Why Pharmac might be better not to fund next-generation drugs

As reported by the New Zealand Herald earlier this week, the government is to investigate a new fund to give New Zealanders access to costly new-generation medicines:

The Cancer Society has called for an early-access scheme, and Labour's previous health spokeswoman Annette King repeatedly called for one, saying that when in Government Labour would look at what funding was needed.

New Health Minister David Clark told the Herald the Government wanted to explore how such a scheme could operate.

The United States and Britain have versions of early-access schemes to let certain patients access ground-breaking drugs.

There is a real problem with funding of these schemes for very expensive treatments. While these treatments may be effective and have highly positive outcomes for the patients that receive them, focusing on the patients who will receive the treatment ignores the opportunity costs (this is a point I have made before about Pharmac funding, here and here). The appropriate way to decide on which treatments are funded is by considering their cost-effectiveness, not by considering which treatments generate the most negative media attention for the government.

A focus on cost-effectiveness ensures that scarce healthcare resources are being used where they will generate the greatest benefit for society. A treatment is cost-effective if it increases a person's health at a lower cost than alternative treatments. Since not all treatments provide the same health benefits (and many have negative side effects, etc.), we need some way of consistently measuring the health gains from a treatment, and measuring the cost per unit of health gain. To do this, we could use Quality-Adjusted Life Years (QALYs - a measure that combines length of life and quality of life) as our measure of health gain, [*] and cost-per-QALY-gained as a measure of which treatments are most cost-effective. A treatment that provides the same increase in QALYs for lower cost, or more QALYs for the same cost, should be preferred for funding.

That might sound unfair (especially to patients who miss out on funding, or their family or friends), but the alternative is even more unfair. If we ignore cost-effectiveness and simply fund any treatment that generates negative media attention (within the same fixed budget), then the healthcare budget will generate a lower total improvement in health. Funding expensive and less-cost-effective treatments has serious costs in terms of decreases in overall health and wellbeing of the population.

Even if the government increases funding for Pharmac, that increased funding should not necessarily go to these next-generation treatments, as there may be other currently-unfunded treatments that are most cost-effective and those should be funded first. Indeed, funds for next-generation treatments are not necessarily a good thing, as the Herald article notes:

The Cancer Drugs Fund in the UK has been overspending despite budget increases, resulting in a number of treatments being taken off its list.

An analysis in the leading cancer journal Annals of Oncology found the medicine funded through the British scheme was not worth the money, as only 18 of the 47 treatments prolonged the patient's life.

One of the paper's authors, Professor Richard Sullivan of King's College London, said the fund had been a "massive health error", and the populism that drives public policy has no place in health.

We need to be careful that our healthcare decision-making is made on the basis of what will generate the greatest gains in health for the budgeted amount, rather than making populist decisions that will make us worse off.

Read more:

• Pharmac vs. Keytruda - The sequel
• Keytruda, and why Pharmac looks for the best value treatments 

[*] An alternative is to measure health using the number of Disability-Adjusted Life Years (DALYs) averted. DALYs are a measure of health lost due to illness or injury, which can be used in place of QALYs (you can read more about QALYs and DALYs here).

Pharmac vs. Keytruda - The sequel

Back in 2015 I wrote a post about Pharmac's decision not to fund the drug Keytruda for melanoma patients. Keytruda is back in the news this week:

A 44-year-old father of four given six to nine months to live when he was diagnosed with lung cancer has seen his tumour halve in size thanks to a new treatment he describes as a "miracle drug".

Patients and advocates are calling on Keytruda to be publicly funded for lung cancer, the country's biggest form of cancer death which claims five lives a day, because many patients could not afford the tens of thousands of dollars required to pay for it...

Pharmac director of operations Sarah Fitt said they had received funding applications for Keytruda, also known as pembrolizumab, for the first and second-line treatment of advanced non-small cell lung cancer and would continue to review evidence.

Clinical advisers would now review extra information requested to decided (sic) on funding for it as a first-line treatment.

I'll simply reiterate some of the points that I made in that 2015 post (and note that this issue is quite timely given that my ECON110 class covered the health economics topic just this week).

It is worth starting by noting that Pharmac has a fixed budget to pay for pharmaceuticals. If it agrees to pay for Keytruda for lung cancer, at a cost of tens of thousands of dollars per patient, then that is tens of thousands of dollars that cannot be spent on pharmaceuticals for other patients. There is an opportunity cost to funding this treatment.

Now, that problem could be mitigated by the government increasing Pharmac funding by enough to pay for the Keytruda costs. But if Pharmac receives additional funding, is Keytruda the best use of that funding? Are there other treatments that could be funded instead? Even with extra resources, Pharmac's budget would still be limited, so how should we decide whether Keytruda is the best use of that additional funding?

Fortunately, there is a solution to these tricky questions: work out which treatments are most cost-effective and fund those first. Health 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.

You might disagree that cost-effectiveness is a suitable way to allocate scarce health funding resources. I refer you to the Australian ethicist Toby Ord, who makes an outstanding moral argument in favour of allocating global health resources on the basis of cost-effectiveness (I recommend this excellent essay).

Finally, here's what I wrote about funding Keytruda in 2015 (for melanoma, but the same points apply in terms of Pharmac funding the drug for lung cancer):

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.

Unfortunately, New Zealand doesn't have an equivalent of the UK's National Centre for Health and Care Excellence (NICE), which calculates cost-effectiveness of potential treatment options for the National Health Service and ranks them against an objective standard cost-per-QALY (of £30,000) to work out which options should or should not be funded. That makes so many of Pharmac's decisions subject to political interference, which really could end up costing us in terms of overall health and wellbeing.

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.