Authors: Hemant Rathi1 and George Papadopoulos2,3
- Skyward Analytics Pte. Ltd., Singapore
- Lucid Heath Consulting Pty. Ltd., Australia
- University of New South Wales, School of Medicine, Australia
Disclaimer: All opinions expressed in the article are personal
The discounting of costs and health outcomes has been an integral part of health economic evaluations. It is done to estimate the present value of all the potential costs and benefits that are to be accrued in the future. Typically, in an economic evaluation, the discount rates are applied to all the costs such as cost of drug, administration, monitoring and adverse events. Many of the national health technology assessment (HTA) bodies such as the National Institute for Health and Care Excellence (NICE) in UK, the Pharmaceutical Benefits Advisory Committee (PBAC) in Australia, and the Health Insurance and Review Assessment Service (HIRA) in South Korea recommend the use of discount rate in HTA submissions. The current discount rates applied in the UK, Australia and South Korea are 3.5%, 5% and 5%, respectively but all HTA bodies specify that sensitivity analysis around the discount rate should be conducted. In our systematic literature review, we identified that discount rates in the range of 3–10% have been used in economic evaluations conducted from an Indian perspective. A recent analysis, which appraised 2270 cost-effectiveness analyses, showed that the overall rate of adherence to discounting recommendations was 79%, and that country-specific adherence ranged from 28% in New Zealand to 87% in Belgium and the UK. The adherence rates in Australia and Canada were 73% and 66%, respectively.
We argue that the discount rate should be selectively applied to only those costs where the cost of resource is fixed, such as the cost of drug. Applying a discount rate potentially leads to the underestimation of costs in a situation where the cost of resource increases with time, for example cost of administration. The cost of resources, such as cost of nurse time or visit, general practitioner, or surgeons costs, increase with time. The trend across the countries states that healthcare inflation is at least as high or even higher than the overall national inflation rate. In such cases, we should not be adjusting the cost.
In addition, although potentially controversial, we argue that the discount rates should not be applied to the health outcomes at all because the value of life itself is independent of the concept of inflation. Although the monetary resource use saved is compounded (and therefore discounted) with time by keeping money in stocks or bonds, the same cannot be said for health outcomes. There should be no reason why a year of additional life now would be different from a year of additional life of 5, 10 or 20 years from the present.
Impact on health economic evaluations/HTA submissions:
Based on our proposed methods for discounting, we anticipate the economic evaluation results to vary in the following way. For new innovative medicines or devices, which offer a superior clinical efficacy as compared to the current intervention, the quality-adjusted life year (QALY) gains are likely to be higher, which may lead to an increase in the economically justifiable price (EJP) of the medicine or device. For medicines or devices that require a higher use of personnel because of complicated methods of administration or subsequent need of intense monitoring, such drugs would be adversely affected because the overall cost for such drugs would increase, leading to a lower EJP.
More importantly, we believe that our proposed method would provide a more accurate reflection of the true costs that are likely to be incurred in the future while incentivizing innovation and promoting products with superior clinical efficacy.
For more information about health economic evaluations or to discuss how Lucid Health Consulting can assist your organisation, please contact George Papadopoulos, Director of Lucid Health Consulting on email: firstname.lastname@example.org or phone: + 61 435 934 394.
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About the Author: George Papadopoulos.
George Papadopoulos, Partner and Director at Lucid Health Consulting. George is a Health Economist, Pricing and Reimbursement and Strategic Market Access Expert with over 25 years in the healthcare industry in both Australia and USA. An experienced key speaker and commentator, his current leadership roles include chairman of ARCS Australia and Adjunct Senior Lecturer at UNSW, Pharmaceutical Medicine.