Ceri Phillips

Acting Head of College of Human and Health Sciences at Swansea University

Author of: What is cost-effectiveness? and What is a QALY?

Ceri is currently Acting Head of College of Human and Health Sciences at Swansea University. He is also Professor of Health Economics at Swansea Centre for Health Economics. He is a non-executive member of Abertawe Bro Morgannwg Health Board and a member of the Bevan Commission. He was formerly a member of the All Wales Medicines Strategy Group and has been a member of NICE Programme Development Groups on a range of public health issues.

He has undertaken commissioned work on the evaluation of programmes and interventions for a range of organisations, including government departments, health and social care authorities and pharmaceutical companies.

Summary: What is cost-effectiveness?

  • Cost-effectiveness analysis (CEA) compares the costs and health effects of an intervention to assess the extent to which it can be regarded as providing value for money.
  • In a jurisdiction where economic evaluation of healthcare interventions plays a formal or informal role in determining where to allocate limited healthcare resources, CEA indicates the relative value of one intervention compared with another.
  • Cost-effectiveness ratios should be related to the size of relevant budgets to determine the most cost-effective strategies.
  • Cost-utility analysis – a type of CEA – is the approach required in the UK by the National Institute for Health and Care Excellence (NICE), the Scottish Medicines Consortium (SMC) and the All Wales Medicines Strategy Group (AWMSG) to determine the relative cost-effectiveness of therapeutic interventions. Outside of the UK, other assessment agencies exist – for example, the Swedish Dental and Pharmaceutical Benefits Agency.
  • All CEAs should be subjected to sensitivity analysis, which should be included as part of the reporting of the findings.
  • Cost-effectiveness is only one of a number of criteria that should be employed in determining whether interventions are made available. Issues of equity, needs and priorities, for example, should also form part of the decision-making process.
  • Care should be exercised in interpreting cost-effectiveness studies to ensure that all underlying assumptions have been made explicit and the context and perspective of the study are adequately reported.

Summary: What is a QALY?

  • A quality-adjusted life-year (QALY) takes into account both the quantity and quality of life of a health state or that generated by healthcare interventions. It is the arithmetic product of life expectancy and a measure of the quality of the remaining life-years.
  • A QALY calculation places a weight on time in different health states. A year of perfect health is worth 1 and a year of less than perfect health is worth less than 1. Death is considered to be equivalent to 0; however, some health states may be considered worse than death and have negative scores.
  • QALYs provide a common currency to assess the extent of the benefits gained when comparing interventions in terms of health-related quality of life (HRQoL) and survival for the patient. Determining the difference in HRQoL combined with survival, and dividing this by the difference in the costs of providing the interventions, gives a cost-utility ratio; these indicate the additional costs required to generate a year of perfect health (one QALY). Comparisons can be made between interventions and priorities can be informed by understanding which interventions have a low cost per QALY and which have a high cost per QALY.
  • QALYs are far from perfect as a measure of outcome, with a number of technical and methodological shortcomings. Nevertheless, the use of QALYs in resource allocation decisions does mean that choices between patient groups competing for medical care are made explicit and commissioners are given an insight into the likely benefits from investing in differing technologies, services and therapies.