Keytruda, and why Pharmac looks for the best value treatments

I was privileged to attend a presentation by Professor Sir Michael Marmot on Tuesday. It was on inequality and health (which I'm not going to talk about in this post), and one of the points he made struck me - Sir Michael suggested that he doesn't make the economic case for reducing health inequality, he makes the moral case.

The reason that comment struck me is that economists are often unfairly characterised as not having regard for the moral case, particularly in the context of the allocation of health care spending. However, I'm not convinced that the moral case and the economic case for how health care spending is allocated are necessarily different. Toby Ord makes an outstanding moral argument in favour of allocating global health resources on the basis of cost-effectiveness (I recommend this excellent essay). Ill spend the rest of the post demonstrating why, using the example of Pharmac funding (or rather non-funding) of the new cancer drug Keytruda, that is currently big news in New Zealand (see here and here and here).

First, it is worth noting that Pharmac essentially has a fixed budget, which has increased from about $635 million in 2008 to $795 million in 2015. Pharmac uses that money to provide treatments at free or subsidised cost to New Zealanders. However, Pharmac can't provide an unlimited amount of treatments because its funding is limited. So, naturally it looks for the best value treatments.

What are the best value treatments? In the simplest terms, the best value treatments are the treatments that provide the most health benefits per dollar spent. A low-cost treatment that provides a large increase in health for patients is considered to be superior to a high-cost treatment that provides a small improvement in health.

Low-cost-high-benefit vs. high-cost-low-benefit is an easy comparison to make. But what about low-cost-low-benefit vs. high-cost-high-benefit? That is a little trickier. Economists use cost-effectiveness analysis to measure the cost of providing a given amount of health gains. If the health gains are measured in a common unit called a Quality-Adjusted Life Years (QALYs) then we call it cost-utility analysis (you can read more about QALYs here, as well as DALYs - an alternative measure). QALYs are essentially a measure of health that combines length of life and quality of life.

Using the gain in QALYs from each treatment as our measure of health benefits, a high-benefit treatment is one that provides more QALYs than a low-benefit treatment, and we can compare them in terms of the cost-per-QALY. The superior treatment is the one that has the lowest cost-per-QALY.

Following this model in the context of a limited pool of funds to pay for health care, then the treatments that are funded with higher priority then are the ones that have the lowest cost-per-QALY. This is essentially the model that the Pharmac follows, as do other countries such as the UK. The National Institute for Health and Care Excellence (NICE) sets a funding threshold of £30,000 per QALY - treatments that cost less than £30,000 per QALY are more likely to be funded, and those that cost more are less likely. In New Zealand, the effective cost-per-QALY for Pharmac-funded treatment was $35,714 for the last financial year.

Now consider Keytruda, a new 'wonder drug' for treating melanoma. The downside is that Keytruda is extremely expensive - $300,000 per patient for a two-year course of treatment. Of course the cost-per-QALY isn't calculated as simply as dividing that cost by two because patients may gain many years of healthy life as a result of treatment, but Pharmac rated Keytruda as "low priority", in part because of the high cost.

Andrew Little has suggested that Labour would override Pharmac's decision not to fund Keytruda if elected, and John Key has also wavered in the face of public demand for the drug. Would that be a good thing? Of course, it would be good for the melanoma patients who would receive Keytruda free or heavily subsidised. But, in the context of a limited funding pool for Pharmac, forcing the funding of Keytruda might mean that savings need to be made elsewhere [*], including treatments that provide a lower cost-per-QALY. So at the level of the New Zealand population, some QALYs would be gained from funding Keytruda, but even more QALYs would be lost because of the other treatments that would no longer be able to be funded.

And so, I hope you can see why the economic case and the moral case for the allocation of health care spending need not necessarily be different. By allocating scare health care resources using an economic case, we ensure the greatest health for all New Zealanders.

[*] Fortunately, neither political party is suggesting that funding for Keytruda would come out of Pharmac's existing limited budget. However, that doesn't mitigate the issue of overriding Pharmac's decision-making. Even if Pharmac's budget is increased to cover the cost of providing Keytruda to all eligible patients, there may be other treatments that have lower cost-per-QALY than Keytruda that are currently not funded but could have been within a larger Pharmac budget.