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.