Time to emphasise the economics in health economics

There has long been a debate about NICE’s cost-effectiveness threshold; what it should represent and where it should be set. The announcement of a UK-US Economic Prosperity Deal last month has committed to increasing the baseline threshold from £20,000 - £30,000 to £25,000 – £35,000, the first change to be made since its introduction in the early 2000s. Critics have argued that doing this, amongst other measures to increase spending on innovative medicines, will harm population health by diverting resources from other NHS services. Opportunity cost is, of course, a reality. Yet, in this debate, the broader economic context often seems to be overlooked.

When considering the potential opportunity cost of this decision, two questions matter: How will the policy change be funded? And would that funding have been available for other uses if the policy change were not implemented?

The government has confirmed that the increase will not reduce funding for other NHS services [1]. The NHS will not have less money for other patient care, and the pharmaceutical industry will not bear the cost through VPAG or Statutory Scheme rebates. These scheme designs have long muddied the waters on where opportunity cost truly sits.

Moreover, the additional funding would not exist without this policy change. The trade deal commits the UK to increasing spending on innovative, effective medicines, reversing decades of disinvestment. The money being committed would not be otherwise put into funding other NHS services/interventions.

So will the opportunity cost fall on other public services? Possibly, but what if the decision brings more money into the economy and the public purse? Strategic choices that stimulate an economy struggling for growth are long overdue.

What the government is willing to pay for medicines influences several related factors, including inward investment, clinical trial placement, the creation of high-skilled jobs, and NHS-industry partnerships. All these activities have the potential to generate significantly more economic value to the country than the incremental cost of increasing spending on new medicines.

The UK pharmaceutical industry contributes £17.6 billion Gross Value Added (GVA) annually to the economy [2] and 126,000 highly skilled jobs [3]. More than £9 billion is invested in UK research and development, more than UK Research and Innovation’s entire annual budget [4]. Increasing UK industry clinical trial activity, which requires the latest standards of care, by 40 per cent (comparable to 2017 levels) would generate £3 billion of additional GVA for the UK economy and 26,000 additional jobs (5,000 of which are in the NHS) [5].

Add to this the deal’s guarantee of zero tariffs on UK medicine exports to the US, worth £6.6bn to the UK last year, and the economic case strengthens further. Indeed, wider UK exports of medicinal and pharmaceutical products are worth £26.1bn to the UK economy [6], more than twice what the NHS spends on branded medicines.

Perhaps what critics find troubling is the perceived politicisation of the threshold. But NICE’s threshold has never been well defined. It originated as an approximation of the £/QALY that NICE committees were recommending medicines at in the early years of NICE’s existence. Ever since, there has been debate about what it represents.

Now, perhaps, that ambiguity can be resolved: the threshold can reflect both the need for efficient NHS spending on interventions evaluated by NICE and the government’s willingness to pay for them. To argue that it should remain static is illogical, especially given the continued rise in the cost of delivering all other NHS services, many of which do not undergo a cost-effectiveness evaluation.

Another concern raised is that the UK will pay more for the same medicines, but this is not the case. The threshold increase applies only to new medicines, not to those already available on the NHS, unless NICE chooses to re-evaluate them.

Further, increasing the value of additional QALYs provided by new medicines is not ‘paying more for the same benefits’. This would assume that the UK retains the historical rate of medicines launches. However, without this change, the UK’s position in global launch sequences would continue to decline. Over 60% of ABPI member companies report that the UK has slipped in launch priority over the past five years. In the last year alone, 46 medicines were delayed, launched privately, or not launched at all [7]. The government’s move seeks to reverse this, recognising the benefits for patients, the NHS, and the broader economy of timely access to innovative medicines.

In today’s challenging landscape, we must get better at integrating economic sub-disciplines to drive forward innovation and growth-seeking healthcare policies. Opportunity cost matters, but so does the opportunity to grow an economy, attract investment, and deliver innovation to patients. Health economics as an input into decision-making is vital, but it should not operate in isolation from wider economics. 

Endnotes:
[1] The Secretary of State for Health confirmed this on national radio the week of the UK-US trade deal announcement
[2] ONS, ‘Regional gross value added (balanced) by industry: all ITL regions’, 2021. Methodology available at: https://sector-insights-map.abpi.org.uk/sources/
[3] ONS, ‘Industry Census Data 2021’, available at: www.ons.gov.uk/datasets/TS060/editions/2021/versions/1 (methodology available at https://sector-insights-map.abpi.org.uk/sources
[4] ONS, ‘Business Enterprise Research and Development statistics 2022’. Available at
https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/researchanddevelopmentexpenditure/bulletins/businessenterpriseresearchanddevelopment
[5] Frontier Economics. The value of industry clinical trials in the UK. December 2024. Available at The value of industry clinical trials to the UK https://www.abpi.org.uk/media/5evd0zcl/the-value-of-industry-clinical-trials-to-the-uk-extended-report.pdf
[6] Office for National Statistics, ‘Trade in goods: country-by-commodity exports’. Available at www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/datasets/uktradecountrybycommodityexports 
[7] ABPI. Medicines Impacts and Investments survey 2025.