Appendix 1: Cost-utility analysis

One tool that we can use to consider some of the Factors is cost-utility analysis.

The CUA is a way of measuring a number of Factors, namely the 'availability and suitability of existing medicines, medical devices and treatments', Factors relating to health benefits, 'costs and savings to pharmaceutical expenditure', and 'costs and savings to the rest of the health system'. In some instances costs and savings to the person (or family/whanau) may also be taken into account for the purpose of CUA, but these are restricted to costs that the government partially subsidises. More information on what is included and excluded in the CUA can be found in the Prescription for Pharmacoeconomic Analysis (PFPA).

Cost-utility analysis seeks to compare the health benefits that would be achieved by funding a pharmaceutical with the costs and savings that would result from it. CUA results are expressed in quality-adjusted life years (QALYs) that would be gained for each $1 million spent. Spend is the net costs and savings to the NZ health sector overall.

QALYs are an internationally used measurement that can be used to compare – in a consistent and standardised way – the benefits of different pharmaceutical treatments. Measuring QALYs involves the combination of a pharmaceutical’s effects on:

  1. how much longer a person may live; and
  2. their health-related quality of life.

Once information is obtained on the impact of the disease, on how much longer a person may live and their health-related quality of life, this is used to assess utility values; the QALYs can then be estimated. QALYs are calculated by multiplying the duration of time spent in a health state by the health-related quality of life weight (ie utility score) associated with that health state. Under the QALY framework, one QALY is equivalent to living one year in full health, or two years at half of full health, and so on.

For more information on what CUA is and how it is conducted, see the Cost-utility Analysis Explained. A more detailed explanation can also be found in an article published in the New Zealand Medical Journal in 2013.

Cost-Utility Analysis Explained [PDF, 3.4 MB]