NICE cost effective medicines

How does NICE make cost effectiveness decisions on medicines and what are modifiers?



When making a decision about the approval of a new product NICE (National Institute for Health and Care Excellence) uses the incremental cost effectiveness ratio (ICER). This is sometimes also referred to as the cost per QALY (quality adjusted life year), where a QALY is one year of life in perfect health.

The ICER provides a summary of economic value of an intervention compared to a comparator. It is calculated by dividing the difference in cost (incremental cost) by the difference in QALYs (incremental QALYs) compared to an alternative medicine1. Typically, NICE will make a decision that a product is cost effective for the NHS if the maximum cost is £20,000 per QALY2, with some products being accepted up to a value of £30,000 per QALY2 when taking into account factors such as certainty of the ICER, innovation of the technology and non-health related aspects3.


Modifiers can be applied to increase the threshold for which the ICER must fall below, which in turn affects the decision made on the cost effectiveness of a drug. Overall, this means that NICE will pay more for products where modifiers have been applied. Currently, a QALY weight of up to 1.7 can be applied bringing the ICER threshold to £50,0004.

Recently, in NICE’s methods review (read more about it here) the introduction of a severity modifier was proposed, which is due to come into effect in January 2022 replacing the end-of-life modifier5. The end-of-life modifier is only for treatments that prolong the life of patients with less than 24 months to live3, whereas the severity modifier will allow QALYs gained improving severe disease to be worth more than QALYs gained improving less severe diseases, therefore allowing a broader set of interventions to be considered5.

NICE will consider two measures of severity: proportional shortfall and absolute shortfall.

Proportional shortfall investigates the quality and quantity of life lost because of a disease, taking into consideration the existing treatment that is offered relative to what the patient would have without the disease6. This number will fall between 0 and 1. The closer the value is to 1 the more life threatening the diseases and so giving higher weight to illnesses with a large proportional shortfall has consistency with the existing end-of-life modifier whilst also taking quality of life into account.

Although absolute shortfall is also measuring the severity of a disease, it differs as it calculates the absolute QALYs lost because of a given disease. Therefore, it is not limited at being between 0 and 1 but can be any positive number. This method is much more sensitive to age, which may help to give an indication of the societal effect of a disease as it will help to show the loss of productive years.

Both absolute and proportional shortfall will be considered when looking at diseases and medicines from January 2022 according to the new proposal from NICE, with the application of a severity modifier if the scores hit a yet to be determined threshold. This will allow greater weight to be given to the QALYs gained by a new medicine if it treats a severe disease.

Using two different methods aims to dampen the limitations that each carry. In absolute shortfall for example a limitation is that for older people with severe diseases scores are likely to come out low. For proportional shortfall, younger people with severe but non-life-threatening diseases may similarly be given lower scores. Therefore, considering both aims to capture the severity of different diseases over different ages. Learn more about QALY shortfall in this article.


  • Incremental Cost-Effectiveness Ratio (ICER) [online]. (2016). York; York Health Economics Consortium; 2016.
  • National Institute for Health and Clinical Excellence (NICE). Guide to the processes of technology appraisal. London: NICE; 2018.
  • National Institute for Health and Clinical Excellence (NICE). Guide to the methods of technology appraisal 2013. London: NICE; 2013.
  • National Institute for Health and Clinical Excellence (NICE). CHTE methods review – modifiers. London: NICE; 2020.
  • National Institute for Health and Clinical Excellence (NICE). Our ambitions for the future of health technology. London: NICE; 2021.
  • Stolk EA, van Donselaar G, Brouwer WB, Busschbach JJ. Reconciliation of economic concerns and health policy: illustration of an equity adjustment procedure using proportional shortfall. Pharmacoeconomics. 2004;22(17):1097-107

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