THE DETERMINANTS OF CHANGE IN THE COST-EFFECTIVENESS THRESHOLD

¹ Department of Emergency Medicine, University of Alberta, Edmonton, AB, Canada

² Centre for Health Policy & Management, School of Medicine, Trinity College Dublin, Dublin, Ireland

Purpose: In health care systems with a constrained budget, the cost-effectiveness threshold should, in principle, be determined by the cost-effectiveness of health care services displaced in order to fund new interventions.

Method(s): Using comparative statics, we review a number of potential determinants of change in the threshold, including the budget for health care, the demand for existing health care interventions, the technical efficiency of existing interventions, and the development of new health technologies. We consider the direction of impact that changes in each of these determinants would be expected to have upon the threshold.

 

Result(s): Where the health care system is technically efficient, an increase in the health care budget unambiguously increases the threshold, while an increase in the demand for existing non-marginal health interventions unambiguously lowers the threshold. Improvements in the technical efficiency of existing interventions may result in a higher or lower threshold, depending upon the cause of the improvement in efficiency, whether the intervention is already funded and, if so, whether it is marginal. The development of new technologies may also raise or lower the threshold, depending upon whether the new technology is a substitute for an existing technology and, if so, whether the existing technology is marginal.

 

Conclusion(s): Our analysis allows decision makers to consider whether the cost-effectiveness threshold is likely to be changing over time, and in what direction. This has implications for the appropriate methods to use for economic evaluation, including the derivation of discount rates. It is also an important consideration when determining which technologies are cost-effective.