News Story

Medical Welfare Programs Look To Price Another Year Of Life

Is a beneficiary’s ‘quality-adjusted life year’ worth the cost of a drug?

Medicaid and other medical welfare entitlement programs have created expectations that are bigger than the resources available to meet them. As a result, some welfare bureaucracies are looking to ration expensive drugs through a controversial method designed to put a price on the value of a human life.

If a beneficiary of a social welfare program needs a particular drug whose price exceeds a predetermined value of a “quality-adjusted life year” for the individual, under this method, that person would not get the drug. It is already in use in Great Britain’s single-payer health care system and in other nations. Some in the U.S. think it should be used here, too.

A recent study by the Massachusetts-based Pioneer Institute challenges that approach and questions whether government should make such judgments about the value of human life. The study, written by visiting scholar William S. Smith, raises questions about the method, which is called the quality adjusted life years measurement.

Smith writes, “The use of the QALY standard in the United Kingdom resulted in British cancer patients having some of the worst access to new cancer treatments in all of Europe and created a political crisis for British politicians.” He added, “U.S. politicians may want to proceed cautiously in adopting QALYs.”

The method applies a cost-benefit analysis to drugs based on whether they add enough quality and quantity of life to a patient to make the price worth paying. It is an economic calculation intended to establish priorities for drug spending by medical welfare programs. In the U.S., it is promoted by a nonprofit called the Institute for Clinical and Economic Review, a group that Smith responds to in his study.

In the private sector, Smith reports, the pharmacy benefits management firm CVS Caremark has announced it will apply the method in its contracts with clients.

The Pioneer Institute study examines a December 2018 ICER report recommending that U.S. medical welfare programs adopt the method. Smith finds, among other things, that it restricts research and development on new drugs and therapies.

The method and model’s definitions of “quality years” can be too strict and, Smith says, are “quite literally, causing the deaths of patients who were awaiting reviews of new cancer treatments that were already widely available in other nations.”

The ICER report says the nonprofit seeks to balance concerns about profitability with affordability. “The goal of cost-effectiveness analysis,” it says, “is to help inform policy that will ensure truly transformative treatments are rewarded handsomely, while neither patients nor society pays too much for care that doesn’t offer patients significant benefit.”

David Whitrap, ICER’s vice president for communications and outreach, said, “At ICER, we want a health system that truly rewards transformative treatments and incentivizes biopharma innovation, and our assessments have been used to validate and defend why some very expensive medicines offer tremendous value to patients and society. But to sustain that sort of system on the backs of taxpayers, the country needs to stop overpaying for drugs that don’t offer much additional clinical benefit.”

Smith notes that limiting access to drugs would primarily affect low-income individuals in Medicaid, a means-tested program. Almost all U.S. seniors, and many disabled persons, are covered by Medicare, and the Affordable Care Act prohibits QALY measurements from being used by that program. But no law prohibits the use of QALY measurements in other government health care programs.

In 2017, for example, the Pharmacy Benefits Management Services Office of the Department of Veterans Affairs worked with ICER to restrict veterans’ access to certain drugs. It did so by using what it called “value-based price benchmarks” under an assessment framework.

The method could have an especially large impact on individuals who suffer from rare and orphan diseases, where potentially life-saving drugs may be much more expensive because there are fewer patients to share the cost.

Smith believes that “the American public may be less accepting than the British public if a disabled child in the Medicaid program were denied a lifesaving or life-altering therapy because of an ICER review.” He continued, “It seems unlikely that the American public will accept the kinds of rationing of therapies and medical services that British political culture, with 70 years of socialized medicine, has largely come to accept.”

Last year, a bipartisan bill was introduced in the Michigan Senate that could start moving this state toward such a program. described the bill sponsored by Sen. Steve Bieda, D-Warren, along with three other Democrats and three Republicans, as follows:

2018 Senate Bill 825, to require manufacturers of prescription drugs to file detailed reports with the state on the costs associated with developing and marketing prescription drugs whose wholesale cost is more than $40 for a course of treatment. The bill would also create a state prescription drug ‘work group’ comprised of individuals representing specified interests to recommend policies to mitigate the expense incurred by state medical welfare programs in providing drugs to beneficiaries.”

The title of the Pioneer Institute study on this issue is “Key Questions for Legislators about the Institute of Clinical and Economic Review (ICER).”

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.