Purpose: The concept of a cost-effectiveness “threshold” has been adopted either explicitly or implicitly by health care decision makers in numerous jurisdictions. This paper demonstrates that, under very weak assumptions – applicable to all real-world health systems – decision makers ought to instead adopt two cost-effectiveness thresholds.
Method: A simple model of a hypothetical health care system is used to demonstrate the appropriate threshold(s) under various assumptions concerning: 1) the size of the health care budget; 2) the extent to which technology, productivity and/or input prices change over time; 3) whether the amount of information available to decision makers changes over time; and 4) the fixity of the set of adopted health care technologies in the short term.
Result: The assumptions which must hold for two thresholds to be appropriate are that: a) there is some fixity in the set of adopted health care technologies in the short term, and b) either 1) technology, productivity and/or input prices change over time, or 2) the information available to decision makers changes over time, or both. Where these assumptions hold, one threshold ought to be used when appraising technologies with positive incremental costs (investment decisions), while a different threshold should be used when appraising technologies with negative incremental costs (disinvestment decisions). This is true regardless of the marginality of the technologies under consideration.
Conclusion: This finding has profound implications for the practice of cost-effectiveness analysis, for ongoing and future empirical research into the nature of the threshold, and for health care policy making. It gives a theoretical underpinning to observations that the ICERs of technologies disinvested at the margin differ from those of technologies adopted at the margin. It also has implications for the interpretation of ICERs, for the appropriate calculation of net benefit, and for the conduct of value of information (VOI) analysis.