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business newsWhat "QALY," "ICER" Mean to Health Care Companies and Investors
Both terms are part of pharmacoeconomics -- the study of the economics of health care, drugs -- and are important to understand.
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Pharmacoeconomics is the study of the economics of health care, specifically the economics of drugs. This rapidly growing new field attempts to turn the benefits of a drug, the side effects of the drug, and the cost of a drug into one neat number. Pharmacoeconomics is used by drug developers to make cost/benefit decisions that affect R&D spending as well as to determine price for a newly approved drug. Insurers and even doctors will make decisions about what drugs to use or order of use in competing drugs based upon pharmacoeconomics.
Cost-based treatment decisions have been happening in the US for as long as the field has existed. This predates recently passed health-care reform. Pharmacoeconomics was given no new role in the recent health-care reforms, so it’s okay to relax the partisan political hackles. This article is exposition, not oratory.
The Quality Adjusted Life Year (QALY, pronounced “qually” rhyming with “Wally”) is a math-based attempt to quantify a drug’s benefit over a patient’s lifetime. This approach is used across pharma to set prices and do competitive analyses. Where it is most famous is in the UK where decisions about what drugs are covered by their health-care system are made with the help of QALY metrics.
Here is a good definition of QALY from a UK source (emphasis theirs):
A quality-adjusted life-year (QALY) takes into account both the quantity and quality of life generated by health care interventions. It is the arithmetic product of life expectancy and a measure of the quality of the remaining life-years.
Every once in a while, I see people who ought to know better making an obviously incorrect QALY calculation. The most egregious of these errors is annualizing a drug’s median benefit, multiplying it by its cost, and calling the result “QALY.” I have no idea what such a calculation is called, but it isn’t a QALY. Let me illustrate with an example:
Let’s say a drug costs $50,000 for a course of treatment. That drug has a median survival benefit of four months. The mistake some people make is simply annualizing the median benefit and multiplying it by the cost. In this example, that erroneous approach would produce a figure of $150,000. This is not a QALY, it’s some other animal.
(If you want to try to compare costs only using median survival, this can be done. A good example of this approach is in an article I wrote previously on the cost of Dendreon’s (DNDN) Provenge, entitled Dendreon's Provenge Costs the Same as Chemotherapy.
QALY is a sophisticated measure. It looks at the benefit for a drug across all patients’ lifetimes, not just the incremental benefit received by a single median patient. It accounts for the guy who lived three years on treatment and the woman who lived three months. In fact, QALY has little or nothing to do with median survival or any other median benefit.
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