Researchers propose new standard for value of life

The $50,000 threshhold for paying medical costs should be raised to $129,000, they say

Credit: Steve Fisch Photography

Glenn Chertow, MD, an expert in the cost-effectiveness of dialysis, worked with faculty at the Graduate School of Business to analyze how the costs of dialysis compare with medical benefits. He is shown here in a dialysis clinic at Stanford Hospital.

As science finds more effective ways of treating diseases and extending life, the cost of care is rising substantially. How much are we - and should we be - willing to pay, as a society, for improving health outcomes?

A new study shows that $50,000 - the average figure used internationally as a 'threshold' for making medical allocation decisions - is low, according to researchers at Stanford and the University of Pennsylvania. A more realistic figure is probably a minimum of $129,000, which represents what it would cost to give a person an additional 'quality-of-life-adjusted' year of life.

To analyze costs, the researchers used a model of kidney dialysis - an expensive procedure covered under Medicare that has typically been used as a benchmark for evaluating the cost-effectiveness of all new technologies internationally.

'Without dialysis, hundreds of thousands of persons in the U.S. would die each year due to complications of kidney failure,' said Glenn Chertow, MD, professor of nephrology at the medical school, who worked with Stefanos Zenios, PhD, professor of operations, information and technology at Stanford's Graduate School of Business. But the decision to pay for dialysis is not always simple, depending on the medical circumstances for each patient.

Moreover, the researchers argue, making decisions on whether insurance should cover medical interventions based on their cost-effectiveness leads to profound ethical dilemmas.

Outside the United States, countries such as the United Kingdom and Australia that offer national health care have developed explicit systems to determine the overall cost-effectiveness of a new medical intervention. This includes calculating the incremental cost of a treatment against the incremental improvements in the patient's health, and comparing that figure to a threshold number.

'As long as the ratio is below that threshold number, a given treatment is accepted as part of the health-care offerings; otherwise, it's rejected,' said Zenios, the Charles A. Holloway Professor in the Graduate School of Business. Zenios and Chertow were co-authors of the paper, to be published in a forthcoming issue of the journal Value in Health, with the first author, Christopher Lee of the Wharton School of the University of Pennsylvania.

The Medicare system - the national health insurance system for those over age 65 - has thus far eschewed making allocation decisions based on such bald numerical calculations. 'Big decisions typically are made on the basis that the treatment is 'medically necessary and appropriate,' but that concept is vague,' said Zenios. Debate on the cost of the new Medicare prescription-drug benefit program suggests that making coverage based on clinical evidence alone without attention to cost may not be feasible in the long term.

The researchers wanted to know: If Medicare were to begin accepting or rejecting coverage of treatments made available by new technologies based on cost, what might a realistic threshold look like? To make such a determination, they ran computer models using data from more than a half-million patients who had undergone kidney dialysis. 'We found that starting dialysis earlier than current practice allowed by Medicare would be more expensive, but would likely be associated with longer life and fewer medical complications,' Zenios said.

In such a case, the average incremental cost was approximately $129,000 for a 'quality-adjusted' year of life. 'This means that if Medicare paid an additional $129,000 to treat a group of patients, on average, that group would get a total of one more quality-adjusted life year,' Zenios said. Based on surveys of patients with kidney failure, one 'quality of life' year is deemed the equivalent of about two years of life under dialysis.

Medicare could consider using the $129,000 figure as a benchmark to determine whether to cover treatments using new technologies. 'Say a new type of treatment for cancer comes along,' said Zenios. 'If the incremental cost of that new technology was more than $129,000 for a quality-of-life adjusted year, then the recommendation would be that Medicare not cover that new technology.'

But the research comes with warnings. 'The first caveat is that the dialysis threshold may not be an appropriate benchmark for all technologies,' said Zenios. 'This is something that should be debated.'

The second caveat, Zenios said, is that Medicare would quickly be faced with a host of ethical concerns if it started applying the $129,000 threshold differentially to selective groups. For the sickest patients, the researchers determined that the average cost of an additional quality-of-life year was much higher: $488,000. 'Applying the $129,000 threshold in a very sharp way for specific groups and individuals would mean that the sickest subgroups of patients would be denied access to expensive treatments such as dialysis.'

For some policy makers, such a decision might be tempting, given that the sickest benefit the least from dialysis, and if the threshold were raised to even half that, or $240,000 per quality-of-life year, 90 percent of patients could be treated.

'Dialysis is a life-sustaining therapy,' Chertow said. 'While kidney transplantation is usually preferable, waiting times for deceased donor organs are often longer than six years.' He added, 'However, it is difficult to justify the burden and expense of dialysis when persons have other serious health conditions, for example, advanced dementia or cancer. In these settings, dialysis is unlikely to provide any meaningful benefit.'

The issue of treating patients differently depending on their health poses ethical questions. 'We argue that any thresholds should be applied in keeping with the principles of social justice established by the American political philosopher John Rawls, who held that resources should be allocated to benefit everyone, including the most vulnerable individuals,' said Zenios. According to this philosophy, the authors maintain that the average figure - $129,000 - could be used as a global figure for the purposes of accepting or rejecting an entire technology for coverage, but not for accepting or rejecting specific subgroups once that technology has been approved.

How much money we should allocate to helping the sick, sicker and sickest will only continue to be debated ever more vociferously as newer, costlier technologies continue to emerge. 'We need to be conscious about the social and ethical implications of any numerical figures arrived at by this or any other study,' said Zenios.

This article was written by the staff of the News and Publications Office of the Graduate School of Business.