What is the economic value of a life year? An international comparison

In Germany, the decision whether or not to add a new medical technology to the catalogue of services covered by statutory health insurance (SHI) is normally based only on a systematic evaluation of its clinical benefits. However, numerous health economists as well as the German Health Economics Association believe that this practice should be changed and replaced by conducting an economic cost-benefit analysis.

For example, in order to set limits in the pricing of new drugs, a reference value is required. In international practice, benchmarks or thresholds for cost effectiveness are commonly used for this purpose. Ideally, setting these benchmarks should be informed by the economic value of a statistical life year (VSLY).

Health economists led by Michael Schlander at the German Cancer Research Center (Deutsches Krebsforschungszentrum, DKFZ) in Heidelberg share the view that, for ethical and social reasons, there can be no universal standard value of a statistical life year which would be the same for all conceivable situations. Nevertheless, they think that in view of the conventional evaluation methodology established in many countries, it should be useful to have an anchor value reflecting the observed and measurable preferences of the populations concerned.

But what could be the "right" value of a (statistical) life year – and does it differ between jurisdictions? There are established economic methods** to determine the willingness to pay for measures that prolong life. Schlander and his team now present a large-scale analysis of the pertinent economic literature in Asia, Europe and North America. They evaluated all 120 economic studies on willingness to pay that have been published over the past two decades (1995 – 2015) and that report estimates which have been calculated using an empirical method.

From these studies, the investigators deduced an international median value 164,409 Euros. As expected, there are substantial variations among the individual regions of the world. In Asia, the value was 43,000 Euros, in Europe – 158,448 Euros, in Germany – 173,868 Euros, and in North America it reached 271,179 Euros.

The values for the individual countries were converted into euros based on purchasing power parities. As the pure numerical values are not comparable, Schlander and colleagues converted them in relation to the respective gross domestic product (GDP) per capita. This standardization also revealed significant variations among the world regions: While in Asia and Europe, the willingness to pay for a life year gained was almost the same at 5.1 and 5.2 times GDP/capita, citizens of the USA and Canada were prepared to invest 6.9 times GDP/capita for a life year gained.

The values obtained in this way are a multiple of the standard values currently used in health economics: In the United Kingdom, for example, the VSLY regularly applied is no more than 20,000 to 30,000 British Pounds, and a much-cited recommendation by the World Health Organization (WHO) is 1-3 times GDP/capita.

"We have no compelling explanation why North Americans are prepared to pay more for a life year gained than the rest of the world," says Schlander. However, according to Schlander, it is known from international comparative studies that acceptance for higher health costs increases disproportionately in countries with higher available incomes.

Now, what is the actual relevance of calculating the VSLY for decision-making in health care? "Ultimately, many health economists say that the incremental net cost of a medical intervention which yields one more life year for a patient must not exceed the willingness to pay for one life year gained," said Schlander. To sum up, he added: "Even taking into account the numerous limitations of methods and the large variation of study results, our study strongly suggests that the thresholds currently used to determine cost effectiveness of medical interventions are considerably lower than the VSLY. Our study offers insights that should be taken into account by policy makers when setting such thresholds or benchmarks. At present, this pertains particularly to countries that evaluate medical treatments based on this logic."

*Michael Schlander, Oliver Schwarz, Diego Hernández, Ramon Schaefer: The Search for a Cost Effectiveness Standard: 1-3 Times GDP/Capita? Scientific Presentation, HTAi 2018 Annual Meeting, Vancouver / BC, Canada, June 1-5, 2018; www.htai2018.org

**Direct and indirect measurement of willingness to pay

Economists use two different approaches to measure willingness to pay. Studies using more sophisticated methods are based on questioning people how much they are willing to pay for a measure that reduces their mortality risk, such as acquiring an airbag for their car. This, of course, only works if the reduction in mortality risk can be exactly quantified. The other approach is based on indirect methods that derive willingness to pay from observed preferences. Economists examine, for example, how much higher wages have to be for people to take a job that involves more risks.

From the willingness to pay for "a statistical life", Schlander and colleagues derived the value of a statistical life year based on the age of study participants and mortality tables of the respective countries without explicitly taking account of quality of life.

These methods have a number of specific limitations. For example, wage compensation for increased risks implies that a worker must be completely informed about the risks, have unrestricted mobility, and the two jobs must be rated as identical except for the difference in risks. This means that an idealized situation is presumed. Therefore, for these calculations it is all the more important to consider only studies based on very sophisticated methods.