WORK IN PROGRESS: NOT TO BE CITED WITHOUT PERMISSION 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 cost- effectiveness 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): ; and Gyrd-Hansen, Pharmacoecon, 23(5):

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): ) 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:

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 The ‘threshold’ would emerge as the minimum level of cost- effectiveness 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:

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 Most contentious decisions have rested on disputes about cost-effectiveness So what is (or was) NICE’s position? Initially it was in denial!

Probabilistic cost-effectiveness thresholds From: Devlin & Parkin, Health Economics, 13: Probability of rejection by NICE Cost –effectiveness ratio

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 cost- effectiveness 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