The House Energy and Commerce Committee recently considered H.R. 485, a bill that would ban all federally funded health-care programs from using the most prominent cost-effectiveness threshold to shape payment for medical care. Committee chairwoman Cathy McMorris Rodgers (R-OR) argued that it’s “unconscionable that a health care bureaucracy would so callously determine that someone’s life is worth less.” She suggested that the quality-adjusted life years (QALY) measurement at issue “is used to discriminate against people with chronic illnesses and disabilities, like cystic fibrosis, ALS, or Down syndrome.”

QALY metrics have most commonly been embraced by single-payer health-care systems, where they are often employed to guide across-the-board rationing of treatment. This has tended to steer resources toward younger and fitter patients, whose underlying health is most amenable to improvement. Yet when publicly funded health-care programs are themselves dedicated to the elderly and the disabled, such a diversion of funds is mitigated. Properly used, such assessments could even help ensure that public funds yield the most benefit for those needing assistance.

In private markets, spending on goods and services is generally constrained by the fact that individuals actually have to pay for them. But when the government pays for health care, other taxpayers largely bear the cost. Some other method is therefore necessary to ensure that public funds get spent where they are most useful.

Economists developed the QALY metric to compare the effectiveness of health-care spending on services for different medical conditions and patients. QALYs attempt to quantify the degree to which various medical interventions tend to increase the duration and quality of life. Countries where the government purchases health care for the whole population typically employ QALYs to determine how much they are willing to pay for various medical services. Because it is politically difficult to withhold access to existing services, such deliberate and overt rationing most commonly occurs in decisions involving new technologies—and it is often formalized in policy: Britain’s National Health Services generally refuses to cover drug treatments that cost more than $40,000 per year of life saved, while New Zealand will not pay for drugs that cost more than $9,000 per extra year of life saved. France sets the threshold up to $300,000 in some cases.

By contrast, in the United States, federal law specifically prohibits the establishment of a QALY threshold to limit payment for medical care by Medicare. States are not entirely barred from using QALY assessments to limit Medicaid’s program costs, but an Oregon proposal to use QALYs systematically was deemed to violate the Americans with Disabilities Act.

But proposals for cost-effectiveness analysis in American health-care programs are unlikely to go away. The cost of Medicare is projected to surge to double the level of expenditure on defense by 2032. Over recent decades, 85 percent of the increase in real per capita Medicare spending was on new technologies. This additional expense is usually incurred without much assessment of its value or effectiveness.

And many analysts are concerned that U.S. health-care spending has been bloated by indiscriminate expenditures at the end of life that do little to improve health outcomes. Consider new cancer drugs that typically cost over $100,000 but may extend life by only a few months. The price of newly approved oncology drugs per year of life gained has risen steadily over the past quarter-century.

Still, QALY measures omit important values. The Inflation Reduction Act imposed administrative caps on Medicare payments for prescription drugs for the first time, and many Democrats are eager to squeeze further savings from the program, by expanding these into more sweeping value-based pricing. But QALY metrics of drug cost-effectiveness are based only on the immediate benefit to patients consuming them; they fail to account for the long-term benefit of encouraging the development of new drugs. In particular, QALY-based drug-price caps would most reduce funding for treatments for rare diseases with small patient populations, for which major investments cannot be justified without higher prices. Appropriate drug pricing would therefore generate much smaller savings than QALY-based metrics propose.

Advocates for the disabled are more broadly opposed to the use of QALYs in health-care programs. They argue that because the disabled cannot be restored to full health, QALY metrics will discriminate against funding any treatments that are provided to them.

These shortcomings are inherent to the public financing of health care. An aggregate value-for-money perspective treats assessments of the effectiveness of medical procedures and assessments of individual patient prospects on equal terms. This has widespread implications, given that the effectiveness of many therapies depends on patient characteristics such as age, obesity, tobacco use, or comorbidities.

Defenders of QALY metrics respond that QALYs can be adjusted for differences in the disease burdens that individuals face. Indeed, payment by the Medicare program (which covers only the elderly and the disabled) is specifically limited to these two groups with relatively low QALY prospects. The use of QALY metrics limited to Medicare is therefore likely to be less skewed against the frail than one implemented across a single-payer system (the bulk of whose enrollees are relatively young and healthy). Within Medicaid, it would be more desirable to adjust QALY thresholds for patient groups than to ban them entirely.

Well-structured cost-effectiveness analysis can clearly improve the allocation of scarce public funds, so that they do most to help Americans who can’t provide for themselves. But if applied to private payers, they would have a levelling effect on the financing and development of medical care. Restricting payments by private insurers or consumers would serve only to reduce the amount of their own money that people could spend on health care.

The best way to reap the greatest benefit from QALY metrics while minimizing the associated disadvantages is to maximize enrollment in privately financed insurance, which need not be subject to them.

Photo: erdikocak/iStock


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