Cost-effectiveness Threshold

The cost-effectiveness threshold represents the maximum amount that a decision-maker is willing to pay for a unit of health outcome, such as a quality-adjusted life year (QALY). This threshold acts as a benchmark for evaluating whether a new therapy provides good value for money: if the incremental cost-effectiveness ratio (ICER) of a new intervention is below this threshold, the intervention is typically deemed cost-effective and likely to be recommended.

Establishing these thresholds usually involves analyzing historical reimbursement decisions rather than direct outputs from cost-effectiveness analyses. These thresholds serve as critical guidelines for interpreting cost-effectiveness analysis results in the context of decision-making. They vary by the specific health outcomes they measure and reflect the economic principle of ‘opportunity cost’—the cost of forgoing the next best alternative when a particular intervention is chosen.

For example, if resources are used for one health intervention, the threshold value indicates the health benefits that would be sacrificed from an alternative use of those resources. While some countries, like the UK through its NICE guidelines, explicitly state their cost-effectiveness thresholds, in other regions, these thresholds can be implicit and vary widely depending on the healthcare sector or disease area. This variance underscores the tailored approach to healthcare budgeting and prioritization, ensuring that spending aligns with national or local valuations of health outcomes.

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