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Old 03-31-2009, 01:45 PM   #1 (permalink)
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How much is a year of life worth?

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View: How Much Is a Year of Life Worth?
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How Much Is a Year of Life Worth?
Friday, Mar. 27, 2009
How Much Is a Year of Life Worth?
By Eben Harrell

On the wall of Sir Michael Rawlins' office in London is a cartoon of a group of men in suits cowering below a giant circular pill inscribed with the word pharma. Amid the supplicants strides an impervious figure from Britain's National Institute for Health and Clinical Excellence (NICE) with a puzzled look on his face. Like the man in the cartoon, NICE head Rawlins doesn't see why drug companies should deserve any deference. His organization uses hard-nosed cost-effectiveness reviews to decide which treatments Britain's National Health Service (NHS) should pay for. A new drug doesn't just have to work to impress NICE, it has to offer value for money ó and if it doesn't, whether it is life-saving or not, Rawlins' group won't approve it. With skyrocketing prescription prices bloating America's health-care system, many experts are now taking a hard look at whether America should embrace NICE's controversial methods. Rawlins talked to TIME about how NICE calculates a drug's worth, what its system might mean for the U.S. market and why drug companies are running scared:

Why is NICE needed? Shouldn't you get the drugs you need when you are sick, regardless of cost?
All health-care systems are facing the problem of finite resources and almost infinite demand. And all health-care systems have implicitly if not explicitly adopted some form of cost control. In the U.S. you do it by not providing health care to some people. We are best known [for looking] at a new drug, device or diagnostic technique to see whether the increment in the cost of that treatment is worth the increment in the health gain. (See pictures of health care in Tehran.)

How is that measured?
It's based on the cost of a measure called the "quality-adjusted life year" [QALY]. A QALY scores your health on a scale from zero to one: zero if you're dead and one if you're in perfect health. You find out as a result of a treatment where a patient would move up the scale. If you do a hip replacement, the patient might start at .5 and go up to .7, improving by .2. You can assume patients live for an average of 15 years following hip replacements. And .2 times 15 equals three quality-adjusted life years. If the hip replacement costs 10,000 GBP [about $15,000] to do, it's 10,000 divided by three, which equals 3,333 GBP [about $5,000]. That figure is the cost per QALY.

So by the cost per quality-adjusted life year, you are basically deciding how much a year of life is worth?
Yes. The most controversial area is where you place the dividing line between what is cost-effective and what is cost-ineffective. That is the "How much is life worth?" question. And there is no real empirical research to guide you. We have looked at what other government departments do. Our Department of Transport, for instance, has a cost-per-life-saved threshold for new road schemes of about 1.5 million GBP per life, or around 30,000 GBP per life year gained. The judgment of our health economists is that somewhere in the region of 20,000-30,000 GBP per quality-adjusted life year is the [threshold], but it's not a strict limit.

That's a tough decision to make for bureaucrats, is it not?
For many difficult questions, we capture public preferences by our citizens council, a representative sample drawn from the general public. For example, we asked if should we give greater priority to children than the elderly. The group decided that a year of life was worth just as much when you are a grandparent as when you are a child. That is very culturally specific and might not apply to other countries in the world.

Why doesn't NICE take into account other factors in its cost-effectiveness review, such as lost productivity to the workforce?
The quick answer is that our statutory instruments specify that we [should not]. But if you give advantage to people who are economically active, it means you disadvantage the economically inactive ó the elderly. That's something that British society would find difficult to accept.

It seems like NICE is forcing pharmaceuticals to play ball by offering special discounts to Britain. How do you manage that?
Our list price is used as a reference price in other countries, so drug companies believe that a no from NICE is damaging globally. So they set up what we call "patient-access schemes." Drug companies may either give away certain portions of treatment [such as the last few doses of a course] or reimburse the NHS for those patients who don't respond, which has the effect of reducing the price of the drug and lowering the cost per QALY ó even though the reference price stays the same.

If the U.S., with its massive health-care market, did the same, could it have a transformative effect on drug costs?
I think it could. The companies won't like it in America. But yes, it could.

And you don't buy the drug companies' arguments that doing so will destroy their research-and-development budgets?
Drug development has become so expensive it's going to become unaffordable no matter what happens. A lot of the expense is a consequence of the drug-regulatory authorities, who pile on regulation after regulation, which makes getting a drug to market hugely expensive. But the expectations of investors have to be tempered as well. The 15-20% [growth] of some companies is not going to be possible in the future. A third of staff of some big pharmacy companies work in marketing, and many companies spend twice as much on marketing as R&D. That has got to go. I mean for Christ's sake, it's hopeless.
How much is a year of life worth? How much is an arm worth? How much is a day sick in bed worth? These are all questions that seemed to come up to me as I think about the healthcare scenarios.

We've talked about healthcare in it's many incarnations. What do you think the dollar value is?

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The Ford Pinto
The financial analysis that Ford conducted on the Pinto concluded that it was not cost-efficient to add an $11 per car cost in order to correct a flaw. Benefits derived from spending this amount of money were estimated to be $49.5 million. This estimate assumed that each death, which could be avoided, would be worth $200,000, that each major burn injury that could be avoided would be worth $67,000 and that an average repair cost of $700 per car involved in a rear end accident would be avoided. It further assumed that there would be 2,100 burned vehicles, 180 serious burn injuries, and 180 burn deaths in making this calculation. When the unit cost was spread out over the number of cars and light trucks which would be affected by the design change, at a cost of $11 per vehicle, the cost was calculated to be $137 million, much greater then the $49.5 million benefit. These figures, which describe the fatalities and injuries, are false. All independent experts estimate that for each person who dies by an auto fire, many more are left with charred hands, faces and limbs. This means that Fordís 1:1 death to injury ratio is inaccurate and the costs for Fordís settlements would have been much closer to the cost of implementing a solution to the problem. However, Fordís "cost-benefit analysis," which places a dollar value on human life, said it wasn't profitable to make any changes to the car.
I remember thinking to myself back in those days, "$200k?!?!?!? that's a lot of money!" Today I don't think it much at all. I'm quite torn as to what I think the value of these things are, but I know they have a value that I should be able to attribute to them. When I get job offers, I list the pros and cons and try to attribute dollar figures to them to help balance the decision making ability. But ultimately it's not about dollars and cents, but dollars and sense. I'm just not always sure where the sense is, and where the dollars begin.
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Old 03-31-2009, 05:18 PM   #2 (permalink)
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The first article is a bit misleading in suggesting that the US does not do the same calculation.

It does. In fact, that is the key aspect right now that the CDC is taking into consideration to determine whether or not to subsidize the HPV vaccine.

A very significant number of US policies are determined by that value, not only health related, but also policies relating to the environment, highways. etc.


AP IMPACT: An American Life Worth Less Today - ABC News

In fact, the US system is a bit more encompassing than the UK one, as we do use Bureau of Labor Statistics data to determine the value of life and so on. If anything, the US determination of the value of life is more market based than the UK's. That is, here the value is determined looking more at market data: how much are people spending on treatments that prolong life by X? How does treatment Y affect one's ability to participate on the labor force, and for how long? What would be that person's economic contribution, especially in terms of taxes?

What the US doesn't do, however, is use that figure to negotiate with drug companies. In fact, medicare part D specifically prohibits the government from bargaining with pharmaceutical companies over price.
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Old 03-31-2009, 08:34 PM   #3 (permalink)
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I wonder how these costs compare with the payments made to prisoners who have been found to have been falsely convicted. It would be interesting to see how incarceration compares to various health issues, compensation-wise.
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Old 03-31-2009, 08:42 PM   #4 (permalink)
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Originally Posted by inBOIL View Post
I wonder how these costs compare with the payments made to prisoners who have been found to have been falsely convicted. It would be interesting to see how incarceration compares to various health issues, compensation-wise.
My thought as well. I don't know if a dollar amount can compensate someone who has had a part of their life stolen by the justice system.
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Old 03-31-2009, 10:16 PM   #5 (permalink)
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I don't know if a dollar amount can compensate someone who has had a part of their life stolen by the justice system.
I don't believe it can, whether their life was affected by incarceration, disease, or anything else.

The question of worth, it seems, is actually two separate issues: first, the compensation to a person for their loss, and second, the cost of fixing or preventing that loss.

The second is valuable in determining how to spend funds, e.g. do I spend $10,000 to save 5 people from car crashes or do I spend $10,000 to save 100 people from malaria? This shouldn't imply that the lives of those who would have died in crashes are worth 20 times more than those who would have died from malaria, but it may affect who actually ends up dying.

The first is so vague that I think it's impossible to come up with any amount more precise than "not completely ridiculous", and even this is unlikely to garner widespread agreement. Suppose you lose your hearing, how much is that worth? If you think no amount of money can truly compensate you, does that affect your injury's worth? Is it worth more for a musician than for a painter? Does your age at injury matter? The list of possible considerations is endless.
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