How Do You Value Life? How Do You Apply Cost-Effectiveness to Healthcare?

Many years ago one of the auto companies discovered a defect which in a small number of rear end collisions caused an explosion of the gas tank to occur. The auto executives decided the probability of accident was small and the cost of correcting the problem was large, therefore fixing it was not cost-effective by their reckoning. They received a lot of flack when news of this decision was released. My first reaction at the time was to be outraged that they would place a dollar value on a person’s life. A little aging and some accretion of knowledge taught me that the designers of that car probably made many such safety decisions as they were planning to build that car. In those cases the cost-effectiveness decision could be made implicitly. One could resort to “best current practices” arguments to justify building a car that had a statistical probability of failing and causing death. However, once a flaw is revealed, an explicit decision has to be made—and those are difficult.



There is an article in the New England Journal of Medicine by Peter J. Neumann and Milton C. Weinstein that reminds us that in the area of healthcare, where resources are limited, cost-effectiveness issues come into play. If we are to gain a handle on both costs and effectiveness we will need a means for applying them in an explicit fashion.


We sometimes don’t think of doctors making those decisions, but it happens regularly. If a doctor turns down a patient referral because he thinks the odds are long that the patient will survive, then he has made a cost-effectiveness decision. If he decides to not suggest a type of treatment because the patient may not be able to handle the financial burden, he has made a cost-effectiveness decision. If he decides a treatment might prolong a patient’s life, but the suffering caused would not be worth the potentially added time, he has made a cost effectiveness decision. The doctor has made all these decisions and they were all arbitrary and he did not have to justify them.


The authors point out that

“In 1996, after two years of deliberation, the U.S. Panel on Cost-Effectiveness in Health and Medicine, composed of physicians, health economists, ethicists, and other health policy experts, recommended that cost-effectiveness analyses should use quality-adjusted-life-years (QALYs) as a standard metric for identifying and assigning value to health outcomes.”

QALY is a measure of the duration and quality of life that is expected as the normal result of an applied treatment. Regaining full health would result in a QALY of 1.0 times the life expectancy of the patient. If life after the treatment is characterized by suffering and/or disability the QALY would be a small number, perhaps even a negative number, times the life duration. Many studies are underway to produce the data needed to derive a QALY for the various treatments.


In the U.K. the National Health Service uses the QUALY number for a given treatment on a given patient to explicitly decide whether the treatment will be given. The website for the National Institute for Health and Clinical Excellence (NICE) provides a very clear example of how this is applied.

“Each drug is considered on a case-by-case basis. Generally, however, if a treatment costs more than £20,000-30,000 per QALY, then it would not be considered cost effective.

Patient x has a serious, life-threatening condition.

If he continues receiving standard treatment he will live for 1 year and his quality of life will be 0.4 (0 or below = worst possible health, 1= best possible health)

If he receives the new drug he will live for 1 year 3 months (1.25 years), with a quality of life of 0.6.

The new treatment is compared with standard care in terms of the QALYs gained:

Standard treatment: 1 (year's extra life) x 0.4 = 0.4 QALY

New treatment: 1.25 (1 year, 3 months extra life) x 0.6 = 0.75 QALY

Therefore, the new treatment leads to 0.35 additional QALYs (that is: 0.75 -0.4 QALY = 0.35 QALYs).

The cost of the new drug is assumed to be £10,000, standard treatment costs £3000.

The difference in treatment costs (£7000) is divided by the QALYs gained (0.35) to calculate the cost per QALY. So the new treatment would cost £20,000 per QALY.”

That may not represent a decision mechanism of which you approve, but at least it is a system. It has the advantage of being applied equally to all patients, it relieves doctors of the burden of making difficult and often arbitrary decisions, and it will eliminate costs for procedures of limited utility.


When the issue of cost-effectiveness came up in the recently passed healthcare bill, our legislators took a giant half-step in this direction. Congress directed a Patient-Centered Outcomes Research Institute to perform comparative effectiveness research (to come up with the data to arrive at a QALY). However, they explicitly forbade the use of that data in the mode it is applied by the U.K.


So now we are at least generating useful knowledge, but not allowing it to be used explicitly. Presumably, physicians will continue to be forced to make implicit decisions, but at least in the future they will be better informed.


The QALY path seems to be the only one the experts have managed to come up with. The U.K. approach may not be the best way to go, but something has to be done. It is hard to foresee a time when our legislators would be capable of making a difficult decision in this area, no matter how dire our financial condition.