Determinants of Change in the Cost-effectiveness Threshold

Abstract

The cost-effectiveness threshold in health care systems with a constrained budget should be determined by the cost-effectiveness of displacing health care services to fund new interventions. Using comparative statics, we review some potential determinants of the threshold, including the budget for health care, the demand for existing health care interventions, the technical efficiency of existing interventions, and the development of new health technologies. We consider the anticipated direction of impact that would affect the threshold following a change in each of these determinants. Where the health care system is technically efficient, an increase in the health care budget unambiguously raises the threshold, whereas an increase in the demand for existing, non-marginal health interventions unambiguously lowers the threshold. Improvements in the technical efficiency of existing interventions may raise or lower the threshold, depending on the cause of the improvement in efficiency, whether the intervention is already funded, and, if so, whether it is marginal. New technologies may also raise or lower the threshold, depending on whether the new technology is a substitute for an existing technology and, again, whether the existing technology is marginal. Our analysis permits health economists and decision makers to assess if and in what direction the threshold may change over time. This matters, as threshold changes impact the cost-effectiveness of interventions that require decisions now but have costs and effects that fall in future periods.