, late-stage cancer patients. A uniform evaluation criterion would not permit these innovations despite welfare gains to a subpopulation. Author Affiliation: (a) Department of Health Care Management, The Wharton School, University of Pennsylvania (b) Department of Policy Analysis & Management, Cornell University (c) Division of Health Policy and Administration, School of Public Health, University of Illinois at Chicago * Corresponding author. Article History: Received 28 September 2021; Revised 31 March 2022; Accepted 22 April 2022 (footnote)[white star] We thank Aviv Nevo, Mark Duggan, Mark Pauly, David Molitor, Kate Bundorf, Adam Ullman, Ron Katznelson, Daniel Eisenberg, Alan Garber, Amitabh Chandra, and seminar participants at Hoover IP2, The University of Chicago, and Stanford University, Duke University, Federal Trade Commission, NBER, and Missoula Tumor Board. We thank IntrinsiQ, Jeff Forringer, Robert Ruckman, Andrew Epstein, and Scott Johnson for providing and interpreting the data, and Josh Bilenker and Brad Somer for information about oncology generally. Funding was provided by the Merck Foundation, Pfizer, Johnson and Johnson, and AstraZeneca. Artem Gulish and Brigid Farrell provided excellent research assistance. Byline: Claudio Lucarelli [clucarel@wharton.upenn.edu] (*,a), Sean Nicholson [sean.nicholson@cornell.edu] (b), Nicholas Tilipman [tilipman@uic.edu] (c)

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Gale Document Number: GALE|A709525725