The following is a summary of research published in the Australian Health Review. For more information please visit the full article published:  Edney L, Afzali H, Karnon J. 2018. Are the benefits of new health services greater than their opportunity costs?, Australian Health Review, vol. 43(5), p. 508-510.

Authors: Laura Edney1, and Hossein Afzali1, Jonathan Karnon1

  1. College of Medicine and Public Health, Flinders University, Adelaide, South Australia.

Economic evaluation is used by national health technology assessment committees to evaluate the expected health gains (usually measured in Quality-Adjusted Life-Years (QALYs)) from new health technologies and services against any additional costs, with the output expressed as the incremental cost per QALY gained. There are no policy guidelines in Australia to indicate whether an estimated incremental cost per QALY gained represents good value for money.

If additional funds are not allocated to healthcare, then any investment in new health technologies and services must be funded by a reduction to existing services. The additional cost of new health technologies and services are justified if the QALY gains are valued more highly than the QALY losses due to the reduction to existing services, that is, if the QALYs gains are valued more highly than the opportunity costs.

Often, decisions to invest in new treatments are made without knowledge of the impact of such finding decisions on existing services. To inform such funding decisions, in collaboration with researchers from the University of York, we developed a methodology to estimate the expected additional health spending required to gain an additional QALY for the Australian health system, using national data on health spending, need for health care, morbidity and mortality.

The study reported a central estimate that one additional QALY is gained for every additional $28,033 of government spending on health care, representing the first empirical estimate of the opportunity cost of funding decisions for the Australian health system. This means that a new health service that generates a QALY for more than $28,033 is expected to generate fewer QALYs than would be expected if the service was not funded and the resources required to fund it were allocated to fund other forms of health care instead. For example, a new drug with an incremental cost of $42,000 per QALY gained will, on average, result in a loss of 1.5 QALYs elsewhere for another group of patients whose treatment must be reduced. The drug may still be funded if the decision makers consider that 50% greater value is placed on gains for the relevant patient group than on health gains for the unspecified population whose treatment is reduced as a result. In this way the estimated value of $28,033 per QALY can be used as a decision aid alongside other aspects of value.

National and local-level policy makers should consider whether the health benefits of new health technologies and services are greater than the forgone health benefits. In the absence of being able to identify the patient groups for whom benefits will be forgone, this study provides an estimate of the expected forgone health benefits that provides an empirical basis for considering the opportunity costs of funding decisions.