FAQ: How Would Cost-Benefit Analysis Be Used to Restrain Healthcare Costs? – The Case of an Expensive New Cholesterol Drug

Executive Summary

Some experts say that cost-benefit analysis is the way to restrain soaring healthcare costs and reform the system. How exactly would cost-benefit analysis work? This blog argues: Forget the caviar.  But keep costworthy care on the menu.

To explain what this means, let’s look at the case of Repatha (evolocumab), the new cholesterol-lowering drug, and how the cost-benefit approach could help contain healthcare costs.

Based on newly released study results (called FOURIER study), the drug is no better at preventing deaths than other currently available drugs like statins or treatments like bypass surgery or coronary stents.

It does reduce non-fatal heart attacks and strokes. But the Institute for Clinical Economic Research calculates that doing so costs $799,000 for each year of quality-adjusted life year (QALY) gained. By comparison the cost per QALY is $100,000 for statins, $38,000 for stents and $75,000 for bypass surgery.

Conclusion: At $799,000 per QALY, Repatha is way too expensive, compared to other available treatments.  The customary cut-off is $50,000, but recently experts have argued for a cut-off of $150,000 per QALY.

Currently, Medicare, Medicaid and commercial insurance covers Repatha if a licensed doctor prescribes it, often on a sliding-scale of out-of-pocket copay, but otherwise no questions asked. But under a plan that used Oregon-style budgeting, Repatha would be placed on a rank-ordered list from most to least cost-effective. Repatha would fall at the bottom of the list, and would not be covered as an “Essential Benefit.”

The same would happen with all other drugs, diagnostic tests, and treatments whose benefit was too low or cost too high. But cost-effective treatments like statins, stents and bypass would still make the cut.

Americans are not used to thinking of healthcare trade-offs in these terms. However, here is an analogy to help understand this approach. Suppose that townspeople could buy a pre-paid meal plan covering all the restaurants in town, including the fanciest ones, with no limits on menu choices, at a cost of $10,000 per year (equaling the U.S. annual per capita health expenditure). Then suppose that the budget had to be tightened for the following year. The townspeople could either pay a 10% higher cost of $11,000. Or they could eliminate expensive caviar from the menu and stay at $10,000 per year.

The analogy is apt, because when Oregon in 1994 eliminated coverage of only non-costworthy (or even wasteful or frankly harmful) services, there was no adverse effect on overall health. Oregon still provided costworthy alternative treatments – the “meat and potatoes” choices, and occasional surf-and-turf. Just no caviar.

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Cost-Benefit Analysis of Repatha – More  Technical Details Laid Out

Repatha (evolocumab) is a new antibody-drug developed with innovative DNA technology. The antibody-drug blocks the natural degradation of the cell-surface receptors that remove LDL (“bad”) cholesterol. This keeps more receptors active and has the net effect of removing more LDL-cholesterol from blood.

Theoretically, by lowering bad cholesterol in the blood the drug was expected to reduce cardiovascular deaths. However, new research in 2017 (called the FOURIER study) showed that while Repatha did lower non-fatal heart attacks and strokes, the drug did not have any effect on actual deaths from heart attacks and strokes, and had no effect on the all-cause death rate.

My explanation is that the patients in the FOURIER study who received the inactive injections (placebo) were still allowed under the research protocol to take the “usual” treatment of statins, or could take ezetimibe (Zetia, which has now shown to have a slight benefit in reducing deaths), or if all else failed had coronary bypass surgery or stents. These other treatments were just as effective at Repatha at saving actual lives.

Price-tag: $799,000 per life-year

Repatha lists for $14,500 per year, but commonly after discounts is supplied for $8,970 per year. Based on the new 2017 research, for every 28 patients without Repatha for 5 years, 2 suffer heart attacks; if those 28 do take Repatha, only 1 gets a heart attack. Based on these figures, the bottom line, according to Institute for Clinical Economic Research, is that Repatha would cost $799,000 per quality-adjusted year of life gained (QALY) at the discounted price.

By comparison, the cost per QALY for coronary by-pass runs $9600 for left-main (“widow-maker”) disease or $75,000 for single-vessel disease (Circulation data). Stents cost $38,000 per QALY (Circulation data). Ezetimibe runs $135,000 per QALY (ICER data). (All figures are adjusted to 2017 dollars)

What does all this mean?

What Are We Willing to Pay for Another Year of Life?

To answer, we need to understand the “willingness to pay” method of assigning an economic price on life. In one sense, our next year of life is priceless. But economists can calculate an “economic price” for life. Here’s how philosopher Paul Menzel (see also Values & Philosophy) explains it:

… Suppose ten of us are each willing – barely willing – to pay $10,000 to eliminate our individual one-in-ten risks of death. Suppose that the lifesaving program which we thus support is likely to save one of our lives. Each of us will then have placed an identical price of $100,000 on our individual lives. Note that this approach can equally well be called “willingness-to-sell”: If for $10,000 more in salary, for example, I would be willing to take a job with a one-in-ten annual risk of death, then I am willing to sell my safety for $10,000; my valuation of my life would be $100,000. (Menzel, Medical Costs, Moral Choices, Yale 1932).

Experts have used several other methods to give an idea of our “economic price” for a year of life:

• Human capital: roughly what an average person is expected to earn over the next year or their lifetime; a typical figure is $36,000 per QALY
• Contingent valuation: uses “bidding games” for different treatment scenarios; a typical figure derived from this method is $240,000 per QALY
• Non-occupational safety willingness-to-pay: what we’re willing to pay for environmental and transportation safety yields a figure of $140,000 per QALY
• Job risk preference (willingness-to-pay): based on salary differential to take a high-risk occupation; the figure is $650,000.

The British National Health Service uses a target of £35,000 ($46,000) for life-extending treatments and £70,000 ($92,000) for immediately life-saving treatments.

A recent review suggested using target figures of $50,000, $100,000 and $200,000 per QALY to evaluate whether treatments were costworthy.

Drug Is Too Expensive

Based on these concepts of the economic value of life (generously) estimated at $100,000 – $200,000, the price tag for Repatha of $799,000 per QALY is far too high. That is, the drug gives such little benefit that on a life-year basis that it is not worth the money. The money would be better spent on something of more value.

Putting Limit-Setting Into Practice

Currently, Medicare, Medicaid and commercial insurance covers Repatha if a licensed doctor prescribes it, often with a sliding-scale of out-of-pocket copay, but otherwise no questions asked. But under a plan that used Oregon-style budgeting, Repatha would be placed on a rank-ordered list from most to least cost-effective.

Repatha would fall at the bottom of the list, and would not be covered as an “essential benefit.”

The same would happen with all other drugs, diagnostic tests, and treatments whose benefit was too low or cost too high. But statins, ezetimibe, stents and bypass would still make the cut.

Several things could happen:

• The drug company could lower the price of Repatha to a point where it fell above the budget cut-off; then it could be covered;
• The drug company could keep the same price, but patients who took the drug would pay 100% out-of-pocket for it;
• The drug company could keep the same price, but insurance plans would cover it only under a “Rolls Royce” plan at several times the cost of the basic plan of “Essential Benefits.”

Across all drugs, tests and treatment, this approach would pressure the healthcare system to keep prices lower. It would also reveal some services of such little value that they would be eliminated altogether from the list of Essential Benefits.

But What If I Really Need the Drug?

The point here is that Repatha users in the FOURIER study did not lower their risk of death any more than non-users, although the drug did reduce non-fatal heart attacks and strokes. The study further showed that the “number-needed-to-treat” to avoid one non-fatal heart attack of stroke is 28 patients taking the drug for at least 5 years.

If this is important to someone, they could simply pay the $8,970 per year. But for most people, that small benefit would not be worth the exorbitant cost. Meanwhile, they could still be treated with statins, ezetimibe, stents or by-pass surgery, all of which are more costworthy.

Americans have not been used to thinking of medical care in these terms. By contrast, the British are proud of trade-offs like this under their National Health Service. They understand that by all citizens collectively agreeing on reasonable cost treatments, they will all get high-value care. Britons are willing to forgo the less valuable treatments.

One example that is often cited is dialysis for the elderly. Medicare (actually a special separate Social Security benefit) pays for dialysis for all comers in the U.S. But the British have decided as a country that the $140,000 per QALY cost of dialysis for the elderly is not justified, especially considering the stress and burden of the treatment. They spend their health dollars on other services that are more costworthy, keeping costs down, and ensuring tax dollars are available for education, defense and infrastructure.

Here are some examples of services that did not make the cut under the 1994 Oregon Health Plan:

• Back and neck surgery for chronic pain (ineffective)
• Epilepsy brain surgery
• Sprains and strains (get better without medical treatment)
• Vein stripping surgery (cosmetic procedure)
• Nail fungus treatment (costly, side effects, ineffective)
• Life support for premature infants less than 23 weeks (uniformly fatal even with 2017 ICU care); Note: comfort care was still provided for mother and baby

Here are some other examples of services that did not make the cut in 1994, but would need updated review due to game-changing medical advances:

• Bone marrow transplants
• Medical treatment of viral hepatitis
• Liver transplants

An Analogy – “Forget the Caviar”

Here’s my analogy: Let’s say townspeople could buy a pre-paid meal plan covering all the restaurants in town, including the fanciest ones, with no limits on menu choices, at a cost of $10,000 per year (equal to the U.S. annual per capita health expenditure). Then let’s say that the budget had to be tightened for the following year. The townspeople could either pay a 10% higher cost of $11,000 or could eliminate expensive caviar from the menu and stay at $10,000 per year.

The analogy is apt, because in Oregon in 1994 by eliminating coverage of only non-costworthy (or even wasteful or frankly harmful) services, there was no adverse effect on overall health. Oregon still provided costworthy alternative treatments – the “meat and potatoes” choices, and even occasional surf-and-turf. Just no caviar.

Most would agree to forget the caviar – eliminate non-costworthy care like Repatha from Essential Benefits but keep the costworthy care.

Now take action

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References:

Public Library of Science – QALY relation to GDP – Systematic Review 

ACP Journal Club – Statin Cost Effectiveness

BMC Research Notes: Statin cost effectiveness in primary prevention

Institute for Clinical Economic Research: Evolocumab for Treatment of High Cholesterol: Effectiveness and Value

Journal Watch: New LDL-lowering drugs priced far too high

Medical Decision Making – Willingness to pay for QALY: in search of a standard

New England Journal – Curious resilience of the $50,000-per-QALY threshold

New England Journal of Medicine – FOURIER study

Univ of Pennsylvania – Summary of WTP per QALY estimates. (2003 Dollars)

 

Photo Credit:  By Jim G from Silicon Valley, CA, USA – DSC01216, Midnight Buffet, Celebrity Cruise Ship Century, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=2194023