Introduction
Cost-effectiveness thresholds developed as economic evaluation became part of medicines assessment. However, what was originally a technical assessment informing a coverage decision has become a policy tool, shaping reimbursement decisions, commercial access terms and national medicines-policy choices.
ICERs and thresholds
The Incremental Cost Effectiveness Ratio (ICER) is the product of the economic case submitted for a defined population, comparator set, price and evidence package. It can change when the price, population, comparator, evidence assumptions or access arrangement changes. An approval process may set an explicit or guideline ICER threshold for determining the acceptable level of cost effectiveness within the relevant reimbursement system. The threshold value therefore affects the net price, discount, population restriction or managed access arrangement needed to obtain an access recommendation.
Early development of threshold thinking
Early threshold thinking was shaped partly by US academic health economics. The United States did not establish a national medicines reimbursement system equivalent to the UK National Institute for Health and Care Excellence, NICE, and neither Medicare nor the other publicly supported programmes uses a national QALY threshold. The US contribution was instead methodological, through the development of cost-effectiveness analysis and the wider use of cost per QALY as a value metric.
The $50,000 per QALY convention became a widely cited reference in the US literature. It was informal and was never an official national decision making threshold. Its influence lay in making cost per QALY a familiar way of discussing value, rather than in providing a statutory benchmark that other countries adopted.
Australia and Canada subsequently helped to make pharmacoeconomic evidence part of public reimbursement processes. The Pharmaceutical Benefits Advisory Committee, PBAC, required economic evaluation for medicines financing decisions from the early 1990s. Canada contributed through national pharmacoeconomic guidance, first through the Canadian Coordinating Office for Health Technology Assessment, CCOHTA, and later through the Canadian Agency for Drugs and Technologies in Health, CADTH, which in 2024 adopted Canada’s Drug Agency, CDA-AMC, as its operating name. These countries helped establish economic submissions as part of medicines assessment, rather than supplying a direct numerical threshold to NICE.
NICE and the pragmatic threshold range
NICE made cost-effectiveness thresholds highly visible. Its long-standing £20,000–£30,000 per QALY range became one of the most recognisable features of international medicines assessment, because it was used within a formal national appraisal process and linked to public recommendations for National Health Service (NHS) use.
The range was pragmatic rather than derived from a single empirical estimate. NICE’s previous guidance stated that technologies below £20,000 per QALY were generally considered cost-effective. Between £20,000 and £30,000 per QALY, committees considered additional factors, including uncertainty and the nature of the health gain. Above £30,000 per QALY, committees required a stronger case before recommending routine use.
This gave NICE a stable reference point while leaving room for judgement on uncertainty, disease severity, innovation and other appraisal factors. It also made the threshold commercially important, because companies could adjust price, discount, target population or access terms to bring the ICER within the accepted range.
The York opportunity-cost challenge
Later work carried out by the University of York, UK, shifted the debate from willingness to pay towards health-system opportunity cost. In a budget-constrained system, spending on a new medicine requires resources to be found elsewhere. The relevant question is therefore whether the medicine produces more health than the NHS activity displaced by funding it.
Claxton and colleagues estimated the opportunity cost of NHS expenditure using English NHS data. Their widely cited estimate, around £12,936 per QALY, was substantially below the lower end of NICE’s historic standard range and challenged the claim that the £20,000–£30,000 range reflected current NHS productivity at the margin.
Willingness to pay, GDP and opportunity cost
Debates on thresholds often become confused because different concepts are treated as interchangeable. Social willingness to pay concerns how much society or government is prepared to pay for health gain, reflecting income and taxation choices, public preferences and political judgement.
GDP-based thresholds are broader rules of thumb. They use national income, often expressed as multiples of GDP per person, as a reference for what might be considered affordable or reasonable. They may support broad international comparison, but they do not estimate the health displaced within a specific health system.
Health-system opportunity cost is different. It asks what health is lost elsewhere when a fixed budget funds one intervention rather than another. For reimbursement decisions inside a fixed health budget, this is the most direct theoretical basis for a threshold. These approaches can produce different answers, creating tension between efficient resource allocation, political willingness to pay and manufacturer expectations.
Thresholds as pricing and access instruments
A threshold not only categorises technologies as cost-effective or not cost-effective, it also shapes the commercial terms under which a medicine can enter a reimbursement system. Manufacturers can alter the effective ICER by changing price, offering confidential discounts, narrowing the reimbursed population, agreeing outcome-based terms or accepting further evidence generation through managed access.
A fixed threshold can contain net prices by these means without preventing high global launch price expectations. If the list price remains above the level implied by the threshold, the system may still provide access through confidential commercial terms. The public threshold then remains stable, while the practical access arrangement becomes more dependent on negotiation.
The UK illustrates this pattern. NICE continued to recommend many medicines under its historic threshold range, but that outcome depended on the wider pricing and access system. The threshold provided a reference point for appraisal and negotiation, while confidential discounts and commercial agreements allowed products to meet cost-effectiveness requirements at effective net prices below list prices.
From technical rule to policy instrument
The UK’s 2026 increase in NICE’s standard range to £25,000–£35,000 per QALY illustrates the wider policy role now carried by thresholds. The change followed a government decision and was implemented in a broader commercial and policy context, including industry criticism of the UK access environment and the UK-US pharmaceutical pricing arrangement. It was not presented as a new empirical estimate of NHS opportunity cost.
Thresholds can therefore serve several purposes at once: supporting consistent appraisal, limiting accepted net prices, giving manufacturers a predictable access signal and contributing to a wider life sciences policy settlement. These functions can conflict when a higher threshold improves access to some new medicines but displaces health elsewhere in a fixed budget, or when a lower opportunity-cost threshold protects productivity but weakens launch incentives.
Summary
The ICER is the modelled estimate of additional cost per additional unit of health gain, while the cost-effectiveness threshold is the benchmark applied by the payer or health technology assessment body. Early threshold thinking was influenced by academic cost-effectiveness methods, including the US $50,000 per quality-adjusted life year convention, but that convention was not a national medicines access rule. Australia and Canada helped establish formal pharmacoeconomic evidence requirements for public medicines reimbursement, while the National Institute for Health and Care Excellence made the threshold visible through its long-standing £20,000–£30,000 per quality-adjusted life year range. Later opportunity cost work from the University of York challenged that range by estimating the health likely to be displaced elsewhere in the NHS when new technologies are funded. Current policy debates turn on whether a threshold should represent social willingness to pay, national income, health-system opportunity cost or a negotiated compromise between value, affordability and market attractiveness. Thresholds remain instruments of health-economic assessment, but they also shape net pricing, managed access, launch incentives and national medicines-policy positioning.
Links
Core methods and threshold sources
Historical and international methods sources
Grosse SD: Assessing cost-effectiveness in healthcare: history of the $50,000 per QALY threshold.
Opportunity cost and current policy sources