The development of several effective vaccines altered the course of the pandemic in the UK. But how do economists and policy-makers value the benefits of medical treatments, and could this process be improved?
How much should a government be willing to pay for treatments and vaccines? How does it decide which drugs and vaccines to purchase, and does the Covid-19 pandemic change the way such decisions are made?
When governments consider different pharmaceutical products for use in public healthcare services, such as the National Health Service, some simple economic principles guide their choices. Yet these are not applied consistently for different treatments and vaccines for communicable diseases, such as Covid-19.
This article outlines how drugs are valued and explains the special features of infectious diseases that may lead to insufficient uptake of valuable vaccines and antiviral treatments.
Private and social benefits of vaccines and treatments
Before considering infectious diseases in more detail, it is important to be specific about how medical products are currently valued. The value of a treatment derives from the direct and indirect benefits that they bring about, measured in terms of the disease burden that they help to avoid.
Economists distinguish between private (or individual) benefits and social (or group) benefits. Private benefits are those that are specific to the person being treated (such as no longer suffering from harmful or painful symptoms), while social benefits include the private benefits to others in the community.
Social benefits of treatments and vaccines are generally larger than purely private benefits and for this reason, the decision to treat a person has larger value in terms of public health than from the perspective of a physician treating the singular person.
What then, are the conditions under which social values and private values differ?
Consider a disease that is non-communicable – one that does not spread from person to person. For such a disease, the value of successful treatment or prevention through an effective vaccine is almost entirely private. This is because failing to treat or prevent the disease has no bearing on the physical health of others in the community. The value of the medical intervention (or the pharmaceutical intervention) derives exclusively from the wellbeing of the individual.
In contrast, suppose that a disease is communicable and thus may spread from person to person. In this case, we cannot focus exclusively on the wellbeing of the individual, because successfully treating or preventing the disease indirectly protects others in the community. In this case, there may be a large social value of treatments and vaccines, and the pharmaceutical intervention can be seen as a tool of public health rather than individual health.
Treating or preventing infectious diseases is an intervention that has what economists call positive externalities, because the benefits of these actions have value far beyond those that accrue to the individual patient. Protecting an individual helps protect the population at large. In public health and epidemiology, this positive externality from pharmaceutical disease mitigation that induces immunity in people is known as herd immunity (see here for an economic introduction to the role of herd immunity in public health).
From economic analysis to practical valuation
So, to what extent are these economic ideas reflected in practical valuation? When the UK’s National Health Service (NHS) decides whether to use a drug, it looks to the National Institute for Health and Care Excellence (NICE) for guidance on cost-effectiveness. NICE evaluates drugs by comparing the cost of a drug with the value derived from administering it.
This value is based on a complicated calculation involving the extent to which the drug prolongs the life of the patient and how it influences his or her quality of life. The unit of account for these benefits is one life year in perfect health, known as a quality-adjusted life year (or QALY). At present, NICE is less likely to recommend treatments that cost more than £20,000 to £30,000 per QALY.
Vaccines are somewhat different and are evaluated by the Joint Committee on Vaccination and Immunisation (JCVI). Yet the criteria that the JCVI use are not materially different from those employed by NICE:
‘The cost-effectiveness analyses that JCVI consider for immunisation are similar to those used by the National Institute for Health and Care Excellence (NICE) when assessing health technologies, (in particular, medicines) for use in the NHS. This ensures some comparability between how vaccines and other medicines are appraised.’
In 2016, a working group of the JCVI published a report recommending changes to how vaccines are evaluated. Although the group explicitly note that in addition to ‘Direct health benefits from disease avoidance by vaccinated people’ there are also ‘Indirect health benefits from disease avoidance by non-vaccinated people via herd immunity’.
They end up concluding as follows:
‘The working group considered whether there is any theoretical and/or empirical evidence to suggest that a different cost-effectiveness threshold should be applied to immunisation programmes compared to other areas of health care. No theoretical or empirical evidence could be identified to support such a case. Indeed, it was felt that even if data were available to inform an immunisation-specific cost-effectiveness threshold, it is likely to result in sub-optimal levels of population health.’
The working group’s recommendations were put out for consultation in 2018 (see summary here) and included a suggestion that the threshold for cost effectiveness for vaccines should be changed from the standard NICE threshold of £20,000 to £30,000 for treatments and lowered to £15,000 per QALY. The recommendations were ultimately rejected by the UK government in 2019.
It is interesting that the recommendation was to lower the threshold. For infectious diseases that are not communicable, a vaccine shares several properties with treatments, but in one respect, they are better because they reduce the likelihood that people become seriously ill in the first place.
In particular, they have strong private benefits but modest additional social benefits beyond those. In the case of communicable diseases, a sensible calculation of what is known as ‘full economic utility’ will show that vaccines should be valued higher than treatments.
Another issue worth emphasising is that government calculations of the value of vaccines (as exemplified by the cited reports and the guidelines of the JCVI) refer almost exclusively to value in terms of narrow health benefits and ‘health opportunity costs’ that arise from using up funds from elsewhere in the health budget.
In other words, this type of analysis is squarely rooted in an idea of valuation in which diseases (and hence vaccines) do not alter behaviour. As has become abundantly clear during the current pandemic, some diseases cause significant changes in voluntary behaviour, with widespread social and economic repercussions. The effects on overall social welfare cannot be ignored: a re-evaluation of the value of some types of vaccines is in order.
Costs of vaccines and treatments
Last, we should consider the notion of cost of vaccines and treatments. Traditionally, cost is taken to mean the actual monetary cost of acquiring the medicine from the producer. But as the Covid-19 crisis has made clear, not properly controlling an infectious disease has enormous economic and social costs. This has been emphasised by economics Nobel laureate Michael Kremer, who notes that the economic burden resulting from lockdowns dwarfs any costs of the vaccine rollout.
Such analysis suggests that traditional valuation techniques may be unduly conservative when weighing up the costs and benefits of vaccines and antiviral treatments. For diseases that induce significant voluntary behavioural change, and where people’s attempts to protect themselves against infection have significant economic ramifications, new valuation techniques are critical.
While some attempts at more sophisticated valuation of vaccines are being considered (for example, Kohli et al, 2021), these ideas have not yet made contact with practical valuations made by government healthcare services such as NICE and the JCVI.
One complication is that the value of vaccines and antiviral drugs changes with the stages of an epidemic (Toxvaerd and Rowthorn, 2021). For example, having such pharmaceutical products available at the start of an epidemic is clearly more valuable than having them only towards the end, when the disease is about to die out anyway. Yet some simple rules of thumb can (and should) be developed to capture the additional value that vaccines have when they prevent diseases that are communicable.
Two key ingredients can enter this rulebook; a QALY-type calculation based on the disease burden that infection confers on an infected person, and some measure of the virulence of the disease. One such measure is a disease’s basic rate of reproduction, an indication of the likely number of secondary infections that come from one infected person in a naïve population (one that is susceptible to infection). In addition, allowance should be made for economic and social benefits of infection control beyond a narrow measure of the avoided disease burden.
Where can I find out more?
- This article from the Bennett Institute for Public Policy explains the economics of herd immunity.
- This article from the Association of the British Pharmaceutical Agency outlines the economic and social impacts of vaccines.
- This document outlines the cost-benefit-analysis criteria used by the JVCI.
Who are experts on this question?
- Flavio Toxvaerd
- Robert Rowthorn
- Michael Kremer
- Anthony McDonnell