A cost-effectiveness threshold plays a role in determining the price of services and technologies in the United Kingdom, but it is not the only factor.
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The United States and United Kingdom agreed to a prescription drug deal last week that will ensure tariff-free U.K. exports of medicines, active pharmaceutical ingredients and medical devices to the U.S. for at least three years. In exchange, the U.K. commits to spending more on newly approved pharmaceuticals. One of the key features of the agreement is a 25% increase in the numeric value of the metric that helps decide whether a health intervention is worth the cost. But contrary to media reports this is not the same thing as a 25% hike in the price of new medicines, though it may make it easier for higher-priced drugs in future to pass muster with the national cost-effectiveness watchdog.
From April 2026, the National Institute for Health and Care Excellence will increase its cost-effectiveness threshold from £20,000–£30,000 per quality-adjusted life year to £25,000–£35,000. At the current exchange rate, this converts to $33,223–$45,512. As soon as the change is enacted, it will apply to all new and ongoing technology appraisals. It’s estimated that annually up to three to five new drugs or supplemental indications that were previously just above the old cost-effectiveness threshold will be recommended in future by NICE.
Besides raising the threshold, the U.K. government announced a new “value set for measuring quality of life.” which presumably will include more input from the public. There will also be a reduction in the so-called clawback rate to 15%. Under this scheme, drug companies pay a mandatory levy on sales of branded prescription medicines to the National Health Service. This money then goes back into the health service.
While raising the threshold can make it easier for high-priced therapies to clear the NICE hurdle, it doesn’t change what British patients pay out-of-pocket. And pharmaceutical companies will still need to show that their drugs are relatively clinically effective compared to existing standards of care, hereby seeking to justify possible price increases.
The U.S. media has portrayed the changes as a net increase of 25% in the price of newly approved medicines. While this could theoretically be true, increasing a cost-effectiveness threshold doesn’t translate linearly into a price increase of equal magnitude. After all, cost-effectiveness is not equal to price.
The threshold itself is not the only determining factor for pricing of medicines. It’s one of several decisive criteria. While staying under the NICE threshold improves the chances of reimbursement and being above it reduces those odds, many medications get reimbursed despite exceeding it.
NICE is the health technology assessment organization of England, responsible for appraising the value of medicines and other medical technologies and providing reimbursement recommendations that inform decisions made by the NHS in England, Wales and Northern Ireland. [Scotland has a separate assessment body].
The agency does its assessment based on clinical- and cost-effectiveness evidence as well as the overall cost to the NHS. To do this, the organization makes use of a measurement of clinical benefit called the QALY, which combines length of life gained from a treatment and its impact on patients’ quality of life. The incremental cost-effectiveness ratio is then the difference in cost between a new health intervention and an existing standard of care, divided by the difference in their effect or QALY.
Though the cost per QALY threshold technically refers to the maximum amount that the NHS is willing to pay for an additional unit of health benefit, it is not a rigid cutoff. Rather, it’s a guide that can be adapted case by case. Despite going above the current limit of £30,000 per QALY, some medical technologies have still gotten positive NICE recommendations. And in therapeutic categories such as cancer, the threshold has been drifting upwards for quite some time.
NICE evaluates approximately 70 prescription drugs annually and grants a positive recommendation to 91% of the medicines. For years, the agency has used a much higher threshold for medicines that treat ultra-rare conditions.
Nonetheless, whatever official threshold is posted is viewed as a key signal to the life sciences sector that can shape investment, pharmaceutical pricing and even which clinical trials are carried out in the U.K.
There’s been a sharp decline in foreign direct investment in the British life sciences sector in recent years, as it fell by 58% from £1.9 ($2.5) billion in 2021 to £795 million ($1.04 billion) in 2023. According to FirstWord Pharma, to “stem the outflow of investment and to appease President Trump” the British government began to consider raising the level of a cost-effectiveness threshold this fall.
The Association of the British Pharmaceutical Industry has long sought a change in the level of the metric. ABPI wants a considerably larger increase than the government appears to be willing to adopt, namely to £40,000–£50,000 ($53,272–$66,590) and then index-linked to inflation thereafter. The trade group recognizes that additional funding would be needed to support this.
The government’s Spending Review document assumes the need for additional budget of £3.3 ($4.4) billion over the next three years. With NHS resources already severely constrained, this implies the Treasury must fully fund the £3.3 billion in additional funds to accommodate the increase in the threshold. Not having an external source of financing could leave a “black hole” in the NHS budget. This in turn would mean that elsewhere in the system cuts would have to be made, leading, for example, to even longer wait times for patients to be treated. This has been an ongoing discussion around increases to the threshold without a guaranteed budgetary expansion. While a few more expensive new drugs would gain market access, other patients’ health could be harmed.
There is still a lot to work out regarding the deal struck between the U.K. and U.S. governments on tariffs and spending on pharmaceuticals, including its ultimate impact on the prices of new drugs.