Why Cost-Effectiveness Matters in Healthcare
- Fay
- 3 hours ago
- 3 min read
Introduction
As innovative therapies become increasingly complex and expensive, health systems face growing pressure to spend wisely. Cost-effectiveness analysis (CEA) provides a structured way to answer a fundamental question:
“Are we paying the right price for the health benefits this treatment delivers?”
By comparing both costs and clinical outcomes, CEA helps governments, insurers, and hospital systems allocate limited healthcare resources more efficiently.
The Logic Behind CEA
CEA evaluates a treatment not only by how well it works, but by how much value it delivers relative to alternatives.
Because different diseases and therapies affect patients in diverse ways, CEA typically relies on a standardized metric, the quality-adjusted life year (QALY), which incorporates both survival and quality of life.
This allows decision-makers to compare the value of treatments across diseases, from oncology to cardiology to rare diseases.
What ICER Really Measures
In simple terms, ICER tells us:
“How much extra money must we spend for one additional QALY gained?”
Lower ICERs indicate better value; higher ICERs suggest that a therapy may be too expensive for the benefit it provides.
Decision Thresholds: When Is an ICER Acceptable?
Health agencies often use cost-effectiveness thresholds, essentially “willingness-to-pay” levels for one QALY, to interpret ICERs. For example, NICE in the UK commonly references £20,000 - £30,000 per QALY as a benchmark. Other countries use their own thresholds based on budgets, income levels, or policy preferences.
Importantly, recent research suggests that thresholds should not be viewed as rigid cut-offs. Instead, they can be dynamic, reflecting disease severity, unmet need, budget impact, or societal values, giving decision-makers more flexibility than a simple pass/fail rule.
Why Thresholds Matter
CEA and ICER only become actionable when a decision-making threshold is applied—essentially, the maximum price society is willing to pay for one QALY.
Different health systems adopt different implicit or explicit thresholds:
The UK’s NICE often works around £20,000–£30,000 per QALY, with higher thresholds for severe or end-of-life conditions.
The U.S. does not have an official threshold, but $100,000–$150,000 per QALY is often cited in academic work and payer decisions.
Middle-income countries may set thresholds based on GDP per capita or employ disease-area-specific ranges.
Thresholds are more than numerical cutoffs; they encode social preferences, budget constraints, disease severity, innovation incentives, and ethical considerations. They shape not only reimbursement decisions but also how manufacturers think about pricing strategies.
How Pharma Uses CEA and ICER in Market Access
For manufacturers, CEA is no longer simply a “HEOR exercise”; it affects real commercial outcomes:
Price setting: Companies simulate ICERs early in development to estimate feasible price bands before launch.
Payer negotiations: Pricing teams use modeled ICER scenarios to justify pricing or adjust it to meet thresholds in different markets.
Value-based agreements: Payers may tie reimbursement to real-world outcomes when the ICER is borderline or uncertain.
Market access timelines: A drug with an unfavorable ICER can face delayed or restricted coverage, mandatory price cuts, or the need for additional evidence generation.
CEA, therefore, acts as a strategic bridge between clinical evidence and market reality.
Why This Matters for Global Access
As more health systems incorporate explicit value frameworks, CEA plays a growing role in addressing affordability and equity:
It prevents overspending on marginal benefits.
It helps allocate budgets to treatments with the greatest health impact.
It creates consistent decision rules across therapeutic areas.
It pressures the industry to align pricing with demonstrated value.
At the same time, the article notes that thresholds are not rigid scientific truths. they must evolve with societal willingness to pay, disease burden, technological change, and ethical values. The debate continues on how to balance value, innovation, and fairness.
Conclusion
CEA and ICER are powerful tools that define how new therapies enter the market, how they are priced, and who gets access. By quantifying value in a structured way, they help health systems make transparent, evidence-based decisions—while also influencing industry strategy from early development to payer negotiation.
Sources
Assessed and Endorsed by the MedReport Medical Review Board
