Measuring cost-effectiveness of health care

There is always some rationing involved in providing any service and health care is no exception. In the US, rationing is largely determined by the ability to pay because the limitations are largely set by the for-profit health insurance companies. If you are rich and/or have good employer based health insurance coverage, you get more and better services than if you are poor and do not have an employer who provides it. The Affordable Care Act tried to close that gap by increasing the affordability of health insurance for those with lower incomes.

But what about taxpayer-funded government-run single-payer systems? They cannot provide every possible treatment to everybody because that would bankrupt the system and so they must decide what is reasonable to provide. If services are not determined by the ability to pay, on what basis are they allocated? In the UK, the National Institute for Health and Care Excellence (NICE) is the body that determines it and they use an internationally recognized standard called the ‘quality-adjusted life years‘ measurement or QALY.

A QALY gives an idea of how many extra months or years of life of a reasonable quality a person might gain as a result of treatment (particularly important when considering treatments for chronic conditions).

A number of factors are considered when measuring someone’s quality of life, in terms of their health. They include, for example, the level of pain the person is in, their mobility and their general mood. The quality of life rating can range from negative values below 0 (worst possible health) to 1 (the best possible health).

Having used the QALY measurement to compare how much someone’s life can be extended and improved, we then consider cost effectiveness – that is, how much the drug or treatment costs per QALY. This is the cost of using the drugs to provide a year of the best quality of life available – it could be one person receiving one QALY, but is more likely to be a number of people receiving a proportion of a QALY – for example 20 people receiving 0.05 of a QALY.
Cost effectiveness is expressed as ‘£ per QALY’.

Each drug is considered on a case-by-case basis. Generally, however, if a treatment costs more than £20,000-30,000 per QALY, then it would not be considered cost effective.

Phillip Longman explains how and why in the US, Congress inserted language into the ACA specifically banning QALY-like considerations in determining what treatments could or could not be covered which is why we often see highly expensive treatments being provided that do not improve the quality of life by much. It seems like we apply cost-benefit analysis to almost everything except health care, which is why we have the most expensive system in the world and yet on most major the health outcome measures, the US ranks somewhere in in the mid-30s among all nations.

He looks at the Dartmouth Atlas project that studied the health outcomes in different states in the US that have different attitudes and policies.

By extrapolating from such disparities in medical practice around the country, Dartmouth researchers have developed the widely accepted estimate that roughly a third of all health care spending in the United States is pure waste or worse, mostly in the form of unnecessary and often harmful care—amounting to some $700 billion a year. Using a similar approach of comparing best and worst practices, a recent study by the Institute of Medicine concludes that overtreatment and other forms of waste in the system consume $750 billion annually.

Why is this happening? The culprit is the familiar one: the drive for profits by the medical industry.

There is something in the ACA called the Patient-Centered Outcome Research Institute (PCORI) that can look into the comparative effectiveness of drugs but the law prevents it from taking the final, and most important step.

Yet while the work of PCORI is important, it will never tell us what we most need to know to get the waste out of the U.S. health care system. That’s because, as PCORI’s executive director told a health care conference in 2011, “You can take it to the bank that PCORI will never do a cost-effectiveness analysis.”

PCORI’s work compares benefits to benefits, but not, as a matter of law, cost to benefits, and that’s a big deal. Such research does not tell us, for example, whether measures to prevent a stroke would be more cost-effective than measures to deal with its consequences. The same is true of all other government research into “comparative effectiveness.”

And by ignoring costs, such research also cannot tell us how to make sure that the money we spend on health care saves the most lives or reduces the most suffering. More fundamentally, even if the work of PCORI and other comparative effectiveness research could answer those questions, the government could not act on the information. That’s thanks to obscure but deeply consequential language inserted into the Affordable Care Act by the very corporate interests that stand to lose the most from our actually knowing which drugs and procedures offer the highest value.

Something like QALY seems essential if we are to make rational decisions about who gets what care. But in the US, the affluent elderly tend to be the most vocal and politically powerful and they are likely to oppose any changes in that direction, since they tend to require the most expensive care and are less likely to have greatly improved quality of life, leading to lower QALY scores.


  1. Dunc says

    Of course, it’s always worth repeating that if you’re affluent enough, you can have whatever standard of care you can afford. The standards set by the NICE are the baseline that will be provided to everybody at no cost (at the point of treatment), not a ceiling on the amount you can choose to spend if you’ve got the money (or good enough private insurance). If you want to spend a million pounds a day on some gold-plated anti-aging drug that doesn’t do a damn thing, you’re entirely welcome to, as long as it’s your own money you’re spending.

  2. moarscienceplz says

    Part of the problem is the layman’s perception that all their problems can be solved with the right treatment. On NPR today they had a segment about testosterone treatment being much over-prescribed. This included the story of a man in his 30’s who felt tired and listless, saw ads that said “low-T” could be the cause, and then he spent the next three years begging his doctor for a prescription. The doctor pointed out that the man’s obesity was probably the cause of his listlessness and recommended exercise. The man replied that because he was listless, he didn’t feel like exercising.
    Finally the man went to a “low-T” clinic and the doctor there said he needed testosterone supplements (surprise, surprise). Then, probably due to the placebo effect, he found enough energy to start exercising and he started losing weight, but of course he is convinced it was all the testosterone’s doing.

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