Undercover Economist

May 2, 2014 12:30 pm

Healthcare: the final reckoning

‘Somebody, somewhere has to be able to say, ‘That’s great – but it just costs too much’’
An Illustration by Ed Nacional depicting willingness to pay for healthcare©Ed Nacional

If the American right is looking for a “death panel” ruling to complain about, one has just appeared: trastuzumab emtansine, a breast-cancer treatment produced by the Swiss pharmaceutical company Roche, looks unlikely to be endorsed by the UK’s National Institute for Health and Care Excellence (Nice). That is not because the drug doesn’t work – Nice thinks it does – but because it costs too much.

The death-panel fantasy has mutated over time. It originally raised the prospect that Barack Obama’s healthcare reforms would require bureaucrats to decide who was worthy of treatment and who would be left to die. Death panels do not exist, so now the allegation has shifted to the idea that the president’s reforms involve the rationing of healthcare.

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So far there is little evidence of that, either. Yet deep beneath the scaremongering is a kernel of truth: if you want to keep costs under control, somebody, somewhere has to be able to say, “That’s great – but it just costs too much.” In the UK, that someone is Nice. Trastuzumab emtansine can still be supplied by the NHS through a special fund. In general, however, when Nice approves or rejects a treatment on the grounds of cost-effectiveness, that ruling will determine whether the NHS will or will not provide that treatment.

How can such decisions be made? The obvious standard is bang for the buck. If $10,000 will extend someone’s life by 10 years, that is better than spending $10,000 to extend someone’s life by 10 hours. Keep spending money on the most cost-effective treatments until all the money is gone. Simple.

Except it is not simple. There is more to a medical treatment than postponing the funeral. Treatments may delay death but with side effects. A hip replacement may improve life without extending it.

Enter the Qaly, or quality-adjusted life-year. The Qaly was dreamt up in 1956 by two health economists, Christopher Cundell and Carlos McCartney. The idea is straightforward enough: it introduces a way of comparing completely healthy years of life with years of life spent in pain or with limited independence. Living for four years with profound deafness might be – hypothetically – as good as living for three years in perfect health. If so, curing that deafness for four years would be worth one Qaly.

No doubt you can see the difficulties already. Are we really so sure we know how unpleasant it is to be deaf? The answer is subjective and fraught with politics: the worse the experience of a profoundly deaf person is deemed to be, the more resources the Qaly standard will mobilise in search of effective treatments. Yet the logic of the Qaly also says that if life is terrible for the profoundly deaf, curing cancer in people who can hear is more cost-effective than curing cancer for people who cannot. Ouch.

In practice this is unlikely to pose a problem: Nice will have either approved the cancer therapy or not, and nobody is going to deny it to the deaf by referring to a Qaly table. Still, the example is troubling.

There seems to be little prospect of cost-based rationing in the US. That is a shame: Americans may not realise quite how much this aversion to cost-effectiveness is costing them.

The UK system, dominated by the taxpayer-funded NHS, is far cheaper than the US healthcare system. That’s no surprise. But the astonishing thing about the US system, long caricatured by both its critics and its defenders as a bastion of free-market provision, is that the US taxpayer spends far more per person on healthcare than the UK taxpayer does. (This was true long before anyone had ever heard of Barack Obama.)

Indeed the US government spends more per person on healthcare than almost anywhere in the world. Norway, Luxembourg and Monaco can plausibly claim to have more generously funded public healthcare systems than the US but nowhere else comes close. That’s the cost of, well, not caring about cost.

If the US healthcare system is financially incontinent and the UK system is reliant on a centralised and philosophically troubling cost-benefit analysis, is there some better way?

. . .

Singapore offers an intriguing model. The aim of the country’s healthcare system is to get patients to face some of the costs of their own treatment. Healthcare is part-nationalised and somewhat subsidised. Individual citizens have a compulsory savings account to build up a nest egg for medical expenses, and there’s an insurance programme to deal with the most expensive treatments. But, broadly, the idea is that you have money in a healthcare account, and it’s up to you to decide how you want to spend it.

This makes healthcare more like a regular consumer market. If you have the relevant form of breast cancer and you want to give trastuzumab emtansine a go, then in a Singapore-style system it’s your money and it’s your choice.

I can’t see the idea catching on in the UK and probably not in the US either. People are too used to the idea that someone else – the state or an insurer – will pay the bill. Free choice is nice but what everyone seems to prefer is free treatment.

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Twitter: @TimHarford; Tim Harford’s latest book is ‘The Undercover Economist Strikes Back’

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Letter in response to this column:

Not clear what else we might spend money on / From Mr Nathan J Dowden

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