Determining the value of treatment

You’ve probably heard the term “cost-effectiveness” thrown around in regard to medical treatments. In this blog we’ve made the case that much of the testing in “executive physicals” isn’t cost-effective, for example; we argued that the weird little tests that some executives get simply aren’t worth the money because they haven’t been shown to improve quality of life nor quantity of life, a measure we bundle into “quality-adjusted life years” or QALYs (pronounced “quollys”). But we’re not just picking on C-suite folks. When any new treatment, like a new pacemaker, costs more per QALY gained than the theoretical care its high cost displaces, like routine blood pressure treatment lost due to the extra cost resulting in nurses being laid off, the health of the population suffers.

Historically, even though the Centers for Medicare and Medicaid Services (CMS) have explicitly avoided setting policy according to cost-effectiveness for fear of rationing care, we’ve used Medicare’s payment for dialysis as an “apocryphal” benchmark. A year of dialysis in the early 1990s cost about $50,000. And without dialysis a person with end-stage renal disease will quickly die. So, the argument went, a year of human life must be worth about $50,000 and any new drug, therapy, or surgical procedure should cost no more than $50,000 for every resulting additional QALY. By this argument, a chemotherapy drug that adds five years to your life should cost no more than ~$250,000.

Other ways to use this model

This model based on precedent is far from the only way people have tried to define cost-effectiveness. A 2019 mathematical model found that Americans with an income of $50,000 should be willing to pay $100,000 for one additional year of ideal health. An extrapolation of patients in the United Kingdom’s National Health Service–where cost-effectiveness is tracked extraordinarily tightly–estimated that Americans would be willing to pay between $24,823 and $40,112 per QALY gained. A somewhat similar analysis comparing US health expenditures to other countries estimated $60,475 to $97,851 per additional year of life.

In an attempt to define a more home-grown, objective, US-specific threshold for cost effectiveness, David Vanness, James Lomas, and Hanna Ahn recently published a simulation to determine the number of people in a model population of 100,000 individuals resembling the US population who would lose insurance because of a $100 premium increase (1.6%, or $10,000,000 total for the population). They used 2019 premiums from the ACA marketplace as their baseline, and they were able to estimate insurance loss from historical data on coverage losses from the ACA Marketplace.

Next, using a study of mortality reduction observed with ACA Medicaid expansion, they were able to deduce the number of deaths among the newly uninsured in a year. To account for loss of quality of life among the survivors (since QALYs account for both quantity and quality of life), they benchmarked to a study on health-related quality of life by year of age.

Then the investigators ran a simulation with these “givens” 50,000 times. Here’s what they found: for each additional $10,000,000 in health expenditures passed through to patients as premium increases (remember, the equivalent of $100 per person, or a 1.6% increase), roughly 1,860 of the 100,000 simulated patients became uninsured. This resulted in five additional deaths, 81 QALYs lost due to death, and 15 QALYs lost due to illness.

So a new treatment costing the theoretical American population of 100,000 people $10,000,000 would need to increase QALYs by 96 to avoid reducing the overall health of the population. $10,000,000 divided by 96 equals $104,000 per QALY, about double the apocryphal $50,000 per QALY estimated by Medicare’s dialysis coverage.

What do you think? This is a question far better suited to the Halloween season we just left than to the Thanksgiving season we’re entering, but it’s a question we all have to ask ourselves: Is $104,000 per year a reasonable threshold for insurance companies to use in deciding on coverage of new drugs, tests, or services? Are you an Ebenezer Scrooge, unwilling to pay even $50,000 per year of life? Or are you a spendthrift, willing to pay more?

As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on hot topics that might affect employers or employees. This is a reprint of a blog post from KBGH.