## Today's QALY homework

On the show Saturday I assigned my students some homework, to learn about QALY, a "quality-adjusted-life-year."

In Great Britain, for example, the National Institute for Health and Clinical Excellence (NICE) uses "cost per QALY" to determine if patients should receive expensive treatment or drugs. It was with this formula that NICE calculated the precise amount six months of an average Brit's life is worth. As the Wall Street Journal reports, "NICE currently holds that, except in unusual cases, Britain cannot afford to spend more than about \$22,000 to extend a life by six months." In other words, patients whose country has guaranteed them "free" health care are in some cases refused treatment because the incremental cost per additional QALY is too high.
Now, what are those treatments worth? From the British Office of Health Economics, a table from a 1993 article:

Treatment �s Cost/QALY
Cholesterol testing and diet therapy 280
Advice from GP to stop smoking 350
Heart pacemaker implantation 1,420
Hip replacement 1,520
Coronary artery bypass graft 2,700
Kidney transplant 6,080
Breast cancer treatment 7,460
Heart transplant 10,110
Continuous ambulatory peritoneal dialysis 25,630
Neurosurgery for brain tumour 139,040

One British pound is about \$1.60. So it's barely possible for someone to get dialysis, and if they have other health complications that reduce the value of a year of life (the QA part of QALY), buh-bye! And brain tumors? Fuhgeddaboudit!

Table source: http://www.oheschools.org/ohech5pg4.html

Let's back up and think a minute. We all make decisions as if we were rational maximizers. We don't always succeed, we make mistakes. And more often than not, what we decide to maximize isn't obvious to other people. But it's our choice. Rational maximization means doing a cost-benefit analysis, and tweaking things so that at the margin the next step of any action you take would increase costs more than it would increase benefits. That doesn't happen, as Peter Boettke points out here, because we think that's the best description of the human brain. It happens because that rule will maximize profits, and as competition in the marketplace drives down price only those who use the rule remain able to operate.

But whose benefits and whose costs? It has to be that person who bears them, or else the information about them is lost. And by having the person who bears the cost receive the benefit, and having them make the decisions, it turns out we get as a by-product prices that make us aware of what our decisions cost others.

When anyone else makes the decision -- let it be a neighbor, your rabbi, or a committee; it need not carry the name 'government' -- they lack the knowledge needed to solve the problem. "If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place," wrote Friedrich Hayek in The Use of Knowledge in Society, "it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them." That's unlikely to be anybody sitting in Washington DC, when it comes to the care of my family in Minnesota.

Cindy at Ladies Logic has done her homework, you see:
Imagine if this kind of calculus would have been applied to Ludvig Von Beethoven or Stephen Hawkings or even Christopher Reeves (post paralysis). How were any of their lives any less full or meaningful than anyone elses? Remember that they (like people with severe Down Syndrome, people with advanced MS or CF, people who are old and arthritic, people paralyzed due to car accidents) would be considered people who are "irreversibly prevented from being or becoming participating citizens". What would their lives be worth under ObamaCare.
An 'A' for Cindy. Costs are determined by those who bear them. They are necessarily subjective. Who will decide what the cost of health care are? That person will have a different view of cost than say Dana Reeve. Who will decide the benefit? Do we want government to decide somehow a kidney transplant is good for Beethoven because, well, he's Beethoven, while your neighbor is just a truck driver or a lawyer, and ergo expendable?

Now of course that last line is fearmongering. It's hyperbole. But it doesn't seem to get through to people that any rationing system means someone is working a decision rule. And the models that this Administration uses imply that someone other than members of the sicks' families will use cost benefit analysis without any ability to know what the costs and benefits are. That at its base is a moral question. If you were on an island with 10,000 people and a virulent strain of flu broke out, and on that island there were 1,000 vaccines against the flu, do you want QALY to determine the distribution of vaccines? The answer would differ between young and old, between the hale and sickly. Who should have the right to decide who gets vaccine?

Gary Gross also gets it, regarding my "costs are always costs to someone" point:
... if Congress passed a law that set the maximum price of a gallon of gas at \$1 a gallon ... the maximum price of a gallon of gas would drop to \$1 a gallon but that wouldn�t mean that the cost of a gallon of gas would drop a penny.
The government can reduce the price of health care to ITS budget, but only by the use of force to compel doctors, pharmaceutical companies, hospitals, etc., to accept more of the cost through lower payments. Things don't have a cost; actions do.

Tomorrow, more tales of bad and good uses of cost-benefit analysis.