Value-Based Medicine

Who Determines Cost Effectiveness?

By Melissa M. Brown, MD, MN, MBA

We see it and hear it everywhere. In the literature, in the newspaper, on the talk shows and now on Capitol Hill. The talk is all about comparative effectiveness. It is “in.”

We've discussed comparative effectiveness in this column previously. The aim is to gauge how well an intervention actually works: Does it improve vision? Or does it improve ambulation? How does it compare with other interventions that clinical trial results indicate are similarly effective?

What is not yet “in” but is quietly staring us in the face is the question of cost effectiveness. How much do these clinically effective or quality-of-life enhancements cost and what defines affordability — and, likely, availability?

The Question of Cost

The criteria for cost effectiveness are largely dependent upon the resources a given society is willing to devote toward medical care. A cost-effective intervention in a wealthy country might not be considered cost effective in a country with substantially less wealth. Historically in the United States, there are no formal standards for cost effectiveness. There are no standard numbers or criteria upon which numbers are formulated.

However, many developed countries do have criteria and numbers. The measure accepted across the globe is the $/QALY, or monetary expenditure/quality-adjusted life-year. The informal standard of $100,000/ QALY in the US for the upper limit of cost effectiveness does have some historical perspective.

Determining Cost Effectiveness

To the best of my knowledge, the origin of the $100,000/QALY is derived from an article published in the Canadian Medical Association Journal in 1992 by Laupacis and associates. Despite the fact that the article considered the standard in Canadian dollars in 1992, the $100,000/QALY remains an upper limit discussed in the literature. Others have suggested an upper limit of $50,000/QALY should be the standard in the US. I am unaware of any scientific basis for the selection of this level as the upper limit for cost effectiveness.

In the United Kingdom, the National Institute for Health and Clinical Excellence (NICE) was established in 1999 to conduct comparative effectiveness and cost effectiveness analyses on healthcare interventions. NICE makes recommendations to the National Health Service as to whether an intervention is cost effective and should be covered. Similar independent or government-related agencies conduct similar functions in France, Germany and elsewhere.

NICE typically uses £20,000/ QALY ($31,120/QALY at press time) as the formal upper limit of cost effectiveness. Despite that formal upper limit, NICE allows an upper limit of £30,000/QALY ($46,680) for select interventions. Thus the organization gives itself leeway for interventions that may be especially relevant for certain patients.

The World Health Organization (WHO) has suggested cost-effectiveness standards using the DALY (disability-adjusted life-year), a measure similar to the QALY except that it assigns greater value to the lives of people in the arguably productive, mid-life years, rather than to children and the elderly. For many reasons, not the least of which is political, I believe the DALY is no longer appropriate in many nations. The WHO has suggested that an intervention costing <1x GDP (Gross Domestic Product) per capita is very cost effective, while an intervention costing <3x GDP per capita qualifies as cost effective.

For the United States, the estimated 2010 GDP per capita is $47,400. There fore, using WHO-approximate numbers, an intervention costing <$142,200/QALY is considered “cost effective” and one that is under $47,400/QALY is considered “very cost effective.”

With an upper price limit of 3x/GDP per DALY (QALY) using WHO criteria, the great majority of healthcare interventions in the United States will qualify as cost effective.

Formal Standards on the Horizon?

The WHO criteria relate overall societal wealth directly to cost-effectiveness standards, rather than those formally set by NICE or similar institutions or, informally in the US literature… for better or worse.

I believe that as healthcare costs continue to be an ever-increasing burden on our businesses and ourselves, we too will see our informal standards become formalized. However, laws would need to be changed before Medicare could reflect cost in any formal calculation. And then there are politics and policy. They always creep in — even to our own patients' care. Let's chat about politics, policy and patient care in the next column. OM

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Melissa M. Brown, MD, MN, MBA, is president and CEO of the Center for Value-Based Medicine in Philadelphia. She can be reached via e-mail at mbrown@valuebasedmedicine.com.