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Supply and demand: why NICE is the manager’s friend and ally

1 September 2007

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Freelance medical writer, journalist and editor

Mark, a former research pharmacologist, is now an award-winning medical writer and journalist. He has also published numerous medical economic papers in peer-review journals and is the author of 10 books on health-related issues

In the 18th century, London’s Foundling Hospital fostered abandoned babies with a wet nurse, then offered education and training, usually for domestic service or the Navy. Tragically, the hospital couldn’t meet demand. So mothers drew coloured balls from a bag. A white ball meant admission, red meant the waiting list, and black meant rejection and the risk of starvation and death in poverty and squalor.(1)

More than 250 years after Thomas Coram opened the Foundling Hospital, balancing supply and demand is high on the agenda for every NHS manager.

We’ve moved beyond drawing balls from a bag. Now, the National Institute for Health and Clinical Excellence (NICE) decides whether or not to recommend an intervention after a careful and thorough analysis of the evidence, which is independent of both government and pharmaceutical companies.

Furthermore, NICE isn’t a cost-cutting organisation: implementing many of its recommendations increases expenditure. To take one recent example, an emergency department in London reported increased computed tomography since implementing the NICE guideline on the management of head injury. This costs an extra £15,000 per 100 head injuries annually, equivalent to an estimated £51.7m for England and Wales.(2)

Nevertheless, if you invest your limited budget in treatments that are cost-effective and clinically efficacious, the health of your area will improve.

Despite this, a patient advocacy group, drug company, or both, usually complains when NICE decides not to recommend a treatment. Many managers balk when faced with implementing the latest guidance. However, I believe managers should welcome NICE guidance as the fairest way to balance supply and demand, as well as an antidote to pharmaceutical promotion.

Indeed, with the NHS making increasing efforts to encourage – even enforce – implementation, managers should consider being more proactive. A recent survey suggests, for example, that most GPs are unaware of the legal obligation for trusts to fund NICE-approved medicines.

Moreover, numerous barriers, some of which managers can influence, hinder their ability to prescribe agents recommended by NICE. As NICE comments in its guide to implementation: “Identifying a designated resource or NICE manager who coordinates the implementation of NICE guidance is vital for effective implementation.”(3)

A NICE method
Unrestricted access to every medical technology, on demand, for every patient who could possibly benefit would bankrupt
the economy.(4)

Already, costs are rising rapidly. In March, the Committee of Public Accounts noted that spending on the NHS “is the fastest-growing area of public expenditure”. The NHS budget will rise from £69.7bn in 2004–05 to £92.6bn in 2007–08. Despite the increased investment, the overall deficit of £251m in 2004–05 increased to £570m in 2005–06. The proportion of NHS organisations – strategic health authorities, primary care trusts, NHS trusts and NHS foundation trusts – reporting deficits rose from 28% to 32% respectively.(5)

So it’s logical to invest limited funds where they are the most likely to do the most good. This requires a common measure that translates health gain into a common value across different diseases, conditions, outcomes and interventions.(6) 

Quality-adjusted life years (QALYs) are the most widely used approach, and form the foundation of NICE’s assessment.
A year dead or in a coma represents zero QALYs. A year of perfect health is one QALY. Even if you don’t need medical care, almost all of us experience minor physical and psychological ailments over a year. So our QALY tends to fall between 0 and 1, and can, in theory at least, have a negative value (a fate worse than death).

QALYs are important because they encompass numerous factors that influence quality of life, including mobility, the ability to perform activities of daily living, anxiety and depression, pain and so on.(7)

Economists can attach costs to these: assume a drug costs £3,500 and raises someone from a health status of 0.5 QALY to full health. Then the new drug’s cost per QALY is £7,000. If this new drug’s rival costs £10,000 to produce the same gain in QALY, funding the new drug rather than the rival will release funds that can be invested elsewhere.

In other words, transferring resources from interventions with a high cost per QALY to those with a low cost per QALY will, other things being equal, increase the overall health gain.(7) Society sets a threshold above which the state won’t fund the treatment. The absolute figure can be controversial (how much is a life worth?), and QALYs have several limitations.(7)

Nevertheless, QALYs offer a transparent, evidence based and objective means to balance supply and demand.

NICE isn’t as economically hardnosed as this. Indeed, NICE does not use an absolute cost-effective range above which it won’t recommend treatments. Rather, NICE considers numerous factors when making a recommendation – including clinical effectiveness, other available treatments and wider cost to the NHS.

However, as a rule the Committee recommends a technology as being cost-effective when the cost per QALY is below £20,000. Above £20,000, other factors need to justify NHS expenditure, including how innovative the technology is, the condition being treated and the wider costs and benefits.

These factors need to be even stronger for NICE to recommend a technology with a cost per QALY of about £30,000 and over. Such factors mean that the NHS funds some cost-ineffective interventions. For example, cultural and political factors may help explain why blood services screen for bloodborne bacteria, viruses and prions, despite costs per QALY that are in the millions.(4)

Disputes often arise because capturing the cost per QALY depends on computer models, and the assumptions and method can dramatically change the results. For example, in January this year, NICE recommended gemcitabine in combination with paclitaxel for metastatic breast cancer, when docetaxel (either alone or with capecitabine) is also appropriate. The cost of adding gemcitabine to six cycles of paclitaxel is approximately £2,346, excluding administration costs.(8)

The report contains numerous economic analyses with widely varying results. For example, according to the company, the cost per QALY for gemcitabine plus generic paclitaxel (assuming a cost 55% less than the proprietary version) against docetaxel monotherapy was just £4,700. However, the cost per QALY for using gemcitabine plus proprietary paclitaxel compared to paclitaxel monotherapy reached £30,100. NICE’s Evidence Review Group (ERG) took issue with some of the assumptions and estimated that the latter reached £42,800 per QALY. The cost per QALY reached £45,800 for the ERG’s comparison of gemcitabine plus proprietary paclitaxel against docetaxel monotherapy.(8)

Despite the differences, all are correct: the debate comes down to which set of assumptions most accurately models the NHS. In this case, NICE recommended the treatment. However, it illustrates how widely costs per QALY can vary and why, if NICE rejects a drug, disputes can arise.

Against this background, NICE provides tools that allow managers to assess the cost impact of each clinical and public health guideline and technology appraisal guidance. Cost impact reports, for example, indicate the estimated cost of implementing NICE clinical and public health guidelines nationally. Local costing templates allow individual NHS organisations and local health economies to assess the impact on local budgets.(9)

An antidote to pharma promotion
As the above discussion suggests, managers should consider reading the relevant NICE reports in detail (of course, NICE covers more than technology appraisals, also issuing clinical guidelines, public health guidance and guidance on interventional procedures). When necessary, they may want to draw on health economic expertise (for example from the local pharmaceutical adviser or trust pharmacist). This is especially important when looking at health economic analyses sponsored by the pharmaceutical sector.

As we’ve seen, the results of an economic analysis can vary markedly depending on the assumptions and method. Pharmaceutical companies want, not surprisingly, to portray their drug in an economically favourable light. But the devil really is in the detail. For example, some health economic analyses depend on an improvement in the indirect costs (such as lost productivity) or savings in social services to make their case. These may be worthwhile benefits – but it comes from your drug budget, and recouping the cost from the tax system or the social services budget isn’t possible.

This is a rather blatant example, and many promotional approaches are more subtle in the way they frame the argument. You need to ensure that the model’s assumptions are valid for your local health economy. You could also suggest checking the promotional figures using the NICE costing tools, for example.(9)

Implementing NICE
Despite NICE’s importance, the guidance is not always implemented as widely as it should be, especially in the early years.(10) The NHS is now making increasing efforts to encourage – even enforce – implementation. For example, NICE runs an implementation support strategy, the Healthcare Commission’s inspection regime specifically covers NICE guidance, when appropriate to the core standards, and the Department of Health has issued direction requiring trusts to fund NICE’s appraisal guidance.

It seems to be paying off: a study of 28 appraisals found that 12 were implemented fully, 12 were incompletely implemented, and four were overimplemented.(11)

Against this background, NICE’s How To guide offers invaluable practical guidance on implementation and its integration into routine organisational activity.3 While the details vary between organisations, NICE suggests that six “key components” underpin successful implementation:

  • Support from the board and clear leadership.
  • A dedicated resource in the form of the NICE manager.
  • Multidisciplinary support from a team that typically includes, among others, nurses, physicians, pharmacists, patients and managers (in my view, at least one of the members should be the local health economics expert).
  • Systematic financial planning.
  • Systematic implementation.
  • Evaluating uptake and feedback.(3)

Managers could follow the NICE advice and proceed to develop an implementation policy that clearly states the organisation’s approach to these components. For instance, the NICE manager’s responsibilities may include:

  • Disseminating guidance to key groups.
  • Arranging educational events.
  • Horizon scanning/forward planning.
  • Coordinating financial plans.
  • Ensuring effective monitoring and feedback.
  • Reporting regularly to the board.(3)

The guide also offers more detail about getting specific pieces of guidance into practice. Some processes are common to the implementation of the various types of NICE guidance, including planning and horizon scanning, raising awareness, dissemination, audit and evaluation. The organisation will need to perform a baseline assessment and develop an action plan, which varies depending on the type of guidance.(3) If they haven’t already, managers should consider placing a copy towards the top of their reading pile.

As mentioned, raising awareness is a core aspect of implementation. Indeed, there is a need to raise awareness about some fundamental issues. For example, a recent online survey found that less than half (47%) of 530 GPs visiting the healthcare professionals website were aware of the requirement to provide funding in England and Wales for medicines recommended by NICE.

The survey also showed that 26% of GPs felt that one or more factors – such as local formularies, “traffic light schemes” (which dictate who can prescribe a particular medicine), and lack of additional funding for new medicines – restrict their personal prescribing of NICE-approved medicines.(12) Managers could consider examining their formularies, protocols, budgets and other systems to facilitate the implementation of NICE guidance.

The simple reality is that there has never been sufficient money to do every-thing possible for every patient. Until NICE, doctors took the rationing decisions behind closed doors. NICE brings resource allocation decisions into the open. The appraisal committee includes representatives from the NHS, patient organisations, universities and the healthcare industry. It is independent of pharma companies, patients and government. The evidence and NICE’s discussions are in the public domain and there’s the right of appeal.

All this makes NICE a valuable resource that managers should welcome. After all, it’s telling that, despite all the brickbats, critics never suggest a better mechanism that allows the NHS to ration limited resources fairly, justly and equitably.

1. Black N. Walking London’s Medical History.London: RSM Press; 2006.
2. Shravat BP, Huseyin TS, Hynes KA.
NICE guideline for the management of head injury: an audit demonstrating its impact on a district general hospital, with a cost analysis for England and Wales. Emerg Med J
3. National Institute for Health and Clinical Excellence. “How To” guide. Available from:
4. Greener M, Guest J. Health economics – an introduction to the methodology. Hosp Pharmacist 2006;13:41-3.
5. Committee of Public Accounts. Financial management in the NHS. Press release. Available from:…
6. Szucs TD. Health economics in the genomic age. Recent Results Cancer Res 2005;166:299-313.
7. Greener M, Guest J. The models used for health economic analysis. Hosp Pharmacist 2006;13:45-7.
8. National Institute for Health and Clinical Excellence. Breast cancer – gemcitabine. Guidance TA116. London: NICE; 2007.
9. National Institute for Health and Clinical Excellence. Costing tools. Available from:
10. Sheldon TA, Cullum N, Dawson D, Lankshear A, Lowson K, Watt I, et al. What’s the evidence that NICE guidance has been implemented? Results from a national evaluation using time series analysis, audit of patients’ notes, and interviews. BMJ 2004;329:999-1004.
11. Rawlins M, Dillon A. What’s the evidence that NICE guidance has been implemented? More recent data on NICE implementation show different picture. BMJ 2005;330:1086.
12. GPs unaware that they can prescribe NICE approved drugs. Press release. Available from: http://www.medicalnews