Health care resources, no matter how represented, are ultimately finite. Trade-offs occur as spending in one area means that those same resources are unavailable to fund another program. In spite of this, U.S. policymakers remain reluctant to engage in conversations that even hint at “rationing.” This reluctance is evidenced by the fact that the Patient-Centered Outcomes Research Initiative (PCORI) is legislatively forbidden to include cost-effectiveness ratios in its comparative effectiveness evaluations.

Diametrically opposed to the U.S. system, most other countries embrace cost-effectiveness, whereby competing programs are evaluated in terms of costs and the health gains they produce. My recent work with colleagues in Health Affairs, for example, investigated the value of a new World Health Organization (WHO) policy that calls for diagnostic testing for malaria in young children prior to treatment. It showed that screening was very cost-effective, if not cost-saving, in sub-Saharan Africa, a finding which should speed implementation of the WHO policy.

The U.S. reluctance to embrace cost-effectiveness analyses as a policy tool is misguided, particularly as concerns about the level and distribution of health care spending remain front and center. Foremost, it means missed opportunities to lead much-needed discussions about the inherent trade-offs in health care investments.

Following the model of the clinical literature, policy researchers, analysts, and foundations should become familiar with economic evaluation tools and integrate them into their work and reports as a matter of course. The value and limits of these tools, which to be sure, should inform, not dictate policy, are illustrated below.

Diagnostic Testing For Malaria And Cost-Effectiveness Ratios

Cost-effectiveness analyses generally identify what must be paid to generate a health gain. If the focus of an intervention is extending life, results are reported as the cost per life-year gained. Little appreciated is the notion that these analyses describe the cost and health benefit produced. Only in limited circumstances, for example when an intervention is cost-saving, do they prescribe that a particular investment be made. Diagnostic testing for malaria in young children is a case in point.

Malaria accounts for 14 percent of deaths in children under 5 years of age in sub-Saharan Africa. Given its high mortality rate, children presenting with fever have been treated immediately for malaria regardless of the fever’s true cause. In 2010, in an effort to combat increasing drug resistance and improve overall disease management, the WHO called for diagnostic testing of all children prior to treatment, a radical departure from current practice. Countries have been slow to implement the policy due in part to cost concerns.

An in-depth analysis of three sub-Saharan African countries showed that the policy was cost-effective, according to the WHO standard of $150 per life-year gained. In Angola, diagnostic testing was cost-saving, a rare circumstance.

Policymakers have different standards or thresholds at which investments are deemed cost-effective. The WHO’s threshold is low, while the National Institute for Health and Clinical Excellence in the UK employs a standard of £20,000-30,000. Countries use thresholds to rank interventions from least to most costly and as a guideline for purchasing “life-years.”

Note, cost-effective analyses provide data on which to make decisions, and the rankings provide a framework for considering competing investments. But, it is policymakers who determine the cost-effectiveness standard and which programs, ultimately, should be and are funded.

The Heart Disease Rivalry And Quality-Adjusted Life-Years

Extending life is one type of health gain, while improving quality is another. Quality changes can be paramount in populations affected by chronic conditions. The quality-adjusted life-year (QALY) is an outcome measure developed by economists in the 1970s, which adjusts survival gains by quality of life provided over the life-years. The QALY was launched into mainstream clinical use via a cardiac rivalry.

Heart disease is the leading cause of death in the U.S. Coronary artery bypass grafting (CABG), the domain of thoracic surgeons, was the primary treatment for heart disease for decades. Angioplasty, performed by interventional cardiologists, became a viable alternative in the 1980s. Soon thereafter, a high stakes battle ensued over both procedures’ (CABG and Angioplasty) relative effectiveness.

Several randomized controlled trials showed that the procedures were equally effective in terms of reducing mortality. Consequently, quality of life became the focus as the recovery paths of the two procedures were vastly different. CABG, at the time, was highly invasive with a relatively long recovery, while angioplasty was quicker and relatively less painful, but often the angioplasty needed to be repeated.

An outcome measure which accounted for these differences between the procedures was needed. Queue the QALY which was declared the outcome measure of choice by the U.S. Panel on Cost-Effectiveness in Health and Medicine in 1996 and has now been used in the clinical literature for nearly three decades.

What Are Policy Analysts To Make Of All This?

At present the U.S. economic evaluation literature uses both QALYs as a standard outcome measure and an informal cost-effectiveness ratio of $100,000 per QALY gained. For example, a recent analysis compared CABG to the latest version of angioplasty for a patient subset and found that the cost per QALY gained for CABG to be $16,537, which would be deemed very “good value.”

PCORI, however, continues to focus on outcomes alone, including QALYs. An article by Glick et al in Health Affairs demonstrated that integrating cost-effectiveness ratios may be far less painful than skeptics anticipate. Using data from over 800 studies contained in the Tufts Medical Center Cost-Effectiveness Analysis Registry, they found that, in 81 percent of cases, treatment recommendations based on outcomes were also cost effective at the threshold of $100,000 per QALY gained.

Curing Hepatitis C, Social Values, And Rationing

While cost-effectiveness analysis offers a solid starting point for discussions about health care trade-offs and spending prioritization, there are clear limits to its contributions in decision-making. New, potent, and expensive drugs are a case in point as they increasingly pose challenges for health systems and payers.

The new drug Harvoni offers a cure for Hepatitis C. This condition was previously treated with Interferon costing $15,000 per course, while the new regimen costs approximately $84,000. The budgetary implications of providing it are game-changing, with California alone estimating a total for Medicaid of $18 billion out of a $64 billion budget.

Such breakthroughs end the pretense that the U.S. does not need to confront rationing. Further, as the chance is minimal that Harvoni will be cost effective by any standard, determining whether to fund it falls outside the cost-effectiveness domain. It will involve some stark choices, ultimately reflecting social values, which the public seems woefully unprepared to make.

Policy analysts can lay the groundwork now for these more complex discussions by incorporating cost-effectiveness and the language of trade-offs into their work. This includes embedding these concepts into research, briefs, commentaries, and policy discussions, along with helping edge PCORI in a similar direction.