Maarten Postma: Cost effectiveness is stick for Big Pharma

December 30, 2024

Health Economics is a relatively young field within economics. Financial Investigator spoke with Maarten Postma, Professor of Health Economics and second on the list of most innovative economists according to the 2023 ESB ranking, about various socially relevant health issues and the existence or non-existence of ‘Big Pharma’.

By Harry Geels

To what do you owe second place in the ESB top-20 most innovative economists? And what does a Professor of Global Health Economics do?

'It is worth recalling briefly how this ranking is arrived at. The underlying calculation considers, over a five-year period, whether a particular academic study is considered the standard study on a given topic. Other, subsequent studies then only refer to this standard study and no longer cite all previous studies. Secondarily, it may also be research that is truly innovative, in the sense that there have been few prior, similar studies. The fewer references used - not out of laziness, but simply because there are few - the more innovative a paper would be.

The innovation in the studies I do is in the relationship between health and economics, especially in the application of economic methods to all kinds of aspects of health care. In Groningen specifically, we also have the combination of Health Economics and Development Economics. It is difficult to name one innovative core area of our studies. But if you do ask, it is ‘cost-effectiveness’. We see that the importance of cost-effective decisions in health care is increasing, for example for introducing new drugs, vaccines, screening methods and technologies, and we have developed all kinds of models to make those decisions as best as possible.

Beaten flat, their direct and indirect benefits must outweigh their costs. Usually, the costs will exceed the direct monetary savings. The question is then what the indirect ‘health gains’ are. De facto, we determine the value of a ‘life year’, including the quality of that extra life, summarised in the magic term ‘quality-adjusted life year (qaly)’, which in the Netherlands is now around €50,000. In other countries, it may be higher or lower, depending on the local cost of living. Thus, we ask the question of what any new drug would cost per qaly. For example, if the new drug is higher than €50,000 per qaly gained, it is not cost-effective. Below that, it is. Any savings gains also come, for example, in the form of fewer sick days, i.e. more productivity, if the drug or vaccine is sufficiently effective.

For vaccines, by the way, we make another slightly different calculation. After all, the savings and health gains from vaccines apply not only to the vaccinated, but also to people in the surrounding area, as they will be at less risk of becoming infected. So for vaccines, because of these indirect effects, our simulation methodologies are more complicated than those for drugs, for example. To make the link with development economics: we also apply many of our developed vaccine models there, and we have been involved, for example, in the recently installed, special Indonesian commission for technological health applications. For Indonesia, this committee has recently started assessing all new medical devices for cost-effectiveness.'

How exactly does healthcare influence the economy, for example, in terms of some current issues, such as epidemics, fertility and ageing?

'The social impact of healthcare is significant. Specifically, the applications of cost-effectiveness models affect the BV Nederland, as we so nicely put it. For example, we can calculate how much flu vaccines yield for BV Nederland. They cost X and yield Y in the form of more productive working days and fewer hospital admissions. The COVID19 pandemic proves the importance of vaccines. It cost the Netherlands as much as 8% of GDP in 2020. Vaccines could prevent these costs in subsequent years. An indirect health benefit of vaccines is further that it can prevent overburdening the healthcare system. In January and February, healthcare is overflowing as many viruses are often swirling around at the same time and many elderly people end up in hospitals, which in turn can lead to overburdening and then additional staff wastage. If we can prevent this with targeted vaccines, there will be a lot of social benefit.

Cost-effectiveness is one piece of the puzzle. There is also an ethical trade-off.

The concept of cost-effectiveness can further help decide which patients we still want to continue treating or not. If a particular treatment costs say €200,000, it is no longer cost-effective for someone who is 85, for example, but it is for someone who is 40. We can also ask this kind of question for medicines. For example, for statins, to which the concept of cost-effectiveness was first applied in the Netherlands. These may be cost-effective for a young patient at risk, but not for an octogenarian. Incidentally, this also directly illustrates the potentially tense relationship between Health Economics and ethics.'

And fertility and ageing?

'On other issues, such as declining fertility or increasing ageing, and whether immigration can contribute to the solution, I obviously have a private political opinion, but it is not really relevant here. I can, however, calculate whether IVF treatment, for example, is cost-effective. For IVF, by the way, the balance is positive. Its costs - not only the technical treatment, but also later health and education costs - are relatively small compared to the gain in the quality of life of the expectant parents and extra economic growth related to each newborn.

To be clear, cost-effectiveness is one piece of the puzzle. There is also an ethical trade-off. I always tell my students: ‘Should you end up in healthcare and make cost-effectiveness calculations, feel free to be convinced by an ethicist if they say that those calculations should not be decisive in a given situation.’ ‘Most committees that review medical applications include clinicians, pharmatherapists and ethicists in addition to health economists.’

More and more money is going into health care. Is that going to be efficient? Should health care be regulated publicly or privately? Some doctors employed by public hospitals sometimes complain about the ease with which private hospitals make money because they do standard operations without the 24-hour care.

'Again, the criterion is cost-effectiveness. If private healthcare institutions start performing some of the operations more efficiently because of their specialisations, that is a good development for healthcare in general. That is also why we see public hospitals specialising in certain areas of care. In teaching hospitals, employed doctors work primarily because of the unique, non-routine procedures, especially if they can also advance science.

In between the private and academic hospitals are those that need to find the most efficient justification for themselves. There may well be two complications. First, if health insurers would favour private over public, for instance by releasing more budget for standard operations than for non-standard operations, by periodically putting a budget freeze on them, which could lead to a financial imbalance between private and public. Secondly, if there is no equal access to care for all Dutch people, for instance if people with money can appropriate private care that others do not get.

I daresay most innovations are cost-effective.

I am under the impression that in our country, as far as these complications are concerned, we have got it just fine. It is officially called private in the Netherlands, but it ultimately fits into the big picture just fine. In many other countries, by the way, these complications do manifest themselves. To be clear, I am not stating that there is never any healthcare inequality here. A topical example is the discussion about the shingles vaccine, for which the Dutch government has no budget, while elderly people in other countries receive this vaccine free of charge. There are Dutch people who can buy this vaccine themselves and others who cannot afford it. That smacks of inequality. On the other hand, suppose that some of the elderly do buy the vaccine themselves, that probably leads to less care on an aggregate level. So despite the inequality at the individual level, society still benefits if people buy this vaccine. Indeed, the government could actually encourage the use of the vaccine with campaigns.'

The drug industry is dominated by Big Pharma, at least in the public's perception. Is Big Pharma, if it exists at all, beneficial to healthcare specifically and society in particular?

'The baseline situation is how we have organised society. In our capitalist system, some big pharma has indeed emerged. A value judgment on this should be based on the innovations taking place in healthcare. It is my impression that most of these come from these big companies. There is apparently enough competition. There is another stick specifically for the pharmaceutical companies, namely the already much-discussed cost-effectiveness. Indeed, if they make products that are not cost-effective, they will not be bought, so pharma companies are forced to control their own costs. Indeed, high development costs are often flaunted to justify high prices, without really being transparent about it. However, discussing this is usually a fruitless road. That is why I like to turn the chessboard around with cost-effectiveness.

Somehow I do understand the spectre of Big Pharma, because deep down many people believe that health should not be profitable. Some also see nothing in the concept of cost-effectiveness and think there should be no price per qaly. However we can look at it politically, I would venture the proposition that most innovations are cost-effective. And that certainly applies to the COVID19 vaccines the EU has procured. Even if they had been twice as expensive, they were still cost-effective.'

What are your plans and ambitions, as a scientist, as a human being, perhaps as a politician or otherwise?

'My personal mission is to advance people and society. One of the ways to achieve that is through vaccines. They help at an individual level (people get less sick) and at a societal level (they can reduce healthcare costs). There are still steps to be taken in the Netherlands, for instance compared to England, where not only vaccines against shingles are well used, but also against meningococcal disease, for instance. This ambition also includes my contribution to the discussions on the usefulness, and in some cases obligation, of vaccines. Finally, despite being only two years away from retirement, I am still an ambitious scientist. Although I have no idea how exactly the ESB criteria work out, I would like to become number 1 on the ESB list, because second is actually also just nothing.'