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A Guide To Quality Adjusted Life Years

What is this factsheet about?

This factsheet explains how the Scottish Medicines Consortium (SMC) uses a tool called the Quality Adjusted Life Year (QALY) to decide whether or not a medicine is value for money for the NHS in Scotland.

Medicines can prolong life, improve the quality of life, or both. Everyone wants to have the most effective medicines but unfortunately all health services have limited money to spend. This means that difficult choices have to be made about what treatments can be made routinely available. SMC brings together people from every NHS Board in Scotland, as well as people representing the companies that manufacture medicines and members of the public. It gives advice to NHS Scotland about which new medicines have been shown to be value for money. SMC considers all new medicines, ranging from a painkiller used to treat a headache to a medicine that can help a patient with cancer to live longer. At SMC we look at information supplied by the manufacturer of each new medicine on the clinical effectiveness (health benefits) and cost effectiveness (value for money) of the medicine. We also look at information from clinical experts and groups representing patients when making our decisions.

If a medicine is good value for money for NHS Scotland and offers health benefits to patients then we will advise NHS Boards that it can be routinely used. If a medicine is not good value for money, we will not recommend it and the medicine will only be available when your NHS Board accepts a request from your doctor to prescribe a medicine that has not been accepted by SMC. New Medicines in Scotland Factsheet.

This factsheet explains how we use the QALY and the cost per QALY as tools to assess whether a medicine is value for money as part of our decision making process. Although the QALY is key to the decision, we also take other important factors into account. These include:

  • the needs of patients
  • the views of doctors
  • the number of people affected by the condition
  • what other treatments are available for that condition

The manufacturer of the medicine provides information to SMC including evidence of how effective and safe it is compared with existing treatments. We also ask for information on the health benefits to patients. SMC uses cost-utility analysis  and the Quality Adjusted Life Year (QALY) to assess the cost effectiveness of a medicine.


What is a QALY?


The QALY is a widely used economic indicator, or tool, that allows a consistent approach to comparing the value of different medicines.

A QALY takes into account how a treatment affects a patient’s

  • quantity of life (how long you live for)


  • quality of life (the quality of your remaining years of life).

The QALY combines both these factors into a single measure that puts a figure on the health benefits for any medical treatment, including medicines. QALYs provide a benchmark that we can use to measure and compare the benefits that each medicine is likely to offer.


How to work out a QALY


Scenario 1

Imagine a person is fully healthy but has a risk of sudden death. There is a new medicine that will make him live for exactly 12 months in perfect health. If he takes this medicine he will gain a year of life at 100% of normal quality. This would be a QALY of 1.

Health experts widely accept the following:

  • A year of perfect health has a QALY of 1.
  • A year of less than perfect health has a QALY between 0 and 1.
  • Death has a QALY of 0.


Scenario 2

Again imagine a person who is fully healthy but has a risk of sudden death. There is a new medicine that will give him 24 months of extra life but he will not be restored to full health and his quality of life will be only 75% of that experienced by a fully healthy person. If the person takes this medicine he will gain 1.5 QALYs (2 years x 0.75 = 1.5) compared to being given no treatment at all.


Scenario 3

Imagine a person has a chronic condition that is reducing his quality of life to 50% of that experienced by a fully healthy person. He is expected to live five years. There is a new medicine that will help this person’s symptoms and improve his quality of life to 75%. However, it will not affect the time he is expected to live. Overall here this person will gain 1.25 QALYs (5 years x 0.25) compared to if he was given no treatment at all.


How to work out the cost per QALY


The QALY itself cannot tell you if a treatment provides value for money. Instead, we combine the QALY for a new medicine with the cost of the new medicine. This produces a ratio called the cost per QALY.

The cost per QALY shows how many extra quality adjusted life years the new medicine gives and how much extra it costs compared with the current treatment. This then allows SMC to judge if the new medicine is good value for money.

For example, a person has a serious life-threatening condition and is currently receiving medicine A. If he continues to receive medicine A he will live for 10 years and his quality of life will be 50% of normal (0.5). If he receives a new medicine, medicine B, for the same condition, he will live for 12 years and his quality of life will be 70% of normal (0.7).

The new medicine, medicine B, is compared with medicine A in terms of QALYs gained as follows:

  • medicine A: QALY = 5 (10 years x 0.5)
  • medicine B: QALY = 8.4 (12 years x 0.7)

Therefore, medicine B results in 3.4 additional QALYs when compared with medicine A.

Medicine B costs £10,000 more than medicine A. The difference in treatment cost is divided by the number of QALYs gained. This provides the cost per QALY i.e. £10,000 / 3.4 = £2,941. Therefore, medicine B would cost £2,941 per QALY.

To give some examples, the cost per QALY of a kidney transplant is estimated to be around £3,500, the cost per QALY of a heart transplant to be around £8,000 and the cost per QALY of trastuzumab (Herceptin) to treat early breast cancer to be around £16,000.


How does SMC use QALYs?


In assesssing the clinical and cost-effectiveness, comparisons can be made between costs per QALY for different medicines. Some medicines may have a low cost per QALY and we would say these offer good value for money. Medicines with a high cost per QALY would not be considered good value for money. A cost per QALY of under £20,000 is generally considered acceptable value for money. For a medicine with a cost per QALY between £20,000 and £30,000 SMC might accept this if the medicine gives significant benefits over existing treatments. In addition, SMC has a number of factors that can be applied to medicines with a cost per QALY above £30,000 to allow their approval in some cases. SMC calls these modifiers.

In summary, the cost per QALY for a medicine is helpful in understanding the value for money that the medicine offers. Although QALYs are not a perfect tool they help us to compare the benefits of medicines fairly and are essential to SMC’s new medicines assessment process.

It is important to note that QALYs provide the basis for discussion about individual medicines by the Scottish Medicines Consortium, the QALY alone does not determine the decision reached.


Further reading:

SMC explained

New medicines in Scotland. Who decides what the NHS can provide?

What is a QALY?

Implementing QALYs

What is a QALY? 

British Medical Journal economics notes series available from “Education and debate: Economics notes: Economic evaluation: an introduction“ by James Raftery BMJ 1998;316:1013-1014 (Published 28 March 1998)

March 2011