Dr Patricia Danzon: Cost Effective Doesn't Mean Affordable

There are differences between cost effectiveness and affordability that people don't always understand. A drug may be cost effective but still not fall within the budget, explained Patricia Danzon, PhD, the Celia Moh Professor at The Wharton School, University of Pennsylvania.

Transcript (slightly modified)

How do cost effectiveness and affordability differ in ways people might not understand?

Cost effectiveness is normally measured as the cost per unit of health gain, like cost per quality-adjusted life years (QALY), so it is a ratio. The inverse of that ratio is a measure of value for money—health gain for a dollar spent. There is sometimes the use of cost effectiveness to compare that to some notion of what is a reasonable amount to spend to buy a life year.

In the US, we use numbers like $100,000 per QALY $150,000 per QALY; in the UK, they use £25,000 per QALY. Sometimes when somebody says a drug is cost effective, what they mean is that at that price, it comes within that threshold. So, the cost per QALY gained, given the cost at the price, is within that reasonable threshold.

Now, you can have a new product that meets that cost effectiveness threshold, but the total cost of paying for all of the patients who might be eligible, breaks the budget. Meaning that the payer went over on the budget and that gives rise to an affordability question. Given that the drug meets the cost effectiveness threshold—can the payer afford to pay for it? The poster child for that is Sovaldi hepatitis C drugs, where both the price was high and the volume was high. So, the payers encountered the question of: can we afford to pay for everybody, for whom the drug is cost effective, and still come within budget?