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A principled approach to non-discrimination in cost-effectiveness

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  • Darius N. Lakdawalla

    (University of Southern California)

  • Jason N. Doctor

    (University of Southern California)

Abstract

The US Inflation Reduction Act (IRA) prohibits the Centers for Medicare and Medicaid Services (CMS) from using standard quality-adjusted life-years or other value assessment methods that discriminate against the aged, terminally ill, or disabled when setting maximum fair prices for prescription drugs. This policy has reignited interest in methods for assessing value without discrimination. Equal value of life-years gained (EVL), healthy years in total (HYT), and Generalized Risk-Adjusted Cost-Effectiveness (GRACE) have emerged as proposals. Neither EVL nor HYT rests on well-articulated microeconomic foundations. We show that they produce decisions that are inconsistent over time in a variety of ways, including: (1) failure to support additivity and indirect comparison in cases where the standard-of-care therapy changes over time; (2) strictly negative value of survival gains that accrue from a new, better standard-of-care, particularly for the disabled themselves; (3) unbounded average value of survival gains; and (4) non-convex survival preferences. We propose an alternative method that relies on GRACE and its microeconomic foundations.

Suggested Citation

  • Darius N. Lakdawalla & Jason N. Doctor, 2024. "A principled approach to non-discrimination in cost-effectiveness," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 25(8), pages 1393-1416, November.
    • Handle: RePEc:spr:eujhec:v:25:y:2024:i:8:d:10.1007_s10198-023-01659-7
    DOI: 10.1007/s10198-023-01659-7
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    References listed on IDEAS

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    1. Marc Fleurbaey & Grégory Ponthière, 2019. "The Value of a Life-Year and the Intuition of Universality," Working Papers halshs-02393392, HAL.
    2. Bleichrodt, Han & Quiggin, John, 1999. "Life-cycle preferences over consumption and health: when is cost-effectiveness analysis equivalent to cost-benefit analysis?," Journal of Health Economics, Elsevier, vol. 18(6), pages 681-708, December.
    3. Mulligan, Karen & Baid, Drishti & Doctor, Jason N. & Phelps, Charles E. & Lakdawalla, Darius N., 2024. "Risk preferences over health: Empirical estimates and implications for medical decision-making," Journal of Health Economics, Elsevier, vol. 94(C).
    4. Erik Nord & Rune Johansen, 2015. "Transforming EQ-5D utilities for use in cost–value analysis of health programs," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(3), pages 313-328, April.
    5. Milton C. Weinstein, 1986. "Challenges for Cost-effectiveness Research," Medical Decision Making, , vol. 6(4), pages 194-198, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cost-effectiveness; Equity; Equal value of life-years gained; Health years in total; Generalized risk-adjusted cost-effectiveness;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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