A principled approach to non-discrimination in cost-effectiveness

The US Inflation Reduction Act (IRA) prohibits the Centers for Medicare and Medicaid Services (CMS) from using standard quality-adjusted life-years or other value assessment methods that discriminate against the aged, terminally ill, or disabled when setting maximum fair prices for prescription drugs. This policy has reignited interest in methods for assessing value without discrimination. Equal value of life-years gained (EVL), healthy years in total (HYT), and Generalized Risk-Adjusted Cost-Effectiveness (GRACE) have emerged as proposals. Neither EVL nor HYT rests on well-articulated microeconomic foundations. We show that they produce decisions that are inconsistent over time in a variety of ways, including: (1) failure to support additivity and indirect comparison in cases where the standard-of-care therapy changes over time; (2) strictly negative value of survival gains that accrue from a new, better standard-of-care, particularly for the disabled themselves; (3) unbounded average value of survival gains; and (4) non-convex survival preferences. We propose an alternative method that relies on GRACE and its microeconomic foundations.