Question

Consider two treatments for lung cancer: (1) radiation and chemotherapy and (2) immunotherapy. Treatment 1 costs $30,000. Treatment 2 costs $75,000.   With treatment 1, there is a 75% chance the patient will be alive in year 1 and a 50% chance in year 2, but the patient will die in year 3.   The quality of life is poor with treatment 1, 50% of full health in both years. With treatment 2, there is 50% chance of being alive in year 1 and a 40% chance of being alive in year 2, and a 30% chance of being alive in year 3 and the patient will be dead in year 4. However, the quality of life is much better: 90% of full health in years 1, 2, and 3. The discount rate is 5%.

a) How many QALY’s will each treatment yield?

b) Use the given costs and your answer to part a) to calculate the Incremental Cost Effectiveness Ratio (ICER) for the two treatments.

c) Based on what you know about the value of statistical life (VSL), does the more expensive treatment seem reasonably cost-effective? Explain.

Answer 1

A) As Treatment 1 gives 50% QALY in year 1 with 75% survival chance and 50% QALY in year 2 with 50% survival chance, with death in year 3, so we can calculate the QALY given by treatment 1 as:

QALY yielded in year 1 by treatment 1=0.75*0.5=0.375 QALY

QALY yielded in year 2 by treatment 1=0.5*0.5=0.25 QALY

QALY yielded in year 3 by treatment 1=0*0=0 QALY

Hence the total QALY yielded by Treatment 1=(0.375+0.25)QALY=0.625 QALY

Similarly for treatment 2, we have:

QALY yielded in year 1=0.5*0.9=0.45 QALY

QALY yielded in year 2=0.4*0.9=0.36 QALY

QALY yielded in year 3=0.3*0.9=0.27 QALY

Hence the total QALY yielded by Treatment 2=(0.45+0.36+0.27)QALY=1.08 QALY

B) The net cost for treatment 1 after given 5% discount = $30,000 *0.95 =$28,500

The net cost for treatment 2 agar given 5% discount=$75,000*0.95=$71,250.

The ICER for 2 treatments is defined as the ratio of the difference in cost of 2 treatments divided by the difference in the effectiveness of the 2 treatments.

Hence, using answer (A) above and the calculation for costs of the 2 treatments, we have the ICER for the two treatments as = (71,250-28,500)/(1.08-0.625)=93,956.04

(C) We see that the more expensive treatment costs $71,250 for 1.08 QALY, while the less expensive treatment costs $28,500 for 0.625 QALY.

Hence in the more expensive treatment , 1 QALY costs=$71,250/1.08=

$65,972.22.

In the less expensive treatment, 1 QALY costs=$28,500/0.625=$45,600.

Hence, using VALS, it can be said that the more expensive treatment is not cost effective compared to the less expensive treatment, as it gives lesser QALY per dollar spent, compared to that lesser expensive treatment.