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Economics considers scarce resources of value to have a “utility”, to which a price tag can be
attached. Health services are no exception.
In an Australian study during the 90’s (n=551) the following question was asked:
‘In our society there is not enough money to give all patients all the health care they want. There is also a shortage of donor
organs for patients in need of organ transplantations. In practice, this means that some patients get treated more quickly than
others. It can also mean that some patients receive certain kinds of expensive treatment while others do not. In both cases we
may say that some patients are given priority over others. On what basis should priority be given? This is the question that
we are asking you to consider in this study.'
It was found that the majority of Australians questioned believed that people undergoing high cost
treatment should not be discriminated against, regardless of the possibility that many others and
even they may not receive proper treatment in the future.
How does this reconcile with economic (utilitarian) theory which says:
Given two competing options, the one to choose is either;
The least costly if the loss of benefit is outweighed by the gain in savings or
The more costly if the gain in benefit outweighs the additional cost
The key to the problem is the perception of “benefit”. How does it benefit Australians to see their
scarce health dollars spent on costly and complex treatments? One idea is the Rule of Rescue that
Any plan to distribute health care services must be morally acceptable to society; taking into account
human psyche and human nature, especially the belief that if it is at all possible to save a life then
everything possible should be done regardless of the cost. A number of overseas studies from
comparable Western countries have supported the “Rule of Rescue” in that most people generally
disregard cost when prioritising health care and very costly interventions with similar or slightly
better outcomes than inexpensive ones are generally ranked together.
The Herceptin Debate
An example of this dilemma is trastazumub, the monoclonal antibody used to treat HER2 positive
BC. Trastazumub administered after mastectomy and chemo reduced the likelihood of recurrence by
52% and the likelihood of dying from BC by 33% yet the government and the PBAC (see below) at
the time (around 2004) was resistant to its listing on the PBS because the cost of a 52 week
treatment course is around $60,000. However, already state and federal governments subsidise:
Hundreds of thousands for every transplant patient
Tens of thousands for haemodialysis
$20k for unnecessary surgery such as rhinoplasty (compared with 10,000 children being
So why was there a reluctance to approve a “breakthrough” treatment for HER2 breast CA as
opposed to these? It is because the subsidisation of medicines by the PBS has become unsustainable
and the government wanted to draw a “line in the sand”. The PBS costs the government $6.5 billion
a year with much of it spent on “me too” drugs such as statins (simvastatin, Lipitor, Caduet – all do
the same thing but dramatically vary in cost). However a public campaign by breast cancer sufferers
(all good emotive stuff – young women, hairless due to chemotherapy holding up their babies
demanding that Herceptin be placed on the PBS list and the public sympathised) proved successful
and Herceptin was eventually listed on the PBS (with conditions). In such a climate, it is very difficult
for governments to implement an economic utility approach to health care given the Rule of Rescue,
effectively politicising the choices made, as in the case of Herceptin.
The PBS Scheme
Following the WW2, the government introduced a free “formulary” of 140 life saving and disease
preventing medicines, chosen by an advisory committee – the PBAC (Pharmaceutical Benefits
Advisory Committee). This scheme was resisted by the medical profession because doctors
perceived it as the start of socialised medicine where they would lose control over clinical decision
making. The High Court ruled that the scheme had to be approved by a national referendum, which
was passed and the constitution was changed. In the 1950’s, the scheme adopted the principle of
social justice based on maximising social utility where drugs considered for listing would be
compared competing treatments (similar drugs or other procedures) and chosen on the basis of
maximising benefit for the lowest cost. If the product is “substantially more costly” than the
selected comparator in its class it shan’t be recommended by the PBAC for PBS listing “unless…[it]
provides a significant improvement in efficacy or reduction of toxicity over the alternative therapy or
therapies.” Currently, the process operates as follows:
The PBAC considers applications put forward by drug companies for PBS listing (ie to be provided at
a government subsidized cost to Australians and visiting citizens of certain other nations – NZ,
England, Ireland, Malta, Italy, Sweden, Netherlands, Finland). The committee decision is based on:
The drug is needed to treat or prevent a significant medical condition that is
o either untreated or inadequately treated
o Currently treated by medications causing significant adverse effects (eg
Lipitor is far more expensive than simvastatin but has a lower incidence of
adverse effects (some are severe and life threatening)
o Currently treated by a drug that causes poor compliance (eg multiple daily
dosing) or can only be administered/performed under medical supervision
or in hospital
The public health impact of the problem (eg analgesics for a simple headache aren’t
subsidized but medications to prevent and treat severe recurrent migraines, which
can require hospitalization, are)
Economic evaluations
o Cost minimization – 2 drugs with equal benefits then choose the one with
the lower cost.
o Cost per outcome – comparing the cost to obtain, for example, a drop in so
many mm Hg of BP
o Cost per QALY – quality adjusted life year
The health minister approves the listing based on the PBAC recommendation
Very Costly Drugs
High cost drugs expected to cost over $10 million are approved by cabinet. A subset of these, known
as very high cost drugs are listed on what is called S100 which includes:
The Highly Specialised Drugs Program where listed drugs are subsidised by the government
only for outpatients of specialist hospital day units
The Complex Authority Required Highly Specialised Drugs Program. Written prior approval is
needed from Medicare prior to prescribing. This category includes very costly drugs that
treat pulmonary hypertension and physicians must be associated with a Pulmonary Arterial
Hypertension (PAH) Designated Prescribing Centre
The big daddy of them all is trastuzumab and it gets its own approval program; The
Trastuzumab (Herceptin) Special Authority Program for early stage breast cancer. Only
certain HER2 positive patients qualify in order to maximise the benefit of the treatment
which is estimated to cost around $50,000 for a 52 week course