Rafael Fonseca, M.D.
Visiting Fellow in Healthcare Policy at the Goldwater Institute
Director of Healthcare Policy at the Goldwater Institute
Dr. Fonseca has disclosed consulting with Amgen, BMS, Celgene, Takeda, Bayer, Janssen, Novartis, Pharmacyclics, Sanofi, Merck, Juno, Kite, Aduro, OncoTracker, Oncopeptides, GSK, and AbbVie. He is a member of the scientific advisory boards for Adaptive Biotechnologies and OncoTracker.
What is your life worth? If you are suffering from life-threatening illness, how many dollars should be spent on your medications? Would you entrust an “expert panel” not involved in your care to make that decision? Shouldn’t your medical treatment be recommended by your own doctor?
Unfortunately, the growing trend is to base treatment decisions on arbitrary measures of people’s lives and a cost-benefit analysis that determines how much insurance companies should spend on drug treatments. President-elect Joe Biden has proposed to adopt the use of an “expert” review board to assess the value of prescription drug treatments, following a model used by healthcare systems in foreign countries that rations care, often based on a person’s age and/or physical or mental disability. Similarly, the Trump administration’s International Price Index (IPI) rule would peg Medicare Part B drug prices to a basket of foreign countries, some of which currently use the review board approach. Both of these proposals threaten to limit care to the most vulnerable and to supplant the doctor-patient relationship. That is why it’s imperative that lawmakers at both the federal and state levels resist the use of quality-adjusted life years (QALYs) in coverage and pricing determinations.
Here’s how treatment decisions could increasingly be made if foreign approaches to coverage decisions are widely adopted in the U.S.:
1) When a patient needs care, the treatment they receive isn’t determined by their doctor alone. Many times, the buck stops with insurers and pharmacy benefit managers who decide what medical treatments they will reimburse—and that determines what treatment a patient receives.
2) Some government programs, including Veterans Affairs, insurers, and pharmacy benefit managers, are already relying on recommendations made by an independent “expert” board called the Institute for Clinical and Economic Review (ICER), a nonprofit that assesses the value of drug treatments and tests—and, disturbingly, the value of a person’s life.
3) ICER conducts an economic analysis that uses an arbitrary value known as a quality-adjusted life year (QALY), a disconcerting measure of a person’s life that discounts the worth of the disabled, aged, and those facing chronic illness. Simply put, people who are sick, old, or disabled have a lower QALY value. That necessarily means that, according to ICER’s assessment, less money should be spent on their treatment because their lives are deemed to be worth less.
4) As a result of ICER’s analysis, insurance companies would have a justification to deny coverage for treatments on the basis of an “objective economic analysis.” But the cruel reality is that because some patients’ lives are deemed to have less value, this model is designed to reach the predetermined conclusion that treatments are too expensive. And the decision to withhold treatment is being made at the time the patient needs it the most. Under this scheme, the main goal isn’t to save or improve the quality of those lower-valued lives. The main goal is to ration care.
As some government programs, insurers, and pharmacy benefit managers are relying on ICER’s “value assessments to make reimbursement decisions,” lawmakers should know about and publicly discuss whether they are willing to allow the use of QALYs and similar approaches to ration care that are based on the assumption some lives are worth more than others.
In the midst of the global pandemic, these discussions have never been more important. ICER is already creating pricing models for COVID-19 treatments despite two facts: The U.S. Food and Drug Administration (FDA) has not yet approved vaccines or treatments for COVID-19, and the longer-term efficacy of “emergency use” treatments now available under the FDA are still unknown. Because the virus poses a far greater threat for the aged and those with underlying health issues, the ICER approach becomes all the more concerning if it limits the range of options available for patient care.
Now more than ever, Americans need a transparent, accountable system for getting the right treatment to the right patient and at the right time. Fortunately, there are important steps that lawmakers can take to move closer to this goal. These include adopting limits on the use of QALYs for coverage and reimbursement decisions in government programs, similar to those adopted as part of the Affordable Care Act (ACA), when Congress banned the use of QALYs in cost-effectiveness reviews and evaluations in the Medicare program, and by Oklahoma lawmakers in early 2020 as part of the state’s Nondiscrimination in Health Care Coverage Act., 
In order to move forward, it’s also important to understand how the misuse of QALYs threatens innovation, patient care, and preparations for future pandemics.
1. ICER’s Analysis Undervalues Treatments and Stands in the Way of Innovation
The extent of innovation in healthcare is astonishing. We have treatments and cures for diseases today that were not imaginable even a decade ago. These advancements don’t happen overnight: They are made possible because of trial and error, allowing for continuous improvement in treatments. Unfortunately, ICER’s shortsighted metrics prioritize short-term cost savings at the expense of long-term innovations that lead to dramatic advances in treatments and, in some cases, cures.
Take cancer treatments as an example. According to the American Cancer Society, cancer mortality dropped by 29% between 1991 and 2017. As treatments have improved, some cancers are now considered to be chronic conditions. The prospect of surviving a cancer diagnosis today is not luck, nor is it a coincidence. While cancer remains a leading cause of death, enormous progress has been made over the past few decades thanks to innovation in treatments. But new cancer treatments may never be discovered because ICER’s deadly analysis of the value of life effectively halts the iterative process of innovation in medicine.
Perhaps the greatest methodological shortcoming of ICER analyses is they fail to fully account for the value of innovation in their calculations. A recent study that examined advanced non-small-cell lung cancer showed that innovative treatments consistently improved patient outcomes. For example, 20 years ago, for every eight patients who were treated with chemotherapy, only one would benefit. Today, one out of every two patients treated with precision/targeted therapies benefits.
If one were to take a single treatment and attempt to evaluate its value, the calculation would risk undervaluing the treatment. That is because innovation doesn’t consist of one-shot treatments. Innovation is the culmination of many failures and some successes that build upon the greater scientific knowledge.
After all, think of your own smartphone. Even if you have the latest model, is this a new product? Or is it the result of many iterations that originated in the 1990s? Imagine if a board made determinations about how much a smartphone should cost and how it should function. In all likelihood, we wouldn’t have smartphones that take pictures, navigate the earth, display movies, or allow us to communicate via video during a pandemic.
The failure to value innovation further extends to ICER’s failure to use disease experts and to understand how rapidly medical innovation is occurring. A piece co-written by an author of this report, Dr. Rafael Fonseca, includes a critique of the ICER approach as it related to multiple myeloma:
Regarding myeloma, the conclusions reached by ICER’s evaluation are problematic and do not reflect a bona fide approach to understand best practices for the treatment of myeloma better. The ICER process was largely limited by the lack of myeloma experts in its panels, the lack of meaningful input by key stakeholders, the lack of consideration of biologic variability among myeloma cases, and the fact that by the time of this writing, its conclusions are already outdated given the rapid pace of clinical research in myeloma.
Medical innovation is continuously occurring, and many approved treatments improve patient outcomes over time. But knowing ahead of time which medicines will change the trajectory of a disease or illness is impossible to know, as is how quickly that might happen. That is why it’s not only inaccurate to use a QALY approach to make important treatment decisions; it’s harmful as it limits the availability of treatment options.
But no matter what methodology is being used to make important decisions that will affect patient access and care, it should be open to independent evaluation and scrutiny. Unfortunately, the ICER methodology is not always based on the strongest, most reliable data.
2. As Lives Hang in the Balance, ICER’s Method for Valuing Treatments Comes Up Short
Evaluating value to decide coverage and reimbursement decisions should not be controversial. But ICER’s process for determining what a treatment is worth is terribly flawed in multiple ways, including the resulting discrimination of the aged and disabled, as well as failures to account for how drugs are actually priced in the marketplace and the true value of treatments to individual patients at a time when they need it most.
The nature of drug pricing in the U.S. is complex. ICER evaluates the value of prescription drugs by the “list price,” which can inaccurately inflate the price of a given treatment. But there is no single price for drugs. It is conceivable that the various customers for drugs—pharmacy benefit managers, retail pharmacies, hospitals, etc.—will each pay a different price. In a public comment, Goldwater Institute associates explain the process:
Pharmaceutical products are priced through a multi-step process, which involves multiple discounts and rebates. A product moves from a manufacturer to a wholesaler, and then either to retailers (pharmacies), hospitals, physicians’ offices, or stand-alone clinics, where the consumer purchases that product. In some instances, insurers and pharmacy benefit managers (PBM) may further negotiate the product price after that. It is only after the product moves through all of these stages that the price a consumer pays is established. It is therefore conceivable that every single buyer pays a different price once all of the applicable discounts and rebates are counted.
These analyses also fail to account for future prices once the treatment moves from a branded drug to a generic. According to the FDA, generic drugs “are typically sold at substantial discounts, an estimated 80 to 85% less, compared with the price of the brand-name medicine.” A recent report by IQVIA, a leading healthcare data and analytics firm, found that the annual net per capita increase in drug spending was $44 from 2009 to 2018. This occurred as spending on specialty drugs almost doubled, pointing to an efficient use of generics in patient care.
Using the list price in evaluations, which is likely significantly higher than the actual price that buyers pay, as well as excluding price drops due to generics over time, will almost certainly create the appearance that the treatment is less cost-effective than it actually is.
Another important consideration in assessing the value of a treatment is in “cocktail” approaches to treating cancer, which are becoming increasingly important. Cancer patients today are often treated based on the genetic mutations of their cancers. This has led to the use of cancer cocktails, or a combination of multiple therapies, as treatment.
Cancer drugs also obtain FDA approval for additional treatment indications. Take Keytruda (pembrolizumab), for example. It is FDA-approved for 11 indications. The value of one particular drug for one particular indication is not predictive of additional, future ways a treatment might be used.
Evaluating a single cancer treatment would not only fail to evaluate the potential benefit of the treatment being used in a novel cocktail treatment, but it would ignore the important fact that patients are increasingly receiving personalized treatments— something the QALY is ill-suited to measure. That is because QALYs, which provide a one-size-fits-all value, fail to reflect the reality that today’s modern medicine is becoming increasingly personalized, offering enormous benefits to some patients.
3. QALYs Are Already Being Used—With Devastating Results
ICER’s analyses and the use of QALYs in healthcare are not theoretical threats. There is no uniform government policy restricting the use of QALYs in government healthcare program coverage or reimbursement determinations. The Department of Veterans Affairs already uses them to inform its prescription drug formulary, and the Trump administration’s IPI rule, if implemented, would rely on them because Medicare Part B drug prices would be pegged to other countries, some of which use QALYs. State Medicaid programs have also used them for reimbursement decisions. And according to a federal report by the National Council on Disability, “For many health insurers, use of QALYs or QALY-based valuations may instead be implicit, and part of an internal decision-making process over which there is little transparency or oversight.”
Today, they are used extensively in medicine, with devastating results. One need only look to the United Kingdom to understand the costs and consequences of this dangerous system.
Proponents of the U.K.’s single-payer health system will passionately defend its principles of universality and accessibility. But even the most ardent advocates would have a difficult time denying the substantial gap between the system’s principles and how it works in practice.
The QALY measurement was first pioneered in the U.K. in the 1980s. The U.K.’s National Institute for Health and Care Excellence (NICE) was established in 1999 and has continued to use QALYs to make value assessments for healthcare. The end result has been the rationing of care for those with serious illness, and cancer survival rates that generally lag behind countries of similar wealth.
For example, Tagrisso (osimertinib), which was approved by the FDA in April 2018 as a first line treatment for non-small-cell lung cancer, was rejected by NICE in January 2020 despite being the standard of care in 18 countries before obtaining approval in September 2020. Almost 2½ years later, cancer patients in the U.K. were finally able to access the treatment.
A 2016 study examining the availability of drug treatments for breast and prostate cancers published by Breast Cancer Now and Prostate Cancer U.K. concluded that the “current systems in the U.K. are not currently working for cancer patients—new and innovative cancer drugs are not being made available through the routine access route or are taking a very long time to become available.”
There is no doubt that the healthcare system in the U.S. has its own long list of shortcomings. But to observers in the United States, U.K. patients face significant delay or complete unavailability of needed treatments that are based on QALY-based value assessments. Too often, the tragic result is inferior or delayed care.
A QALY value assessment that assigns lower monetary values for the life years of the disabled, ill, and aged intends to ration care to these populations. In March 2020, NICE instructed doctors to score COVID-19 patients who had learning disabilities, autism, and other developmental delays as frail. In other words, these patients were most likely to be denied care should equipment or personnel shortages occur. NICE did reverse these instructions after being threatened with legal action.
In a report for the Massachusetts-based Pioneer Institute, William S. Smith, who is a Visiting Fellow in Life Sciences, details and discusses the dangers that QALY poses to the nation’s older adults. He explains, “Treatments that provide more ‘life years’ will be rated as ‘more effective’ under QALY, which superficially sounds commonsensical unless you realize that this standard will, by definition, be used to argue that drugs for senior citizens with shorter life expectancies will be rated lower than drugs for younger people.”
While there are many important and qualitative differences between the U.K.’s NICE and the U.S.-based ICER, both suffer from the same methodological flaws inherent in assigning arbitrary monetary values to patients’ lives. The threat that QALY-based value assessments pose to patient access and care is real.
What Lawmakers Should Do
American healthcare consumers are footing a larger portion of their healthcare bill, and there is enormous pressure to “do something” about “skyrocketing” drug costs. The reality is that ICER, which has made prescription drugs its main target to date, all but ignores the fact that drug spending lags overall healthcare spending growth. In fact, areas of healthcare spending that are outpacing both inflation and overall healthcare spending growth, such as hospital and healthcare professional spending, remain undiscussed. Adopting a system that uses QALYs to decide who gets care and whether care is provided at all is a perilous prescription.
The immediate danger includes the rationing of care to our nation’s most vulnerable, including older adults, those with mental disabilities, and the physically disabled. The less obvious danger is that widespread use of QALYs will decelerate the rapid innovation of needed healthcare treatments.
1) Lawmakers should resist misuse of QALYs in government healthcare programs and insist on robust and informed debate on the issue. There are myriad ethical factors, methodological and theoretical assumptions, and condition-specific considerations that should be understood when deliberating the use of QALYs in healthcare. These discussions should take place in public hearings and include input from patients, physicians, those involved in drug discovery, and other stakeholders.
2) Lawmakers should take affirmative steps to limit the use of QALYs in all government health insurance programs. Lawmakers at both the federal and state levels should build upon and expand the important steps that have been taken in Congress and in Oklahoma to limit the use of QALYs in coverage decisions for all government health insurance programs. As part of the ACA, Congress banned the use of QALYs or similar metrics in cost-effectiveness reviews and evaluations in the Medicare program, which is the federal healthcare program for the nation’s aged.
Lawmakers in Oklahoma took an important step to limit the use of QALYs in coverage decisions in early 2020 when it enacted HB 2587. The law makes it illegal for state agencies to adopt QALY or similar measures to determine coverage, reimbursement, or utilization management decisions:
An agency shall be prohibited from developing or employing a dollars-per-quality adjusted life year, or similar measure that discounts the value of a life because of an individual’s disability, including age or chronic illness, as a threshold to establish what type of health care is cost effective or recommended. An agency shall be prohibited from utilizing such adjusted life year, or similar measure, as a threshold to determine coverage, reimbursement, incentive programs or utilization management decisions, whether it comes from within the agency or from any third party.
3) Lawmakers should adopt ways to improve quality and reduce costs without rationing healthcare. Goals to improve quality and reduce costs, while seemingly incompatible, are actually being achieved through innovations in the areas of self‑care, minimally invasive procedures, and pharmaceuticals. Since hospital stays and nursing home care are enormously expensive, measures that reduce these costs will gain additional appeal. That is why it’s particularly important to allow the development and availability of new healthcare technologies to be determined by the market, not by bureaucratic government decision‑making.
QALYs pose an immediate danger to both the quality of care for our most vulnerable patients and to the future of treatment innovations. Americans want real health security based on healthcare access and affordability—not a stealthy scheme to ration care that also threatens to undermine the availability of the newest medical treatments. Meanwhile, medical providers want agency over their healthcare decisions so they have the most appropriate treatment options for their patients.
Allowing for the greatest flexibility in helping all citizens best meet their own healthcare needs rather than promoting government‑controlled healthcare should be the cornerstone of any healthcare reform effort. As conversations increasingly focus on healthcare reforms that model or expand foreign national healthcare programs that use QALYs to determine coverage, the importance of transparency in how these decisions are made will become increasingly important.
QALYs are a perilous prescription that not only undermine accountability, they move us further away from getting the right treatment, to the right patient, at the right time.
 Eric Saganowsky, “Biden Looks to Germany for Answers on How to Tackle High U.S. Drug Prices: Analyst,” Fierce Pharma, October 20, 2020, https://www.fiercepharma.com/pharma/biden-looks-to-germany-for-answers-how-to-tackle-high-u-s-drug-prices-analyst, and Biden-Harris Health Care, https://joebiden.com/healthcare/#.
 Centers for Medicare & Medicaid Services, International Pricing Index (IPI) Model, October 2018, https://innovation.cms.gov/innovation-models/ipi-model.
 National Council on Disability, “Quality-Adjusted Life Years and the Devaluation of Life with Disability: Part of the Bioethics and Disability Series,” November 6, 2019, https://ncd.gov/sites/default/files/NCD_Quality_Adjusted_Life_Report_508.pdf.
 Jennifer Hinkel, “Having Cancer Doesn’t Make Me Worth Less,” medium.com, April 21, 2016, https://medium.com/@jenniferhinkel/having-cancer-doesn-t-make-me-worth-less-2dab642928d9.
 National Council on Disability.
 ICER, “ICER Presents Alternative Pricing Models for Remdesivir as a Treatment for COVID-19,” news release, May 1, 2020, https://icer-review.org/announcements/alternative_pricing_models_for_remdesivir/.
 The Patient Protection and Affordable Care Act of 2010, Section 1182(e), https://www.congress.gov/111/plaws/publ148/PLAW-111publ148.pdf.
 Rebecca L. Siegel, Kimberly D. Miller, and Ahmedin Jemal, “Cancer Statistics, 2020,” CA: A Cancer Journal for Clinician 70, no. 1 (January/February 2020): 7-30, https://acsjournals.onlinelibrary.wiley.com/doi/epdf/10.3322/caac.21590.
 American Cancer Society, “Managing Cancer as a Chronic Illness,” https://www.cancer.org/treatment/survivorship-during-and-after-treatment/when-cancer-doesnt-go-away.html.
 Gokaraju K. Raju, Sean Khozin, Karthik Gurumurthi, Reuben Domike, and Janet Woodcock, “Patient-Centered Approach to Benefit-Risk Characterization Using Number Needed to Benefit and Number Needed to Harm: Advanced Non-Small-Cell Lung Cancer,” JCO Clinical Cancer Informatics 4 (August 27, 2020): 769-783, https://ascopubs.org/doi/pdf/10.1200/CCI.19.00103.
 Rafael Fonseca, et al., Cost vs. Value and the Price of Innovation in Cancer Care: Oral Anticancer Drugs in Multiple Myeloma, as a Case Study, Goldwater Institute, March 28, 2018, https://www.goldwaterinstitute.org/wp-content/uploads/2018/03/fonseca-healthcare-paper-final.pdf.
 National Council on Disability.
 Naomi Lopez, Timothy Sandefur, Jeffrey Singer, and Rafael Fonseca, public comment re: “Medicare and Medicaid Programs; Regulation to Require Drug Pricing Transparency, File Code CMS-4187-P,” December 17, 2018, https://www.goldwaterinstitute.org/wp-content/uploads/2019/10/Comment-on-Regulation-to-Require-Drug-Pricing-Transparency181217.pdf.
 U.S. Food and Drug Administration, “Generic Drugs: Questions & Answers,” June 1, 2018, https://www.fda.gov/drugs/questions-answers/generic-drugs-questions-answers.
 IQVIA Institute, “Medicine Use and Spending in the U.S.: A Review of 2018 and Outlook to 2023,” May 2019, https://www.iqvia.com/insights/the-iqvia-institute/reports/medicine-use-and-spending-in-the-us-a-review-of-2018-and-outlook-to-2023.
 The Mount Sinai Hospital/Mount Sinai School of Medicine, “Novel Drug Cocktails Strengthen Targeted Cancer Therapies While Lessening Side Effects,” news release, August 1, 2018, https://www.mountsinai.org/about/newsroom/2018/novel-drug-cocktails-strengthen-targeted-cancer-therapies-while-lessening-side-effects.
 FDA, “Highlights of Prescribing Information” for Keytruda (pembrolizumab), https://www.accessdata.fda.gov/drugsatfda_docs/label/2019/125514s040lbl.pdf.
 National Council on Disability, 48.
 Eleanor MacKillop and Sally Sheard, “Quantifying life: Understanding the History of Quality-Adjusted Life-Years (QALYs),” Social Science and Medicine 211 (July 2018): 359-366, https://reader.elsevier.com/reader/sd/pii/S0277953618303605?token=54FE319C7C7F96AE3B988E3CB8BDCD240D3F364493A01B34D99F45CDA788EC71F5EFC3293F42C788D1A4645ACA770289.
 Melina Arnold, et al., “Progress in Cancer Survival, Mortality, and Incidence in Seven High-Income Countries 1995-2014 (ICBP SURVMARK-2): A Population-Based Study,” The Lancet 20 (November 2019): 1493-1505.
 “UK’s NICE Backs Tagrisso for First-, Second-Line EGFR-Positive Lung Cancer,” Precision Oncology News, September 11, 2020, https://www.precisiononcologynews.com/cancer/uks-nice-backs-tagrisso-first-second-line-egfr-positive-lung-cancer#.X32FeGhKjIU.
 Breast Cancer Now and Prostate Cancer UK, “International Comparisons of Health Technology Assessment,” 2016, https://breastcancernow.org/sites/default/files/report_final_12_august.compressed_1.pdf.
 Shaun Lintern, “Coronavirus: U-Turn on Critical Care Advice for NHS Amid Fears Disabled People Will Be Denied Treatment,” The Independent, March 25, 2020, https://www.independent.co.uk/news/health/coronavirus-nhs-treatment-disabled-autism-nice-covid-19-a9423441.html.
 William S. Smith, “Quality Adjusted Life Years (QALY): The Threat to Older Americans,” Pioneer Health Policy Brief, March 2020, https://pioneerinstitute.org/wp-content/uploads/dlm_uploads/QALYcovid-PB.pdf.
 For a detailed comparison between NICE and ICER, see Praveen Thokala, Josh J. Carlson, and Mike Drummond, “HTA’d in the USA: A Comparison of ICER in the United States with NICE in England and Wales,” Journal of Managed Care and Specialty Pharmacy 26, no. 9 (September 2020): 1162-1170.
 Rafael Fonseca and Jennifer Hinkel, “Value and Cost of Myeloma Therapy—We Can Afford It,” American Society of Clinical Oncology Educational Book 38 (May 23, 2018): 647-655, https://ascopubs.org/doi/pdf/10.1200/EDBK_200869.
 See Pioneer Institute, “ICER: Key Questions for Policy Makers to Consider about Health Care Treatment Value,” https://pioneerinstitute.org/wp-content/uploads/KeyQuestionsHandout.pdf, for a detailed list of questions that should be discussed and considered.
 The Patient Protection and Affordable Care Act of 2010, Section 1182(e), https://www.congress.gov/111/plaws/publ148/PLAW-111publ148.pdf.
 State of Oklahoma.
 State of Oklahoma.