Applied Health Economics and Health Policy | 2021
Strategies for Avoiding Neglect of Opportunity Costs by Decision-Makers
Abstract
Cost-effectiveness thresholds represent decision-makers’ maximum monetary valuation of a unit of outcome (typically a quality-adjusted life-year; QALY) in the context of decisions regarding the public funding of health technologies. If a technology is expected to generate additional QALYs at an incremental cost lower than the threshold, the technology is deemed to be cost effective. In this issue of Applied Health Economics and Health Policy, Lomas and colleagues note that the (policy) threshold used by the National Institute of Health and Care Excellence (NICE) is discrepant from the empirically estimated opportunity costs of the decisions made by NICE [1]. Here, we first confirm the relevance of empirical estimates of opportunity costs to informing the value of cost-effectiveness thresholds in different settings, and then build on Lomas et al.’s suggested strategy to avoid the neglect of empirical estimates of opportunity costs by decision-makers. No decision-maker has defined a single cost-effectiveness threshold value, mainly because factors other than QALY gains influence the expected value of health technologies, including disease severity, availability of alternative treatment options, uncertainty and budget impact. Conceptually, the value of the cost-effectiveness threshold is individually considered and defined for every decision, reflecting the relevance of ‘other factors’ to each decision. Empirical estimates of marginal health system productivity represent the expected QALY gains from relatively small increases in aggregate health expenditure. In England, decisions made by NICE are implemented by local health services, finding the resources required to fund a new health technology from budgets from which all other healthcare for defined jurisdictions are funded. This means the estimated health system marginal cost per QALY represents the expected opportunity costs of NICE decisions—decisions to fund new health technologies result in reduced health expenditure at the margin. It follows that the empirically estimated marginal cost per QALY provides a relevant reference point for defining cost-effectiveness thresholds for funding decisions that are informed by QALYs and incremental cost-effectiveness ratios (ICERs). The threshold for individual decisions can move up or down depending on the effects of ‘other factors’. In other countries, the absence of single funders of healthcare for defined jurisdictions means that the link between decisions to fund new health technologies and health expenditure at the margin is less direct. In Australia, for example, funding decisions by the Commonwealth government have little effect on funding decisions made by local health services, who are funded by State and Territory governments. Thus, whilst the available empirical estimates of the marginal effects of health expenditure are representative of the expected opportunity costs of funding decisions at a health systems level, budget silos within the health system mean the empirical estimates may not reflect actual (realworld) opportunity costs. In this context, the empirical marginal cost per QALY remains relevant because the funding of health technologies with ICERs higher than the estimated health system marginal cost per QALY is expected to reduce health system efficiency. As Lomas et al. [1] note, NICE have stated that funding decisions should reflect the expected opportunity costs of new health technologies. The defined lower threshold value of £20,000 per QALY implies that all assessed health technologies that gain QALYs at or below that value are cost effective. Lomas et al. refer to the NICE threshold as a ‘policy threshold’ because the value is higher than the estimated marginal cost per QALY for the English health system (£12,936 per QALY) [1]. Lomas et al. suggest analysts should interpret the findings of published cost-effectiveness * Jonathan Karnon [email protected]