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What’s a year of life worth?

That question is at the heart of a metric called the quality-adjusted life year that is increasingly being used to make decisions about paying for new drugs.


If I was asked that question about one of my children, my answer would be “limitless,” and no one could persuade me otherwise. But others are putting a discrete price tag on it.

Answering how much a quality-adjusted life year (QALY) is worth isn’t a theoretical or philosophical exercise. A number of European health care systems use so-called cost-effectiveness reviews that depend on QALYs to make decisions about which drugs to cover. Since these countries have single-payer systems, these decisions have serious consequences for the patients who might benefit from a new drug. A negative review could literally represent a death sentence.

The QALY methodology places a price tag on the value of living a full year of life in perfect health. Drugs that do not offer a full year of life, or that offer less-than-full quality of life, are rated lower on the QALY scale and may not qualify for reimbursement.


Needless to say, the QALY standard has its critics. I am one of them. As I wrote in a report I created on behalf of Pioneer Institute, I believe there are serious questions that policymakers should ask about the QALY methodology and its impact on patients.

The greatest flaw by far in the QALY methodology is the subjective threshold value attached to a year of perfect health. In the United States, the Institute for Clinical and Economic Review, which conducts drug cost-effectiveness analyses, values one QALY at $50,000 to $150,000. Some European countries use similar arbitrary thresholds.

While some health economists try to justify these values through laborious studies that compare the costs of various medical services, the threshold amount is, at its root, random. In short, the entire superstructure of the QALY methodology is built upon philosophical sand: subjective value judgments.

There are other reasons for people to worry about the use of quality-adjusted life years. A cancer drug that provides “only” eight additional months of life won’t achieve a maximum QALY score. Yet to someone with a cancer treated by that drug who may be facing certain death, a drug that delivers an extra eight months of life should get the highest possible rating. The use of QALYs in the United Kingdom’s National Health Service so limited Britons’ access to new cancer therapies that Parliament ignored the QALY methodology entirely and created a “Cancer Drugs Fund” that would pay for new cancer drugs regardless of their QALY ratings.

QALYs also disadvantage the disabled, who cannot achieve maximum QALY scores because they will never achieve the highest “quality of life.” As the famous advocate for the disabled, former California congressman Tony Coelho, has written: “Because people with disabilities, seniors, and patients with chronic conditions may experience a potential for health that is less than their ‘healthier’ counterparts, treatment that extends or improves their lives may result in fewer QALYs than a treatment developed for a non-disabled or younger population where the treatment is able to return the patient to so-called perfect health.”

One of the most troubling aspects of the QALY system is its potential to quell research into rare disease therapies. In recent years, biopharmaceutical laboratories have been churning out amazing new therapies for rare diseases. In 2017, the FDA approved 80 new indications for so-called orphan diseases, each of which affects fewer than 200,000 people nationwide. In 1983, the year the Orphan Drug Act was enacted, only two such drugs were approved.

The quality-adjusted life year methodology is particularly ill-suited to assess the value of rare disease drugs. New therapies for rare diseases are, for obvious reasons, approved with fewer subjects in clinical trials and predicting the longevity of patients in these trials is difficult. And since these drugs will ultimately have fewer customers, their prices tend to be higher. The QALY threshold represents an arbitrary straightjacket when applied to these unique therapies. There are millions of people waiting for cures whose health and quality of life could be gravely threatened by the use of QALYs. Without access to life-saving treatments, these patients may lose hope that they will ever be able to effectively manage their condition.

Because of controversy surrounding QALYs, Congress banned their use in cost-effectiveness reviews in the Medicare program. Yet the Institute for Clinical and Economic Review continues to market QALYs as a useful tool for Medicaid, commercial health plans, and pharmacy benefit managers. For policymakers who wish to make thoughtful decisions about the use of QALYs, Pioneer Institute has produced a list of questions to be considered before adopting this methodology.

The United States is the premier destination for non-Americans who find themselves with challenging illnesses. U.S. policymakers should not import drug decision policies from nations that are not similarly visited.

William S. Smith, Ph.D., is a visiting fellow in life sciences at Pioneer Institute and author of its report, “Key Questions for Legislators on the Institute for Clinical and Economic Review (ICER).”

Editor’s note: The article was updated to correct the value ICER uses for one QALY.

  • Read this article as additional info for a health economics exam revision. Was hoping for another solution to be put forward. Previous comments by those who seem to hold knowledge on this subject have made me cautious of the authors arguments. Any links to more rigorous QALY articles anyone could recommend?

  • It would be useful if op-eds were written by someone with actual knowledge of the field. Among several distinct misunderstandings, Mr. Smith clearly mistakes the concept of “price” for that of “value”.

    Let’s see if the difference can be explained simply. What is the value of water if you are thirsty? Arguably, infinite. In a market with many providers of cheap water, paying exorbitant prices for sub-par sources of hydration is the hight of stupidity.

    This nonsense should be retracted.

  • This is another terrible opinion piece by someone who believes that the laws of economics do not apply to health care. The author has no understanding of a QALY. The author berates the QALY, but presents no alternative to it.

    The author states that the worth of a year of life is “limitless”. If it were really limitless, why do people trade away years of their lives performing jobs they do not want to do for a very limited amount of money?

    The author states that the QALY dollar values are arbitrary or subjective. This is not true. Estimating a QALY is simple. Because the typical American trades one half to one third of his conscious life working jobs with a median salary of $50,000, that American is deciding that his conscious life is worth somewhere around $100,000 to $150,000 per year.

    If I were dying and my estate were worth a million dollars, I would not spend it on a treatment that extended my life only a year. I would give it to my children. That million dollars would benefit my children far more than it would some wealthy MDs or pharmaceutical companies.

    Just as military contractors try to scare us with bogus foreign threats so we spend money on wasteful military projects, articles like this are written by the health care industry to scare us with death so we give them more of our money for treatments of questionable utility.

  • This might be the worst article on healthcare economics I’ve ever read.

    I don’t think a country where physicians walk past it’s poor living in underpasses on the way to their overpriced, scan- and treatment-happy hospitals should be criticising any other country’s healthcare system. A country where having appendicitis or some other routine medical condition can bankrupt you and make you homeless, so you end up living under said bridge.

    For the amount of money US consumers poor into the private companies masquerading as hospitals, by international standards the results are absolutely dismal.

    I’m a physician, and I’d be terrified about getting sick in the US. Healthcare there is a free-for-all, run by for-profit companies, with no checks on expense. Want a PET-scan? Sure! (But it’s not indicated, and costs thousands of dollars, and they had an MRI showing the same thing an hour ago). Why not, go for it! Want to use some exorbitantly expensive drug, that has f— all effect on survival? Why not, go for it! Ask your physician is the drug right for you. In fact, demand it from your physician. You’re worth it. (Never mind that the US is one of 4 countries in the world that allow such predatory ads to be shown direct to patients).

    What a farce. And this lunatic thinks it’s somehow superior to the rest of the civilised world.

    At least it gave me a Friday evening LOL. Laughter is the best medicine, it seems. Plus, it’s free…

  • Some comments:
    1. At no time should economic analysis be used to make a “decision.” They are only input to help policy analysts to come up with the best possible decision.
    2. The threshold amounts are not “random.” Arbitrary, skewed, biased, distorted, but not “random.”
    3. Suggesting that orphan drugs costs “tend” to be higher is truly a master-stroke in misdirection. They don’t TEND higher. They are outrageously and arbitrarily high.
    4. It is true that no high cost drug will be found to be cost-effective. Mike Drummond, who pioneered economic analysis methods, noted this problem some time ago. This is one of the reasons that cost-effectiveness methods are undergoing updating.
    5. With regard to item 1, the decision to cover or not should not be based solely on cost-effectiveness analysis. Since currently no orphan disease drug has been evaluated to be cost-effective, policy makers must then venture into moral decision territory.

    • I agree with most of what you day Bill. Except the bit about orphan drug costs. The prices tend to be higher, but the costs? Not so much. Invariably small, often only phase II trials, the costs of orphan drug development are often lower.

  • What this really comes down to is how do we reign in the skyrocketing costs of new drugs. If the costs of some of these newer drugs were not so outrageous, then cost effectiveness analysis wouldn’t be necessary.

    I think ICER has the right approach to how QALYs should be used. Since ICER is not a govt agency they simply assess what at what cost a new drug would justify its QALY score. All parties can then use this information to negotiate a fairer price for the drug. Which is how many insurers in the US are starting to use ICERs analysis.

    • The problem with ICER is that it’s CETs are totally arbitrary and they make no attempt to actually determine the opportunity costs in the US health care system (if you can call it that). For that reason I consider a statement by ICER that something is or isn’t cost effective to be completely uninformative

  • The author states “A cancer drug that provides “only” eight additional months of life won’t achieve a maximum QALY score.”
    There is no such thing as a maximum QALY score. Low QALYs are better and even negative values are possible if there are savings in other medical care costs.
    If a treatment costing £20,000 adds eight additional months of high quality life then the cost is £30,000 per QALY and the treatment would be funded even under the strictest NHS criteria.
    I agree that the methodology of determining QALYs is poor and the confidence intervals for the calculations are often very wide and rarely quoted but we do need some system of evaluating the cost effectiveness of new and existing treatments

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