Discount Rate

In economic evaluations, the discount rate is a crucial factor used to compare the costs and health outcomes of different interventions that occur at various points in time. This concept reflects the principle that future costs and health benefits are generally valued less than those in the present, necessitating their adjustment or ‘discounting’ to accurately reflect their present value.

The discounting process involves calculating a series of future costs and health outcomes, applying a discount factor to each value, and then aggregating these to determine the present value of each stream. The discount factor increases over time based on the chosen discount rate. According to NICE guidelines, both costs and health outcomes should be discounted at a rate of 3.5% per year. For example, 1 QALY (or £100) expected in Year 2 would have a present value of approximately 0.966 QALYs (£96.62), while in Year 11, the present values would drop to about 0.709 QALYs (£70.89).

The choice of discount rate significantly impacts the evaluation of long-term health interventions, particularly in preventive healthcare, where higher discount rates diminish the perceived value of future benefits and costs. By appropriately discounting future values, decision-makers can make more accurate comparisons and informed choices regarding the allocation of healthcare resources and the implementation of interventions.