13 Aug 2009


My mentor gave a nice discussion on cost-effectiveness at the medical grand round last week.

I was first introduced to this topic by Professor JW at the same meeting a decade ago, when I was a first-year resident. She presented three possible strategies to prevent osteoporotic fractures – starting bisphosphonates in all patients reaching a certain age, starting the drug in patients with confirmed osteoporosis but no fracture, and starting the drug after the first fracture. She illustrated clearly why the second strategy was the most cost-effective.

While we were all impressed by the presentation, the walking Harrison next to me whispered, “It is cheapest to withhold the drug in all patients even after fractures.”

I have no doubt that Harrison knows much more about health economics than me, but his remark demonstrates why it is so difficult to find common grounds with administrators when you discuss health expenditure. For frontline doctors, our priority regarding treatment is safety, effectiveness and cost-effectiveness. For administrators, the issue is reduced to costs.

Let’s take a hypothetical example. Suppose Drug X can reduce the risk of osteoporotic fractures and the overall cost of Drug X in a defined population is lower than that required for the management of fractures (e.g. surgery and rehabilitation). In that case, providing Drug X to all patients with the defined characteristics would be cost-effective and can save money for the whole healthcare system. However, if you are only concerned about the drug expenditure of a department, withholding the drug would be a quick way to reduce the budget. To complicate matters further, when surgery is required, the expenditure will go to another department and the relationship between the drug and surgery is difficult to measure. Therefore, administrators at the department or hospital level would be inclined to consider only costs but not cost-effectiveness. Theoretically, the government should be most interested in cost-effectiveness because of the effect on overall expenditure. In reality, insurance companies pay more attention to these aspects.

Life is not simple. More often than not, a new treatment is more effective but also more costly. Unlike the first example, the overall healthcare expenditure would increase, though you also get better outcomes. How should we choose then?

Let’s have another hypothetical example. Suppose there is a deadly condition in which all patients would die. At present, there is an old drug (Drug A) that can save 20 lives out of 100 treated patients at a cost of $100 in total (cost per patient is $1). If a new drug (Drug B) is used in the same 100 patients, 40 lives can be saved but the total cost is $10000 (cost per patient is $100). While the effect of Drug B is impressive, one may argue that you only spend $5 to save one life with Drug A ($100/20 lives) but $250 to save one life with Drug B ($10000/40 lives). Does this mean we should only use Drug A?

The trouble with this interpretation is that if there is a very cheap drug with some efficacy in the market, the medical field can never make any progress because any new treatment can never be cheaper. Instead of calculating the cost per life saved, health economists usually calculate the incremental cost-effectiveness ratio (ICER). It is the ratio of the change in the costs of an intervention to the change in the effectiveness. In other words, we are more interested in the cost required to save one extra life using the new treatment. In the above example, the ICER would be ($10000-$100)/(40-20), or $495 per extra life saved.

Another practical question, of course, is what level of ICER is acceptable. In Western literature, people are happy to spend US$50000 for one quality-adjusted life year (QALY). In countries where dissidents are readily imprisoned and executed, I am afraid only government officials and millionaires are worth that much.

P.S. You think the second example is too extreme? Think about aspirin!

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