Sunday, August 16, 2009

When is a 360-fold Price Increase a Bargain?

The abstract of a new paper by Claudio Lucarelli, Sean Nicholson starts:
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.

Talk about health care costs exploding. Yet, they conclude with:
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.

In other words, the price per QALY does not appear to have risen. Innovation has provided a new alternative therapy and consumers (or their physicians) have chosen the higher quality treatment. My main concern is whether 'cost containment' under health care reform would maintain the incentives to develop such therapies.

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