Thursday, October 12, 2006

Rising Prices of Cancer Drugs

The NY Times this week has an article about the skyrocketing prices of cancer treatment drugs. They profile a new drug called Abraxane that costs $4,200 per dose, and is considered to be only a marginal improvement (if at all) over the older, much cheaper drug. The article also highlights the reasons why the prices of cancer drugs are increasing so much:
The rise in cancer-drug prices is a microcosm of broader trends pushing up health care costs nationally. Despite decades of efforts by governments and insurers to restrain costs, patients continue to want the newest — and most expensive — drugs and medical devices. And doctors and the health care industry have little reason to keep costs in check, because insurers rarely deny coverage for new treatments on the basis of price.

Drug industry experts say Abraxane’s price reflects the fact that makers of cancer drugs can charge high prices for new medicines even if they are only marginally better than their older counterparts. That pricing dynamic is enabled by insurance, which shields patients from the full price of drugs. Without pressure from their insurers, patients have little reason to choose older treatments over expensive new therapies.
And the insurance companies are not the only ones that face the higher price:
Even if they have insurance, many patients face co-payments of 20 percent for their cancer drugs, an expense that can become ruinous for patients receiving combination therapy with several new drugs. For example, Abraxane is being tested along with Avastin, a treatment from Genentech that costs $8,000 a month for some patients.
Drug costs are rising so fast that some patients cannot afford the newest treatments, and access to some therapies “is beginning to be eroded,” Ms. Hinestrosa said.
Here are some questions that go along with the article from Sarah:
What are the problems of this current system and what can be done to limit the prices of these not even miracle drugs? What are the long term effects of this trend and is it caused only by increased demand by consumers?
(Question posed by Sarah O.)

World Gasoline Taxes

Below is a graph showing the taxes on gasoline in industrialized countries from the NY Times this week:
(Source: Greg Mankiw's Blog)

Netflix $1 Million Contest

Netflix is offering $1 million to anyone who can beat their movie recommendation system, which recommends movies based on whether people liked or disliked other movies. They have a dataset of anonymous movie ratings, and your system would have to predict what movies people will like at least 10% better than the system that Netflix currently uses.

Here is an overview of the basic rules. You can look at how the teams competing for the prize are doing here.

Here is the take of Economist Steven Levitt:
I love the Netflix approach to the problem. They could easily spend $1 million internally hiring some programmers or Ph.D’s to try to improve their algorithm, with uncertain results. Instead, by making it a contest and offering up data to outsiders, they will probably succeed in having 100 times as many person-hours devoted to the problem for the same price—or cheaper because they only pay out the million if someone really improves on what they are doing now. In addition they gets lots of free publicity. Truly a brilliant strategy.
Do you agree that it is a brilliant strategy? Is there any downside to this strategy?

If you do agree that it is a brilliant strategy, why don't more companies use this method of innovating?

(Source: Freakonomics Blog)

Another Downside to Quantity Restrictions on Organs

Economist Alex Tabarrok discusses a further danger of the ban on organ sales: lack of experience in transplants. He argues that due to the shortage of organs, many hospitals only do a few transaplants a year and therefore are more likely to make mistakes due to the inexperience and lack of practice.
Medicare requires that transplant centers perform 12 transplants a year to be certified but many programs are in violation of that standard with little consequence. Medicare is even thinking of reducing the standard from 12 per year to 9 in 30 months. As one specialist says "I wouldn't take my car to be serviced by someone who repaired nine cars over the past three years. Would anyone do that?"
He references an article and graph in the Washington Post that discusses the fact that many hospitals are currently falling short of this mark.

This post is timely since you guys did a paper on the possibility of the organ market just a few weeks ago and adds an argument that I had not heard before.

(Source: Marginal Revolution)

7-11 and the White Sox

The Chicago White Sox and the convenience store chain of 7-11 struck a marketing deal where the start time of all White Sox home games for the next 3 years will be 7:11pm. The deal will pay $500,000 a year to the team.

This is a creative advertising strategy and a way to create value and exchange from a starting time where there was not value being traded before. Do you think it will be worth it for both groups? Is this a good business decision for both sides?