Case 2: Quality Pricing Drug Therapies
Some 10 years ago the New England Journal of Medicine proposed that all articles published on new
therapies should close with a cost/benefit analysis comparing its benefits and costs against the best selling
alternative therapy. This initiative was squashed by the pharmaceutical industry that also used lobbying to
prevent the Federal Drug Administration from requiring performance tests against the best-selling
alternative rather than no treatment at all (a placebo). Today, it looks like the industry is finally caving to
pressure to require such testing, and that this testing must form the basis for performance and quality claims
in the marketing of the new drug. The following information is the result of a test of PreventInfect, a drug
developed to help prevent infections in cancer patients whose immune systems have been weakened by
chemotherapy:
Probability of getting an infection without any treatment (p
o
) 0.4
Probability of getting an infection with current best treatment (p
cb
) 0.2
Probability of getting an infection with PreventInfect treatment (p
PI
) 0.1
Average cost of treatment of infection without any treatment ($I
o
) $15,000
Average cost of treatment of infection with current best treatment ($I
cb
) $12,000
Average cost of treatment of infection with PreventInfect treatment ($I
PI
) $5,000
Cost of current best treatment ($T
cb
) $1,200
Cost of PreventInfect treatment ($T
PI
) $2,000

Questions
1. How do you calculate the net dollar added benefit (quality added) of PreventInfect?