Transcript How Do We Determine Whether an Economic Model is Valid?

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How much should a health-care system
be prepared to pay for a QALY?
Martin Buxton
Health Economics Research Group, Brunel University, UK
Seminar to the Centres for Health Policy and Primary Care
Outcomes Research, Stanford University, January 2006
Disclaimer and acknowledgements

I have drawn on my experience as a member of the Appraisals
Committee and the Economics Task Group of the National Institute for
Clinical Excellence

Some of the ideas presented here have been clarified in preparing a
paper around this topic with a group of colleagues involved with NICE,
led by Professor Tony Culyer

However, the views expressed in this presentation are my own and
should not be taken necessarily to represent the opinion of either my
colleagues, the Appraisal Committee, the Task Group or NICE.
Structure

Context

Alternative theoretical bases for determining costeffectiveness thresholds:
 Intrinsic social value
 Value for budget constrained QALY maximisation

The explicit NICE position

NICE as a ‘threshold-searcher’

Conclusions
Context

Economic evaluation is increasingly focussed on estimating
incremental cost per additional QALY gained – ‘cost per
QALY’

For all its limitations, the QALY is probably the most
acceptable, and generally applicable measure of health
gain currently available to compare cost-effectiveness of
different technologies across the health sector

Preferred form of analysis of a number of reimbursement
authorities such as NICE
Key question

What is the threshold value of cost per QALY that distinguishes
cost-effective interventions from not cost-effective interventions in
any particular context?

Economic analysts can opt to (partially) avoid the question by
presenting cost-effectiveness acceptability curves

Decision-makers cannot share this convenient side-step

Without a clear idea as to willingness/ability to pay for additional
QALYs, cost per QALY analysis can do little to inform a decision and
the increasingly sophisticated edifice of cost-effectiveness analysis, is
of little value
Bases for establishing a threshold or
benchmark value for a QALY

A social judgement about the intrinsic value in a particular
society (Approach 1)
OR

The maximum value of a marginal QALY consistent with
maximising QALYS gained within a given health service
budget (Approach 2)
Approach 1: ‘Intrinsic value’

The value ‘society’ places on a QALY

Appears to be broadly what the public and interest groups
would like as the basis

Might be estimated via individual values or those of
elected/appointed decision-makers

Considerable conceptual and technical difficulty in
establishing ‘social’ WTP from individuals*

Implicit values of past decisions may have no real
relationship to decision-makers explicit values
*See for example: Richardson and Smith, AHEHP, 3(3):125-126;
and Gyrd-Hansen, Pharmacoecon, 23(5): 423-432
Approach 1: ‘Intrinsic value’ (continued)

Implies that the health system should undertake any activity
that generates a QALY for less than that threshold

Therefore, inconsistent with a predetermined and fixed
budget

Implies that this ‘social value’, and exogenously controlled
stream of medical developments, should determine the
health budget
What factors might affect this intrinsic
value?

National per capita income:
 thus value would vary between countries and
increase over time

National differences in ‘demand’ for health relative
to other goods and services

Health status of population?

Characteristics of recipients?*
*Subject of current research requested by NICE
Examples of estimated values
(in US $ 2002)*:

Review of mainly US contingent valuation studies: median
value - $161K per QALY
(Hirth et al, MDM, 20(3): 332-42)

Review of UK WTP studies: median value - $52K per LYG
(Hutton et al – Conference abstract)

UK: calculation based on value of a statistical life as used
for road traffic accidents - $48K per QALY
(Loomes, OHE Monograph, 2002)
* For a recent review see Eichler et al, Value in Health, 7: 518-528
Approach 2: Maximum value of a marginal
QALY consistent with fixed budget

In an idealistic system, the ICER of the least cost-effective
intervention that should be funded within a fixed budget

Implies that:
 ICERs (and total budget costs) are known for all
technologies

At the beginning of a budget period all technologies are
compared, ordered and adopted logically to budget limit

Further new technologies are not considered until repeat
of process at beginning of next budget period
Approach 2a: Maximum value of a marginal
QALY consistent with budget increment*

Focuses on maximising QALYs from any increase in funding
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The ‘threshold’ would emerge as the minimum level of costeffectiveness of new developments that the health system
should adopt from any growth in spending

Threshold will vary depending on what new technologies
arrive that year and how much is the growth in spending

Implies an (annual) process aligned to budgetary periods
* Broadly as proposed by Maynard et al, BMJ, 329: 227-229
Approach 2a: Maximum value of a marginal
QALY consistent scope for disinvestment

Value that ‘balances’ changes at the margin in what the
health system provides

Minimum cost-effectiveness of ‘investments’ and maximum
cost-effectiveness of ‘disinvestments’ at the margin

Consistent with a fixed budget at any point of time

Requires that the health system can ‘dis-invest’ existing
services that are less cost-effective

Difficulty of establishing this value, which will vary
locally and over time
NICE and thresholds

Cost-effectiveness (cost per QALY) is central to the
concerns of the Appraisal Committee
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Most contentious decisions have rested on disputes about
cost-effectiveness

So what is (or was) NICE’s position?

Initially it was in denial!
Probability of rejection by NICE
Probabilistic cost-effectiveness thresholds
Cost –effectiveness ratio
From: Devlin & Parkin, Health Economics, 13: 437-452
So what does NICE now formally say

Public statement by Rawlins (NICE 2002):
 ‘appears that there is less chance of being accepted if
above to £30k’

Revised Methodological Guidance (NICE, April 2004):
 < £20k - likely to be accepted
 > £20k - needs additional factors to justify
 > £30k - these factors have to be increasingly strong

Rawlins and Culyer (BMJ, September 2004)
 Inflexions in the curve
 Lower inflexion (A) - £5k-£15k
 Upper inflexion (B) - £25k-£35k
Other views on what the NICE
threshold should be

Alan Williams (OHE Lecture, 2004) suggested that it
should reflect GDP per capita (c £18K per QALY in UK)

WHO (2002) proposed generalised threshold based on
3x GDP per capita (c £54K per DALY in UK )
NICE as a ‘threshold searcher’ (1)

It is not constitutionally proper for NICE to determine the
threshold:
 NICE is required …’to reach a judgement on whether
on balance [an] intervention can be recommended as
a cost-effective use of NHS and PSS resources’
 Parliament sets the constraint on the resources
available via the NHS (and PSS) budgets

NICE is not tasked with (nor able to) asses the costeffectiveness of all technologies used by the NHS
NICE as a ‘threshold searcher’ (2)

The Department of Health (with NICE) identifies ‘priority’
technologies to appraise ( currently mostly, but not
exclusively, new drugs)

As a ‘threshold searcher’ NICE needs to consider a
selection of likely investment and disinvestment
possibilities

It has to ensure that newer technologies always displace
technologies with higher cost per QALY – but even when
such opportunities have been identified, this may be
politically very difficult.
A threshold-searching approach

Implies that there will always be uncertainty and
optimisation is unattainable

The threshold will be fuzzy and may depend on the size of
the disinvestment necessary

It focuses on the need to assess the potential for
disinvestment from high cost per QALY activities

and a political willingness to stop providing cost-ineffective
services that have been provided in the past
More general conclusions

An informed debate involving economists, politicians and the
public is needed on the principles

Better empirical estimates are needed of threshold values
consistent with different approaches (in different countries)

An externally determined social value of a QALY is
incompatible with a politically determined health-care budget
but could inform the debate about that budget

It is likely, as with NICE, that thresholds will have to be
approximate, particularly if they are not to change
considerably within and between years
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