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BMJ. Aug 25, 2007; 335(7616): 358–359.
PMCID: PMC1952475

NICE's cost effectiveness threshold

John Appleby, chief economist,1 Nancy Devlin, professor of economics,2 and David Parkin, professor of economics2

How high should it be?

The recent judicial review instigated by the drug companies Pfizer and Eisai concerning National Institute for Health and Clinical Excellence (NICE) guidance,1 which would deny access to three drugs for patients with mild Alzheimer's disease, and a second ongoing inquiry into NICE by the House of Commons Health Select Committee,2 are the latest examples highlighting the importance of NICE and the challenges it faces. The judicial review, which ruled predominantly in favour of NICE, concerned the procedures NICE used to arrive at their judgment, not the outcome specifically. However, NICE has to make a judgment that is more fundamental than the matters at stake in the judicial review—at what point should an intervention be deemed cost effective enough to warrant public subsidy via the National Health Service (NHS)?

An advantage of the way in which the United Kingdom funds the NHS is that its patients do not have to judge whether or not the health benefits of their treatment are worth its costs. But someone, somehow, still has to grapple with the decision over the value that is placed on health.

This valuation lies at the heart of the work performed by NICE—which, since its inception in 1999, has adopted a cost effectiveness threshold range of £20 000 (€29 500; $40 000) to £30 000 per quality adjusted life year (QALY) gained. NICE does not accept or reject healthcare technologies on cost effectiveness grounds alone,3 4 5 although it is undoubtedly a major deciding factor. But the uncomfortable truth is that NICE's threshold has no basis in either theory or evidence.

This is not a technical problem confined to the decisions made by NICE. That is just the tip of an iceberg of clinical, managerial, and policy decisions made daily in health care—decisions that, unlike those derived from NICE's transparent procedures, may not be based on an explicit threshold, or even consider cost effectiveness at all. Nevertheless, these decisions all imply that the value of the health benefits justify the costs—of the operation, the prescription, the new hospital, a reduction in waiting times, and so on.

The cost effectiveness threshold is emerging as a key factor in the House of Commons Health Select Committee inquiry into NICE, which has received evidence that the threshold may be too generous.2 6 If this suggestion is correct, the implications are profound. It means that NICE has recommended too many new technologies. It also means that when primary care trusts implement NICE's guidance, resources may be diverted from other healthcare services that are better value for money. By setting the hurdle too low (the cost per QALY threshold too high), NICE might be reducing the efficiency of the NHS. So, what should the threshold be?

Two approaches to setting a cost effectiveness threshold have been proposed.7 The first is to decide the worth or value of a QALY and set the NHS budget so that all health care is provided at a cost at or below that value. The second is to decide how much we wish to spend on the NHS, and let the value of a QALY emerge from the decisions made by NHS purchasers. If purchasers aim to maximise QALYs, and their budgets are set so that they can do so, these approaches converge. In practice these conditions are not met and there is currently no political or other mechanism to facilitate them. The danger is that purchasers are likely to make inconsistent decisions based on their variable, and often implicit, valuations of health gain.

Evidence suggests a mismatch between NICE's threshold range and that apparent elsewhere in the NHS. The average primary care trust spends £12 000 to gain an extra QALY in circulatory disease and £19 000 in cancer.8 In contrast, an analysis of NICE's decisions suggests that its threshold is in practice even more generous than NICE admits, being closer to £45 000.4

Why should NICE be required to set and defend what is an NHS wide cost effectiveness threshold? The factors that should determine this threshold—such as society's willingness to pay for health improvements, the size of the NHS budget, the level of health sector inflation, and the discount rate used for future costs and benefits—are beyond NICE's control. Moreover, as these factors are not constant the problem of thresholds can never be resolved. This means NICE has to keep the threshold constantly under review, although its main business and expertise is in appraising health technologies and producing guidelines.

In 1997, Gordon Brown (then chancellor) gave the Bank of England operational independence from the treasury so that it could set UK interest rates to contain inflation. It does this via its Monetary Policy Committee, which consists of bank officials and independent members. The NHS could be given similar independence from the Department of Health on the specific matter of setting a cost effectiveness threshold. The NHS should have a threshold committee with a similar structure to the Monetary Policy Committee; and NICE, primary care trusts, and other NHS purchasers should be required to adopt the common NHS threshold. NICE conjuring up a threshold and others not using one at all creates neither efficiency nor fairness in the NHS.


Competing interests: With others, the authors are currently involved in a research study funded by NICE to assess the feasibility of ascertaining the implicit cost per QALY gained of investment and disinvestment decisions taken in the NHS.

Provenance and peer review: Commissioned; not externally peer reviewed.


1. National Institute for Health and Clinical Excellence. 2007/042a updated. NICE responds to judicial review outcome. www.nice.org.uk/page.aspx?o=447774.
2. House of Commons Health Select Committee. Uncorrected transcript of oral evidence 28 June 2007: Q178 (To be published as: HC503 ii.) www.publications.parliament.uk/pa/cm200607/cmselect/cmhealth/uc503-ii/uc50302.htm.
3. Rawlins M, Culyer AJ. National Institute for Clinical Excellence and its value judgments. BMJ 2004;329:224-7. [PMC free article] [PubMed]
4. Devlin N, Parkin D. Does NICE have a cost effectiveness threshold and what other factors influence its decisions? A binary choice analysis. Health Econ 2004;13:437-52. [PubMed]
5. Dakin H, Devlin N, Odeyemi I. Yes, no or “yes, but”? A multinomial model of NICE decision-making. Health Policy 2006;77:352-67. [PubMed]
6. Devlin N, Parkin D, Appleby J. Written evidence for the House of Commons Select Committee inquiry on NICE 2007. (forthcoming).
7. Williams A. What could be nicer than NICE? London: Office for Health Economics, 2004
8. Martin S, Rice N, Smith P. The link between health care spending and health outcomes: evidence from English programme budgeting data. CHE Research Paper 24. Centre for Health Economics, University of York, York, 2007

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