Next Lesson - Evidence-Based Practice
Core
It is important to set priorities for allocation of healthcare resources because demand for healthcare outstrips the available supply and resources. This raises difficult and complex ethical questions on who ‘deserves’ which resources.
In England, NICE recommends treatments for NHS use partly by using quality-adjusted life years (QALYs), a measure that combines length of life with quality of life:
1 year in perfect (100%) health = 1 QALY
10 years at 10% health = 1 QALY
NICE uses the cost per QALY to judge value for money, although the cost per QALY is not the only factor in its decisions. A lower cost per QALY means better value for money:
Extra cost = cost of the new treatment minus cost of the current treatment
Extra QALYs = QALYs gained with the new treatment minus QALYs gained with the current treatment
Extra cost per extra QALY gained = extra cost / extra QALYs (the incremental cost-effectiveness ratio, or ICER)
NICE - National Institute for Health and Care Excellence
In England, NICE provides guidance on whether certain drugs should be funded on the NHS. This supports consistent access to these drugs across England. However, its decisions can be controversial. If a potentially lifesaving drug is not funded by the NHS, patients who want it may have to pay for it themselves. If NICE recommends a drug in a technology appraisal (NICE’s formal review of whether a medicine or other treatment should be used in the NHS), the NHS has to make it available, usually within 3 months of the guidance being published. Local NHS organisations may therefore have to take budget away from other services to provide it.
NICE’s use of QALYs is a form of explicit reasoning: the method is set out in advance and the reasons for each decision can be examined.
Since April 2026, NICE’s standard technology-appraisal cost-effectiveness range has been £25,000–£35,000 per additional QALY gained. The cost per additional QALY compares the extra NHS cost with the extra health benefit over the relevant alternative (usually the treatment the NHS already uses). The range informs the judgement of the appraisal committee (the independent NICE panel that decides whether to recommend a treatment); it does not guarantee a recommendation or automatic funding. As the cost per QALY rises within the range, the committee looks harder at the case for recommending the treatment. The committee specifically considers how certain the estimate is, benefits that the analysis does not capture, other factors outside health, and the effect on health inequalities (avoidable differences in health between groups of people). Above £35,000 per additional QALY, a stronger case is needed to support a recommendation. Different methods apply to highly specialised technologies (treatments for very rare conditions).
There are two main styles of reasoning when discussing resource allocation:
Explicit Reasoning - involves predetermined rules of entitlement and transparency.
- Advantages of explicit reasoning:
- Debatable and accountable, meaning decisions can easily be questioned.
- Decisions are more likely to be based on evidence, because the people who draw up the guidelines can be held accountable.
- Disadvantages of explicit reasoning:
- Rigid application of general criteria may overlook individual circumstances, preferences and differences in likely benefit or harm. Explicit reasoning can include these differences; it does not require identical outcomes for everyone.
- Patients can feel distress if they perceive that they have been judged as ‘undeserving’ of treatment.
Implicit Reasoning - involves making decisions without being clear about why those choices have been made.
- Advantages of implicit reasoning:
- Quicker because the decision makers do not spend time justifying their choices.
- Disadvantages of implicit reasoning:
- Can lead to inequality, favouritism, discrimination and abuse due to its closed nature.
- Can be based on ‘social deservingness’ (judging whether people deserve care because of who they are or how they live, rather than their need).
- Less accountable and less egalitarian (less likely to treat people equally).
Key Terms for Health Economics
- Scarcity - resources are limited so prioritisation is inevitable.
- Technical Efficiency - the ability to get the most out of limited resources.
- Equity - the extent to which the distribution of resources is fair.
- Effectiveness - the ability of the intervention to produce the desired effect.
- Utility - the value that an individual places on their health state.
- Opportunity Cost - the benefit that is lost by choosing one option instead of the next best alternative. In healthcare, money spent on one treatment cannot be spent on another, so the opportunity cost is the health benefit that the next best treatment would have given. For example, you have enough money to buy either a chocolate bar or a biscuit. If you buy the biscuit, you give up the chocolate bar, so the chocolate bar is the opportunity cost.
- Allocative Efficiency - distributing resources to meet as many needs as possible.
How to Compare Costs and Benefits
- Cost Minimisation Analysis - all outcomes are assumed to be equivalent and focus is only on the inputs (interventions to achieve the outcome of interest). The cheapest input is chosen. In practice it is used rarely, because it is rare for two interventions to give exactly the same benefits.
- Cost Effectiveness Analysis - compares interventions which have a common outcome. Compared in terms of cost per unit outcome.
- Cost Benefit Analysis - all inputs and outputs are put in the same monetary terms (for example, pounds), with inputs counted as ‘costs’ and outputs as ‘benefits’. This includes intangible benefits (benefits that are hard to measure, such as less pain or peace of mind). The option with the best balance of benefits against costs, that is, the biggest net gain or ‘profit’ (benefits minus costs), is chosen. This method is limited by the difficulty of applying monetary values to intangible benefits.
- Cost Utility Analysis - health outcomes, gained or lost, are measured in QALYs, which count both the length and the quality of life. The result is given as cost per QALY.
Diagram - How to decide which type of analysis should be chosen in each situation
SimpleMed original by Dr. Maddie Swannack
Edited by: Dr. Ben Appleby
Reviewed by: Dr. Thomas Burnell and Dr. Marcus Judge
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