Measuring the Value of Prescription Drugs

Abstract

This chapter recounts the evolution of methods to put a value on health benefits, a step crucial to appropriately pricing drugs. Early efforts valued life based on a worker’s productive output. “Willingness-to-pay” methods use surveys and examine real-world purchasing decisions to value life beyond productivity considerations. Cost-effectiveness analysis sidesteps explicitly pricing life by instead measuring an intervention’s cost per unit of health gained. A common currency for benefits called the quality-adjusted life year (QALY) facilitates cost-effectiveness ratio comparisons across diseases. Although controversial, the QALY packs information about longevity and quality of life, making it popular. Next, this chapter explains that economists down-weight (“discount”) future costs and benefits as less important than near term impacts. Finally, it explores the question of perspective—that is, whether an analysis should, for example, reflect only costs and benefits pertinent to health system payers or whether it should take a broader, “societal” perspective.