The Logic of Cost Effectiveness: Cost Effectiveness Thresholds (CETs)
Incremental Cost Effectiveness Ratios (ICERs)
In many jurisdictions, formal health technology assessments (HTAs) have been implemented as a method to determine the value of medical technologies (diagnostics, drugs, medical devices, prevention programs, etc.). Only upon positive evaluation, a new product will be reimbursed, i.e. (abstracting from co-pay policies) freely available at the point of care.
Some HTA agencies use cost effectiveness analysis (CEA) to assess economic efficiency. The central measure of efficiency (or “value for money”) in conventional CEA is the incremental cost effectiveness ratio (ICER). Basically, the ICER represents the incremental health care costs required to produce one additional unit of health benefit – the latter most often constructed as the combination of net gains in life expectancy and health-related quality of life, adjusted by their probability (or “risk”) of occurring.
The use of constant ICER thresholds has been promoted as a universal yardstick to assess the cost effectiveness of interventions. Its use could hardly be more relevant for market (or patient) access.
Information Created to Evade Reality (ICER)?
We have launched a project to critically assess the ethical / normative, empirical, and methodological assumptions underlying the use of ICERs and cost effectiveness thresholds (CETs) in medical priority setting.
The first project phase has been completed. Interim results are due to be published in the forms of an InnoValHC Discussion Paper and of a peer-reviewed publication in one of the leading health policy journals.
Our work exposes an astonishing number of anomalies and loopholes of the logic of cost effectiveness as a universally applicable tool to assess “value for money".
The phrase "Information Created to Evade Reality (ICER)" was first used by health economists Amiram Gafni and Steven Birch in a thoughtful, yet provocative commentary in 2006.
Why should we reject universal cost effectiveness thresholds (CETs)?
A full integrative review is being prepared as the second phase of the project, designed to provide a defining verdict of the cost effectiveness paradigm that is currently dominating applied health economics.
The comprehensive analysis has been planned to be followed by thorough appraisal of promising alternatives, providing stakeholders with less misleading information on the social value of health care than conventional CEA.
What does economic theory say about the monetary value of human life?
The so-called value of a statistical life (VSL) has been a major area of scientific interest in economics. We reviewed the methods used by economists to calculate the VSL as well as the estimates that result from empirical studies applying these methods. After mathematical transformation, the data can be used to estimate the value of a statistical life year (VSLY), which gives some insight into the valuation of life and limb by citizens. We argue however that these values should not be translated into universally applicable CETs, for the compelling reasons developed in our still ongoing CET project.
More project-related information will follow soon ...