March/ April 2013 The Republican Case for Waste in Health Care

Conservatives love to apply “cost-benefit analysis” to government programs—except in health care. In fact, working with drug companies and warning of “death panels,” they slipped language into Obamacare banning cost-effectiveness research. Here’s how that happened, and why it can’t stand.

By Phillip Longman

This reality is captured by the concept of a QALY, which weighs the gain in life expectancy that a medical intervention is estimated to bring against its effects on a patient’s quality of life. There are many different ways to do this, but a common formula, used officially by such other advanced industrial countries as Canada, the United Kingdom, and Australia, goes like this: Take each year of extra life that a medical intervention is found to produce and multiply it by a variable that reflects the intervention’s effect on a patient’s quality of life. If the intervention results in one extra year of perfect health, the value of that variable is put at 1. If it results in something less than one year of perfect health, the value of that variable is put at some number less than 1.

If we apply this formula to the example above, here’s what we get: Because the first drug results in one year of extra life in perfect health, we multiply that year of extra life times 1, and since 1 x 1 = 1, the QALY score is 1. In evaluating the second drug, we would multiply the one extra year of life it produces by some number less than one to reflect the fact that the drug causes blindness. If that number were 0.75, we would multiply 1 times 0.75 and conclude that the second drug produced 0.75 years of quality-adjusted life.

Now right here you may be starting to have qualms about QALYs. By picking that number, 0.75, are we implying that the lives of blind people are 0.25 percent less valuable than the lives of sighted people? No, though the drug industry and many other powerful forces in our society would like you to conclude that any use of QALYs demeans the handicapped and sets them up to be killed off by death panels. But researchers use QALYs simply to rate the value of different health care interventions, not the value of people, and unless you believe that people simply don’t care if they are blinded or otherwise disabled by a medical practice, that’s surely appropriate.

In practice, interventions that help people to overcome or deal with their disabilities will score highly in QALYs, including interventions that elderly people with chronic disabilities particularly want and need. Writing in the New England Journal of Medicine, researchers Peter J. Neumann and Milton C. Weinstein note that populations with more impairment have more to gain with effective interventions, and that therefore interventions that benefit these populations will score high in QALY per dollar.

Of course, there are many reasons why people might legitimately argue over just how much to discount the value of a drug that produces blindness. Is 0.75 is the right number to use, or maybe 0.85? Who can say exactly how valuable it is to be able to see? Many studies show that humans tend to both overestimate how much they’ll enjoy getting what they wish for in life and underestimate how much they’ll suffer if their worst fears come true. People who become blind may not find it as bad as they thought it would be before they lost their sight.

Which is all quite fascinating, and a reason why we can’t just turn the whole matter over to experts, let alone computers. But certainly the right number to use in evaluating the second drug is some number less than 1, because otherwise we’d be ignoring the fact that most people do care if a pill makes them blind. (Would you?)

Whatever the philosophical and process issues involved in estimating QALYs, they pale in moral difficulty compared to a stance in which we simply ignore the full health consequences of health care. The concept of getting the most years of quality life for the least cost clearly captures what we all want from health care, including in our personal lives. Without the use of QALYs or some equivalent measure, measuring cost-effectiveness in health care is simply impossible.

And that brings us back to the Affordable Care Act. The ACA established the Patient-Centered Outcomes Research Institute, and gave it the mission of doing so-called “comparative effectiveness” research. But in so doing, it specifically forbids PCORI from using QALYs, or anything like them. The statute stipulated that PCORI “shall not develop or employ a dollars per quality adjusted life year (or similar measure that discounts the value of a life because of an individual’s disability) as a threshold to establish what type of health care is cost effective or recommended.”

More broadly and pointedly, it also states that the secretary of health and human services, who oversees Medicare, Medicaid, and the soon-to-be-up-and-running exchanges for private health insurance, “shall not utilize such an adjusted life year (or such a similar measure) as a threshold to determine coverage, reimbursement, or incentive programs.”

The implications of this language are far reaching, and explain why PCORI’s executive director so emphatically asserts, “You can take it to the bank that PCORI will never do a cost-effectiveness analysis.” As long as using the concept of a quality-adjusted life year is forbidden, along with “similar measures,” there is no way to measure the cost-effectiveness of any given drug or treatment. And that’s just what the big drug companies and medical device makers wanted all along.

Taken literally, it means that it is impossible for health care policymakers to even “recommend” one drug over another just because one costs, say, $1 million per pill and produces blindness as a side effect and another costs only $10 and leaves you with your sight intact.

Other language in the ACA ensures that it will be taken literally. The statutes that govern PCORI, for example, establish it as a nonprofit organization and then specifically require that “members representing pharmaceutical, device, and diagnostic manufacturers” are guaranteed seats on its board and allowed to serve on its expert advisory panels. Today, for example, PCORI’s board includes representatives from Pfizer, the world’s largest drug company; from Medtronic, a $16.2 billion manufacturer of pacemakers, stents, and other medical devices; and from a “patient advocacy” group called Friends of Cancer Research, whose funding derives from such Big Pharma players as Pfizer, Bristol-Myers Squibb, AstraZeneca, and GlaxoSmithKline.

The ACA also stipulates that scientists doing research under contract with PCORI may not publish their findings unless PCORI determines that the research is “within bounds”—the meaning of which, of course, the board itself gets to decide. If PCORI’s board deems it out of bounds, both the offending scientist and his or her institution are banned from receiving any other grant for a period of not less than five years, which for many scientists who specialize in evaluating the quality of health care would be a career ender.

Welcome to the real politics of health care.

Phillip Longman is a senior editor at the Washington Monthly and a lecturer at Johns Hopkins University, where he teaches health care policy. He is also a senior fellow at the New America Foundation, where Atul Gawande is a board member.


  • booch221 on March 04, 2013 11:38 AM:

    So it's not the Military Industrial Complex that will bankrupt America, it's the Medical Industrial Complex.

  • markg8 on March 06, 2013 9:07 AM:

    Great article, awful title.

  • Rich on March 15, 2013 11:15 AM:

    The article is misleading as it is informative. This kind of research is, if anything, more common than it was a few years ago. the real problem is the recommendation part, particularly given that agencies like FDA, CDC, etc. are expected to make recommendations to the provider community and funders of services like HRSA are expected to put directives on what they fund.

  • jr13 on March 16, 2013 3:07 PM:

    Miami/Dade is the fraud capital of the south for years they have fleeced the system. all insurance claims should be gone over line by line. the way it seems to be they wait too long to check and the company's that filed the false claims are long gone.

  • Victor on July 30, 2013 8:31 AM:

    So, your case for this being 'The Republican Case for Waste' is that Republicans offered some ammendmants that didn't pass and a Democrat, Baucus, offered an ammendmant THAT CAUSED THIS that DID pass?

    How much of a partisan hack can you possibly be?

    You say 'Conservatives have long championed the use of cost-benefit analysis', and you reference Reagan & Bush, both of whom passed bills which USE that cost-benefit analysis. Even McCain indicated he wanted cost-benefit analysis to continue, as you cited above. Then you make the innane statement that 'President Obama came to office strongly sharing this conviction and committed to putting it into practice'...except he passed into law the ACA, which DIRECTLY OPPOSES that statement, right?

    There is so much more irrelevant and non-journalistic chaffe in this article. I can only hope that people will actually READ the article instead of the farce title you've used. You need to revisit any classes on journalistic integrity you have taken.

  • Brandon on July 30, 2013 9:22 AM:

    You are right about there being waste in the system. You are wrong about why it is there and how to fix it. People believe health care is "free." To be more efficient, users of health care need to be are of the costs. Moving the decisions to a bureaucracy would not help.

  • mike on July 30, 2013 1:20 PM:

    Fraud will be even higher when all of this kicks in.

    Why not talk about that.

    Taking peoples word on whether or not they can afford it and deserve subsidies! Seriously?????

    And lets talk about whether or not they will ask for and have to show an ID to qualify, if they do, then why dont they have to show it to vote.

    If not, then anyone can get care and not be rejected, and not have to pay. How much fraud will that cause????

    BOTTOM LINE, tort reform and open insurance borders is all that is needed to fix costs.