An Introduction to Pharmacoeconomic Measures
Cost-benefit (CB) is the simplest of the three measures: CB = Benefits – Costs, where benefits and costs are measured in dollars. For the narrowest cost-benefit focus, benefits in the CB equation would be limited to the dollar value of savings from a medical intervention. For instance, benefits would come from eliminated or reduced drug cost, eliminated or reduced doctor and hospital costs, and so on. Costs would be the direct cost of the intervention leading to the cost-savings. If benefits outweigh costs, the medical intervention has positive cost-benefit; and if other aspects of the intervention are not relevant, the intervention would then be adopted.
If you are an employer, benefits could include reduction of lost work days and increased productivity. Private insurance providers and HMOs will likely not be interested in lost-work days as it will not affect their cash outlay, so how cost-benefit is calculated depends on who is doing the analysis.
Calculating cost-effectiveness (CE) is more complicated, CE = (cost of intervention) / lys, where lys is shorthand for life-years-saved. In words, cost effectiveness is the cost of the medical intervention divided by the years of life that the intervention saves. So cost effectiveness applies only to those illnesses where your life is at risk or your life-span shortened. The more life-years saved the lower the cost-effectiveness, so low CE values are what we aim for. A therapy that costs $100,000 and on average prolongs a patient’s life by five years would have a cost-effectiveness of $100,000 / 5 lys = $20,000 per lys. Life-years-saved compared to what? Compared to no treatment is the usual measure.
In the U.S., cost-effectiveness below $50,000 per lys is considered an acceptable health-care intervention. This cutoff is the gross domestic product in the U.S. per capita. In 2012 in the U.S., the GDP was $15.7 trillion and the population was 314 million, so $15.7 trillion / 314 million = $50,000 is the GDP per capita. As cold-hearted as it sounds, in economics your life is worth only what you contribute to the nation’s GDP. In practice, economists add several thousand dollars to the $50,000 cutoff between acceptable and unacceptable health-care interventions, just so it doesn’t seem so cold-hearted. Maybe something like $70,000 per life-year-saved is the cutoff in practice.
Clearly, cost-effectiveness numbers are only a guide, not an absolute rule for deciding whether a medical intervention should be adopted. From a literal interpretation of cost-effectiveness, if you are 80 years old you would have no remaining life to be saved, but of course old people still receive medical care. For compassionate and moral reasons, infants born with genetic defects are treated with drugs priced at hundreds of thousands dollars per year, well above the cutoff. Some cancer drugs that extend life only for less than a year on average are priced that high as well, a situation that could soon change.
Neither cost-benefit nor cost-effectiveness consider how well patients fare (outcomes) after a medical intervention. Cost-utility (CU) addresses this outcomes focus. CU = (cost of intervention) / (quality-life-years-saved). The calculation of cost-utility is similar to cost-effectiveness, except life-years-saved has been replaced with something called quality-life-years-saved.
How are quality-life-years-saved measured? First, break it into two parts: life-years-saved times a factor Q that runs from zero to one. For a medical intervention that returns you to complete health, Q = 1. For someone is a permanent coma, Q = 0 so any intervention just to keep you alive is not a good health care intervention from an economic point of view.
Unfortunately, Q is hard to measure because it is so subjective. What is Q for a patient dying of cancer, a paraplegic, an amputated arm, loss of sight, loss of hearing? Q may also depend on the person as well: A music composer may find loss of hearing a disaster, but a writer may not. Since Q and quality-life-years are subjective, cost-effectiveness is used more often as a pharmacoeconomic measure, but quality of life and outcomes are without question the better focus.