Price Indices and the Value of Innovation with Heterogenous Patients

Claudio Lucarelli, Sean Nicholson and Nicholas Tilipman

Journal of Health Economics, 2022, vol. 84, issue C

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.

Keywords: Innovation; Cost-of-living; Healthcare cost; Heterogeneity (search for similar items in EconPapers)
JEL-codes: I11 I31 L00 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:84:y:2022:i:c:s0167629622000443

DOI: 10.1016/j.jhealeco.2022.102625

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