Do we really need to change the cost-effectiveness threshold?

The cost-effectiveness threshold utilised by health technology assessment agencies, such as NICE in the United Kingdom, below which new medical technologies and interventions are considered cost-effective, is frequently discussed. NICE currently use a threshold of £20,000 to £30,000 per quality adjusted life year (QALY) gained. However, this threshold was arrived at in somewhat of an ad hoc manner, being simply a reflection of past recommendations made by the agency. As a result, much time has been spent trying to identify what the threshold ought to be in order to best ensure the efficiency of the health service.

To much media attention, a study by Claxton et al was published recently, in which the authors attempt to estimate the returns currently being achieved by the NHS in England. The argument goes that the consideration to adopt a new medical technology should take into account the opportunity cost of doing so; any new technology, given a fixed budget, will displace resources used to achieve health benefits elsewhere in the healthcare service. If the new technology is not as cost-effective as the returns currently being achieved for the money, then the overall efficiency of the healthcare service will be reduced. Claxton and colleagues arrived at the figure of approximately £13,000 per QALY and have argued that NICE should adopt this as their threshold.

The opportunity cost is the benefit foregone by not spending a certain amount of money or deploying resources elsewhere. Within the health service we do not want to reimburse a new treatment when we could alternatively use those resources to achieve greater health gains otherwise; hence, the argument that the threshold should reflect the opportunity cost. What then is the opportunity cost in the health service? Assuming a fixed budget, it is the health gains made from increasing the expenditure on the most cost-effective programme of care minus the health losses from reducing the expenditure on the least cost-effective programme of care, when the healthcare budget is contracted and then expanded.

Does the Claxton et al study estimate this opportunity cost? Only if we assume that there is allocative efficiency in the healthcare service, i.e. that the most cost-effective programme funded when the budget is expanded has the same cost-effectiveness as the least cost-effective programme removed when the budget is contracted, and when there is optimal displacement, i.e. that the displaced technologies are the least cost-effective (Eckerman and Pekarsky, 2015). Neither of these conditions are likely to hold in the health service given the nature of the healthcare market, which may suggest that the Claxton et al results are underestimates of the true opportunity cost.

The above discussion assumes that the goal is the maximisation of population health. However, equity considerations play a role in reimbursement decisions such that we might be willing to maintain funding for a less cost-effective service if it preserves some measure of equity. Incorporation of equity concerns into economic evaluation is often not done in practice but methods do exist. In such a case, we may wish to adopt an equity weighted threshold that reflects an equity weighted opportunity cost. Alternatively, we could allow a different threshold for different patient groups, where the difference between the thresholds reflects society’s willingness to pay for benefits accruing to different persons. Either way we may prefer a threshold higher than the Claxton et al  figure to make room for equity considerations.

A final point is that profit-maximising manufacturers strategically price their products at the cost-effectiveness threshold. Under these conditions, even if displacement is optimal, then there will be no net gain to population health from adopting the new products despite them meeting the cost-effectiveness threshold.

What this all may suggest is that, methodological issues aside, the Claxton et al study does not provide us with strong enough evidence to change the cost-effectiveness threshold. Further research is required to understand which services are actually displaced, the cost-effectiveness of services currently utilised, and incorporation of equity considerations in reimbursement decisions.

Update: As an addendum and in response to a comment below, Claxton et al do write that, “Given NICE’s remit, it is the expected health effects … of the average displacement within the current NHS … that is relevant to the estimate of the threshold.” This average effect, they arguably do estimate; nevertheless, I think it is important to note that under allocative inefficiency and suboptimal displacement, setting this as the threshold may possibly lead us to either (i) reimburse technologies that are worse than the best alternative (the opportunity cost), or (ii) reject technologies that are more cost-effective than the least cost-effective technology removed under a budget contraction.


12 thoughts on “Do we really need to change the cost-effectiveness threshold?

  1. Sorry, Sam, Claxton and Co do not assume NHS efficiency. Their study empirically estimates the patterns of outcome changes that have resulted from past rises and falls in NHS expenditures. It’s a pragmatic study that makes no behavioural assumptions. In value terms it doesn’t even assume that health max is the objective of the NHS, only that replacing a less productive procedure with a more productive one (in terms of health outcome) is a good thing (i.e. a marginal evaluation), and that ethical consistency requires that QALY weightings be consistent across the balance sheet of gains and losses. Tony


    1. Thanks for your comment Tony. I think that the theoretical model in the Claxton et al paper suggest that they are assuming that PCTs aimed to maximise population health. I agree that the figures (assuming the methods are correct) represent the average net effect of contraction and expansion of the healthcare budget historically, the question that I think remains is whether the estimates can be used to inform the cost-effectiveness threshold if displacement is not optimal (and there is allocative inefficiency), i.e. whether the displaced technology is the least cost-effective. I think that there is a reasonable argument, for example, to suggest that the threshold should reflect the least cost-effective service that could be removed under a budget contraction, especially if replacing a less productive procedure with a more productive one is a good thing. Although, Claxton et al do say that we need to research the average ICER of displaced services.


  2. I’m a bit confused by the conclusion of this article that “the Claxton et al study does not provide us with strong enough evidence to change the cost-effectiveness threshold”.

    Given that the current threshold “was arrived at in somewhat of an ad hoc manner, being simply a reflection of past recommendations made by the agency”, surely the question is not whether the Claxton study is perfect, but whether it is likely to be a better estimate than the ‘ad hoc’ choice???

    In the absence of other evidence, Claxton et al’s research is the best we have. If we were to set up NICE today and decide on a threshold, it would seem sensible to start off with the £13k threshold. The only difference in reality is that there will be transition costs to switching thresholds. But at the very least it implies the existing threshold should be toughened up; i.e. by *actually* taking £20k as the threshold rather than (as often seems to be the case) accepting treatments that are even above £30k.

    Or am I missing something? Are there other empirical studies that suggest the current threshold is indeed reasonable?


    1. This is by no means a response to your concerns – which I broadly agree with – so hopefully Sam will have something to say on this matter. It really comes down to what we believe the threshold ought to represent. My personal view is that NICE should probably (for now at least) use a threshold that is not determined by the budget but by the value society places on QALYs. While this might be impossible to measure, I don’t think it is any less intangible and subject to measurement error than Claxton et al’s ‘opportunity cost’ approach. The social value of the QALY probably exceeds £13k and is perhaps closer to £20k (see, for example, here and here). So, on balance, I’d rather not see the threshold reduced. If this creates upward pressure on the NHS budget, I don’t see that as necessarily a bad thing.


      1. It sounds like your position is that the NHS should spend resources in a way that doesn’t maximise health, in order to create political pressure to increase the budget of the NHS. That seems like a very risky strategy!


        1. Almost. I think the NHS should provide all healthcare care that society is willing to buy given its cost and value. I guess it’s based on the idea that the health budget need not be fixed in the same way that an individual’s is. Arguably that’s pretty much what we do right now, so probably not that risky.


              1. Ok, so the question is whether there is even an informal relationship between the two. If the size of the budget generally doesn’t increase (or doesn’t increase fast enough) when there is expenditure on a new (more expensive) treatment, then funding the new treatment will displace health elsewhere, plausibly cause net health harm.

                It’s irrelevant whether the NHS *should* “provide all healthcare care that society is willing to buy given its cost and value” if in practice the budget of the NHS doesn’t change to reflect this.


    2. I think the issue is that there are other considerations when it comes to reimbursing new treatments than just health maximisation, like what Chris points out. And, in terms of health maximisation, it really depends on what is displaced. You could easily improve cost-effectiveness by reallocating resources from less cost effective programmes to more cost effective programmes: as Claxton et al show there is large between programme variation in returns to expenditure. They assume that allocation is currently optimal between programmes, but it could easily be argued that other principals are guiding allocation, such as a rule of rescue. This is partly why I would suggest that they don’t provide strong enough reasons to reduce the cost effectiveness threshold. Certainly the £13k result should be taken into account, but it shouldn’t be a hard and fast rule.


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