Value in Health Care in 2018: A Broader Approach with New Research Needs


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Photo of the University of Washington campus by Ben Babusis

Meng Li


In 1950, national health expenditure as a share of gross domestic product in the United States was 5%. The share rose to 18% in 2016. Such rapid growth of healthcare expenditure has spurred widespread interest in value assessments of medical technologies, in general, and of new medicines, in particular. The American College of Cardiology-American Heart Association (ACC-AHA), American Society of Clinical Oncology (ASCO), Institute for Clinical and Economic Review (ICER), Memorial Sloan Kettering Cancer Center, and National Comprehensive Cancer Network (NCCN) are among the organizations that have proposed and implemented new value assessment frameworks. Given their different perspectives and decision-making needs, these organizations have identified a wide range of different factors underlying value, to name a few:  clinical benefit vs. risks, magnitude of net benefit, precision of estimate, cost-effectiveness, budget impact, affordability, novelty, research and development cost, rarity, and population health burden. Most of these existing frameworks, however, lack a consistent theoretical foundation in health economics, which has led to omission of important components of benefits or costs given their perspectives.

To inform the shift towards a more value-based healthcare system in the US, the International Society for Pharmacoeconomics and Outcomes Research (ISPOR, started the Initiative on US Value Assessment Frameworks in 2016. The objectives of the Initiative are to describe the conceptual basis for value, examine existing value frameworks, identify novel elements of value, and recommend good practice in value assessment. In contrast with many existing frameworks, the approach to value taken by the Initiative is grounded in health economics, yet recognizes special circumstances when a microeconomic approach cannot easily accommodate all relevant elements of value.

In the final report by the Initiative, to be published in February, many novel elements of value are identified and defined: productivity, adherence-improving factors, reduction in uncertainty, fear of contagion, insurance value, severity of disease, value of hope, real option value, equity, and scientific spillovers, along with the conventional quality-adjusted life-years (QALY) gained and net costs. Among these conventional and novel elements, QALY gains, net costs, and adherence-improving factors are value concepts from the health system perspective, while the rest are from the broader societal perspective. The Initiative also identified a number of additional value elements that are currently impractical to estimate due to lack of data or appropriate methodologies, such as fit with existing programs or infrastructure, end-of-life alternatives, ethical considerations related to manipulation of genetic materials, fears associated with specific types of therapies, etc.

Following the Second Panel on Cost-Effectiveness in Health and Medicine, whose report was published in the Fall of 2016, the Initiative recommended using cost-per-QALY-gained as the starting point for decision-making for healthcare resource allocation, and that other novel elements of value should be considered when relevant and if practical. The Initiative proposed the concept of “augmented cost-effectiveness analysis (CEA)”, where more measures of value besides health gains, societal costs, and financial risk protection are considered in a value assessment. Their report outlines several potential approaches to incorporating these novel elements into value assessments. One is to incorporate them either in the cost or in the QALY in the cost-per-QALY-gained ratio. Another approach is to monetize all health and related benefits, therefore converting the CEA into a cost-benefit analysis. A third approach is to compare element-by-element, which is in line with the “Impact Inventory,” a framework for considering consequences of an intervention as they impact different sectors put forth by the Second Panel. Finally, a fourth approach is to use multi-criteria decision analysis. Each of these approaches has its own advantages and methodological challenges, and more research and experience are needed in the application of augmented CEA.

Authors of the Initiative report also address issues around budgets and thresholds. The general recommendation is to base reimbursement policies on what is good value for money given a health plan’s budget. Good value for money can be achieved by using an explicit cost-per-QALY-gained threshold along with modifiers to that threshold. Both thresholds and modifiers for public and private health plans should reflect plan members’ or taxpayers’ preferences. The novel elements of value mentioned above are candidates for modifiers to the thresholds.

In contrast to other highly industrialized nations, stakeholders in the US have not fully embraced using cost-effectiveness to inform resource allocation decisions in healthcare. The US has the highest per capita spending on healthcare in the world, while life expectancy of Americans is lagging behind 30 or so countries and has even declined for the past two years. Many now believe that this is partly due to a misalignment between value and payment, and realigning the two is critical to bending the healthcare cost curve. It is encouraging to see new value assessment frameworks for medical technologies gaining visibility and some traction in the US. In order for them to have a greater impact on reimbursement decisions, the research community needs to make sure these frameworks are conceptually and methodologically sound and the assessment processes are transparent. The ISPOR Initiative has broadened our view of what constitutes value in health care; more research is needed to understand and estimate novel elements of value in different healthcare decision contexts and their implications.

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Meng Li

I am a PhD candidate at the CHOICE Institute. I received my master's degree in epidemiology from Johns Hopkins university. My main research interests are evaluations of healthcare interventions and policies nationally and internationally. I am particularly interested in policy issues on pharmaceutical pricing and access, payment models for healthcare services, and healthcare workforce. My doctoral dissertation is on the option value of healthcare interventions.