Cost-Effectiveness Comes to America: The Promise and Perils of Cost-Effective Analysis in Medication Coverage Decisions
Carl Coleman
Seton Hall University School of Law, carl.coleman@shu.edu
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In an effort to control rising drug costs, some health insurers have begun experimenting with methods to link decisions about coverage to the value added by medicines, including through the use of formal cost-effectiveness analysis (CEA). Increased interest in subjecting new drugs to rigorous economic analysis is a welcome development, as it offers the potential to minimize wasteful spending on drugs whose high prices are not justified by evidence of additional benefits produced. At the same time, CEA raises significant ethical issues, particularly when payers use it to limit access to drugs deemed to provide insufficient value for money. For example, most forms of CEA focus on the absolute quantity of health benefits a drug is expected to produce, without regard to how those benefits will be distributed among individuals or population groups. In addition, the measure of benefits most often used in CEA—the quality-adjusted life year (QALY)—has a built-in bias against life-extending drugs for patients with incurable disabilities as well as for patients with diseases that disproportionately affect racial minorities. As a result of this bias, relying on CEA to limit access to medications could potentially violate federal civil rights laws in some situations. Finally, defining effectiveness solely in terms of direct health benefits to patients ignores other important ways that medicines can provide value, including benefits to third-party caregivers and society at large. Previous scholarship has examined
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the role of CEA in setting health care priorities, but less attention has been paid to the use of CEA in the context of health insurance. This Article fills that gap by critically exploring the use of CEA in medication coverage decisions, identifying ethical shortcomings in current approaches, and recommending strategies for reforming CEA to retain its benefits and to minimize its negative effects.
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Abstract................................................................................811
Introduction.........................................................................815
I. Cost-Effectiveness as a Measure of the Value of Medicines........................................................................818
A. The Concept of Cost-Effectiveness............................. 818
B. Assessing the Costs and Benefits of New Medicines.. 822
C. Applying the Results of Cost-Effectiveness Analysis . 824
II. International Examples...............................................828
A. The United Kingdom's National Institute of Health and Care Excellence..........................................................828
B. Other Countries' Use of Cost-Effectiveness Analysis in Medication Coverage Decisions................................831
III. Cost-Effectiveness Analysis in the United States . 834
A. The Use of Cost-Effectiveness Analysis by Federal Health Agencies....................................................... 834
B. Cost-Effectiveness Analysis by the Institute for Clinical and Economic Review..............................................837
C. Cost-Effectiveness Analysis in Medication Coverage Decisions....................................................................840
1. Medicare...............................................................841
2. Medicaid...............................................................845
3. Veterans Health Administration...........................847
4. Privately Funded Health Insurance.....................848
IV. Pitfalls of Cost-Effectiveness Analysis as a Measure of Value.........................................................852
A. The Myth That All QALYs Are Equal.........................853
B. The Impact of QALY-Based Cost-Effectiveness Analysis on People with Disabilities...................................... 855
C. The Relationship between Cost-Effectiveness Analysis and Structural Racism................................................860
D. An Overly Narrow Conception of the Potential Value of Medicines.................................................................... 864
V. Reimagining Cost-Effectiveness Analysis................869
A. Replacing the QALY as the Default Measure of Benefit ....................................................................................870
B. Incorporating a Broader Conception of Value .......... 872
C. Moving Away from Reliance on Unitary Thresholds 875
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D. Encouraging Broader Participation in Valuation Decisions....................................................................877
Conclusion............................................................................879
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One of the main factors driving the high cost of health care in the United States is the skyrocketing cost of prescription drugs, much of which is due to expensive new medications. 1 Yet there is little evidence that these new drugs provide added benefits commensurate with their increased costs to society. 2 Instead, high prices for new drugs are largely the result of the monopoly protection that the patent system gives to pharmaceutical manufacturers, which enables them to set prices without having to worry about being undercut by competitors.3 In addition, physicians rarely consider cost as a factor in prescribing decisions;4 they often are not even aware of the cost of the drugs they prescribe.5
In an effort to control rising drug costs, some health insurers have begun experimenting with methods to link decisions about coverage to the value added by medicines, including through the use of formal cost-effectiveness analysis (CEA). CEA is a process used to compare the incremental costs of new drugs with the additional benefits provided.6 Payers can use this information to push back against prices that do not provide good value for money, either by negotiating more
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favorable prices or by limiting the use of drugs through formulary restrictions or utilization management tools.7
The growing interest in CEA by health insurers is a significant development. unlike most other industrialized countries, which have long relied on CEA in assessing the value of medicines,8 policymakers in the United States have generally been reluctant to apply CEA to medical interventions, partly out of concerns about appearing to endorse the "rationing" of health care.9 Increased interest in subjecting new drugs to rigorous economic analysis is a welcome development, as it offers the potential to rein in excessive spending by bringing greater rationality to price determinations. Admittedly, CEA will not single-handedly eliminate the problem of high-priced medications, as even some very expensive drugs may provide good value for money.10 What CEA can do is minimize wasteful spending on drugs whose high prices are not justified by evidence of additional benefits produced.
At the same time, CEA raises significant ethical issues, particularly when payers use it to limit access to drugs deemed to provide insufficient value for money. Many of these concerns relate to how the benefits of new drugs are typically measured. Most forms of CEA focus on the absolute quantity of health benefits that a drug is expected to produce, without regard to how those benefits will be distributed among individuals or population groups.11 In addition, the measure of benefits most often used in CEA—the quality-adjusted life year (QALY)12 —has a built-in bias against life-extending drugs for patients with incurable disabilities13 as well as for patients with diseases that disproportionately affect racial minorities.14 As a result of this bias, relying on CEA to limit access to medications could potentially violate federal civil rights laws in some situations.15 Finally, defining
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effectiveness solely in terms of direct health benefits to patients ignores other important ways that medicines can provide value, including benefits to third-party caregivers and society at large.16
Organizations that conduct economic assessments of new medications have sought to address many of these issues.17 But despite recognizing the limitations of the QALY as a proxy for benefit, those organizations continue to rely on cost-per-QALY determinations as the primary measure of value. Moreover, to the extent their assessments incorporate broader considerations of equity and social value, they do so unsystematically, and the role that these factors play in their decisions is largely opaque.18
Meanwhile, payers in the United States are increasingly relying on these assessments in making coverage decisions. At least one plan has a formulary that excludes drugs whose costs per QALY exceed a specific threshold.19 Many more payers—including both privately-funded plans and the Veterans Health Administration—rely on CEA in setting restrictions on access to certain medicines, such as prior authorization requirements or higher copayments.20 State Medicaid programs are also using CEA as part of their drug utilization review process.21
Previous scholarship has examined the role of CEA in setting health care priorities,22 but less attention has been paid to the use of CEA in the context of health insurance. This Article fills that gap by critically examining the use of CEA as a basis for medication coverage decisions. Part I begins by providing an overview of CEA and how it is used to evaluate the prices of new medications.23 Part II looks at how
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other countries use CEA to assess the value of medicines, with a particular focus on the United Kingdom's National Institute of Health and Care Excellence.24...
