Cost-effectiveness for NICE

Cost-effectiveness and opportunity cost for NICE and the NHS. What is the right level?


When considering whether a new treatment is cost-effective, the key question is whether the benefits of the treatment are greater than the things that will need to be given up to accommodate it from existing commitments (the opportunity cost). Since 2004, opportunity cost has been reflected in NICE’s appraisal process through the specification of a cost-effectiveness threshold range of £20,000 to £30,000 per QALY. This is intended to represent the opportunity cost to a fixed-budget NHS in terms of QALYs foregone if the technology is adopted, although it is widely recognised as having little or no empirical foundation. If a treatment is considered cost-effective but not affordable, the cost-effectiveness threshold must therefore not adequately reflect the scale and value of the opportunity cost.

During a presentation at the recent ISPOR Congress in Glasgow, Karl Claxton of the University of York highlighted the fact that the NICE approval cost-effectiveness threshold per QALY is typically higher than is commonly believed, and that this may be doing more harm than good to the overall health of the population. While NICE says that it uses a threshold range of £20,000 – £30,000 per QALY, on average it approves new technologies at a cost per QALY exceeding £40,000, excluding end of life drugs. The blame for this ‘acceptance creep’ is placed on the influence of the direct beneficiaries of a positive recommendation from the NICE process; namely the manufacturers, patients that will benefit, and their doctors. The consequences can be severe: an extra £10m spent by the NHS on a drug approved at a cost-per-QALY of £20,000 would lead to a net loss of 273 QALYs. At a cost-per-QALY of £50,000, this net loss increases to 573 QALYs.

A key issue remains identifying a mechanism that will encourage manufacturers to agree lower prices in the UK that reflect the true value of the product to the NHS, beyond simply product-by-product price discounts. Professor Claxton advocates incorporating an assessment of the opportunity costs into the NICE appraisal process, which will inform on how much the NHS can afford to pay for the benefits offered. Then, by linking the NICE appraisal of the costs and benefits of new drugs to the type of rebate agreements in the current Pharmaceutical Price Regulation Scheme (PPRS), the NHS will be able to negotiate fairer prices with manufacturers in a manner that will not impact prices in other markets through referencing. Whether NICE will consider making this change to its appraisal process remains to be seen.

Stay in the know, subscribe to our newsletter

Be the first to receive exclusive content on the latest from the pharmaceutical and market access sector.