Over a decade 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: PreventInfect Metrics Probability of getting an infection without any treatment (po) 0.4 Probability of getting an infection with current best treatment (pcb) 0.2 Probability of getting an infection with PreventInfect treatment (pPI) 0.1 Average cost of treatment of infection without any treatment ($Io) $15,000 Average cost of treatment of infection with current best treatment ($Icb) $12,000 Average cost of treatment of infection with PreventInfect treatment ($IPI) $5,000 Cost of current best treatment ($Tcb) $1,200 Cost of PreventInfect treatment ($TPI) $2,000

What is PreventInfect's quality added compared to no treatment? The average expected cost of care per patient with no treatment is $15,000 times the probability of getting the infection which is 0.4 and the answer is $6,000 plus the cost of no treatment which is zero! The average expected cost of care per patient with PreventInfect treatment is $5,000 times the probability of getting an infection with the treatment which is 0.1 and the answer is $500 plus the per patient cost of the PreventInfect treatment which is $2,000 so the total answer is $2,500.

Substituting in the metrics above: = Cost without any treatment - Cost using PreventInfect, in equation format = ($Io* po) - ( $TPI + $IPI*pPI ) = $15,000*0.4 - $2,000 + $5,000*0.1 = $6,000 - $2,500 = $3,500

What are the cost savings in using PreventInfect compared to current best treatment? Answer : ( $Tcb + $Icb * pcb) - ( $TPI + $IPI *pPI ) = (1,200 + 12,000*(0.02)) - (2,000 + 5,000*(0.1)) = 3,600 - 2,500 = 1,100

Answer: The cost savings in using PreventInfect compared to current best treatment is $1,100

question:

Using quality added pricing, what is the highest price PreventInfect could charge, the price that any higher and there would be no substantial value in the customer switching from the next best alternative?