The following cost-effectiveness analyses operate at a high level of abstraction. This is so because the outcomes they are comparing are very different. There is no easy way to compare outcomes in education and healthcare policy. What this report aims to do is not to monetize different outcomes for different policies, but to establish whether some resource allocation mechanisms are overall more or less effective in achieving policy goals: maximising ‘natural units of outcome’ with a fixed budget.

1.1.         Individuals with Disabilities Education Act (IDEA)

The resource-allocation mechanism under IDEA is simple: since two lawsuits in 1985 and 1989, Parks v. Pavkovic and Timothy W. v. Rochester School District respectively, U.S. courts have ruled that all disability-related educational needs are to be funded even when the disabled student is incapable of making use of educational services. This includes cases where the disabled student is in a persistent vegetative state, in a coma or unconscious. Schools are required to provide educational services to the disabled student, and indeed have been successfully sued when they have not.[1] This allocation system will be defined as a ‘no cost-effectiveness threshold’ system in this report.

In the school year 1999-2000, states in the US spent USD 34.8 billion on educational services for disabled students. Disabled students numbered 6,296,000 in that same year. This yields an average spending figure of USD 5,527.3 per disabled student.[2]

However, 0.5% of all these students (or 31,480 students) are high-need, high-cost students and require more than USD 100,000 in special education services per year. A conservative estimate of the funding required for these students in the year 1999-2000 is therefore USD 3.15 billion, or 9.1% of the total state budget for disabled students.[3]

Once high-need, high-cost students have been accounted for, the remaining budget is USD 5052.3 per disabled student (a USD 475 difference). The next step is determining whether this is a significant opportunity cost for these remaining disabled students. A significant opportunity cost would be measured in terms of improvements on standardised tests, such as literacy and numeracy tests, that would otherwise be made.

Of course, it is impossible to determine what exactly these improvements might be: it is impossible to design a controlled experiment to test this hypothesis. Other data, however, gives us good reason to believe that the majority of disabled students suffer from non-negligible opportunity costs. Teacher quality, for example, is widely argued to be one of the critical factors in student performance, including disabled student performance.[4] Factors that affect teacher quality, such as working conditions, pay, and of course training and experience, impact teacher quality significantly and can be expected to have positive effects on disabled students’ performance.[5] There are other factors that affect student performance, such as class sizes, the availability of educational support staff, etc.

The claim here is that a USD 475 per-student opportunity cost has a non-negligible impact on disabled students learning. Fully-funding a degree programme for teachers in the US may cost as much as USD 10,000 per year. With the figures quoted above, a single class of 21 students could, on their own, fully fund that teacher with the discrepancy quoted.[6] This is an extremely simplified analysis, of course. The aim, however, is to show that the impact is significant.[7]

1.2.         PHARMAC’s funding policy

PHARMAC, New Zealand’s centralised drug-buying agency, makes all funding decisions related to drugs. Its decision-making system is very different from that of other countries. Countries like France have a ‘no cost-effectiveness threshold’ system, like the one detailed above, where government subsidies are related to need and not cost-effectiveness.[8] In New Zealand, PHARMAC makes funding decisions based on a number of criteria (see box). Cost-effectiveness is not the only criterion, but it is an important one. It is important to note that in neither of these two cases are high-cost, low effectiveness medicines banned or unavailable when not funded. They are simply more (indeed, much more) expensive than if they were subsidised. In New Zealand, patients make co-payments when purchasing subsidised drugs of about NZD 3.00. Non-subsidised drugs are much more expensive: Sprycel, a high-cost alternative to Gleevec used to treat some types of cancer, can cost up to USD 100.00 per pill.[9]

PHARMAC’s criteria for deciding funding[10]

 

Many drugs that PHARMAC does not fund have some benefits for some patients. One example is Avastin (Bevacizumab), a drug that stops the growth of new blood cells and is used to treat cancer. In particular, it is used to treat metastatic colorectal cancer. Patients suffered from this type of cancer may gain pain relief, and see their lives prolonged by several months, with the use of this drug.[11] PHARMAC does not fund Avastin as it is a very expensive drug. In the UK, it is estimated to cost between GBP 24,000 and 93,000 per QALY (or NZD 47,000 to 183,000 per QALY at current exchange rates). PHARMAC currently spends an average of NZD 7,000 per QALY.[12]

The non-funding of Avastin, however, leaves some cancer patients at a disadvantage, to say the least. Colorectal cancer specifically is extremely painful, incapacitating some patients.[13] The UK decision-maker for drugs, the National Institute for Health and Clinical Excellence (NICE), decided against funding Avastin in 2010. This decision prompted angry reactions and media denunciations: cancer patients were allegedly ‘betrayed’ by the agency.[14]

Though this may be an exaggeration, there is at least some value in the criticism. Providing colorectal cancer patients with this drug enhances their dignity and provides them with intrinsic goods such as pain relief. For imatinib-intolerant (Glivec) patients, for example, there are no cheaper alternatives. A strict needs-based approach to funding would entail funding Avastin. Just like with the IDEA case, however, fully funding Avastin would impose significant opportunity costs on the rest of the patient population.

In 2008, there were 20317 total cancer registrations in New Zealand, with 2801 colorectum and anus registrations (or 7.25%).[15] To estimate the total cost of funding Avastin for the whole patient population, the formula I use is:

C x Q x G

where C is the population in question, Q the average cost of a QALY gain using this drug, and G the average length of time (in years) the drug has to be funded. Thus:

 2801 x 115,000 x 0.42 = 135,288,300

This accounts for a full 19.1% of the total year budget for PHARMAC (NZD 710 million).[16] For the same amount of average QALYs funded in a year (101,428 at current spending rates), PHARMAC would only be able to spend NZD 5,732.7 per remaining QALY if it also wanted to fully fund Avastin. The cost of ‘not betraying’ cancer patients seems to be imposing real costs on many other patients. In practice, these costs would translate in less funding for other medicines that can be used by the whole population.