Budget Impact

Budget Impact as a Net Spending Change

Budget impact is a single number with a sign, a payer and a date attached. It is the expected spending in a budget year with the new technology, minus the expected spending in the same year without it. A positive figure means the named budget holder needs more money that year, and a negative figure means it spends less, under the stated assumptions. Reimbursement authorities ask for it alongside cost-effectiveness evidence because a technology can be good value per patient and still be hard to fund when many patients are eligible at once. The figure can be gross or net, annual or cumulative, and in England it feeds the budget impact test in the NICE technology appraisal manual (PMG36), where one unrealised saving can move a medicine's cash requirement across the GBP 40 million line. The method and the tool that produce the figure have their own pages, budget impact analysis and budget impact model.

Budget impact as the difference between two spending paths

Budget impact compares two forecasts for the same population, payer and period. The reference scenario is spending if the technology is not adopted, and the adoption scenario is spending if it is. The ISPOR good practice task force reports of 2007 and 2014 list the inputs that drive both forecasts, namely the size of the eligible population, the current mix of treatments and the expected mix after the new intervention arrives, the cost of each mix, and any expected change in condition-related costs.

$$BI_t = C_t^{A} - C_t^{R}$$

where $BI_t$ is the budget impact in budget period $t$, $C_t^{A}$ is the budget holder's expected spending in period $t$ under the adoption scenario, and $C_t^{R}$ is its expected spending in the same period under the reference scenario. Both terms count only costs that fall on the named budget.

The 2007 ISPOR report recommends that budget impact consider the perspective of the specific health care decision maker, and the 2014 update asks for data that reflect that decision maker's own population. The same technology therefore has different budget impacts for a national payer, a regional commissioner and a hospital pharmacy budget, and none of them is the "true" figure. A result quoted without its budget holder, its period and its sign convention cannot be interpreted, because some reports present savings as positive numbers.

Gross and net figures, and which savings count

Gross budget impact is the extra spending on the new technology itself, before anything it replaces or prevents is subtracted. Net budget impact also counts the displaced treatment, the change in condition-related costs such as avoided admissions, and the costs of introducing the technology, such as training, monitoring or extra clinic capacity. Decisions about funding depend on the net figure, and the gross figure is a component of it.

The NICE manual (PMG36, section 4.11.6) asks for estimates of net NHS costs, and personal social services costs when appropriate, to support national and local financial planning. It asks for costs to be broken down by organisation and by budget category, such as drugs, staffing, consumables and capital, and for prices to reflect as closely as possible what the NHS pays, including confidential price reductions when appropriate. It also states that if savings are anticipated, the submission should specify the extent to which they can be realised.

That last requirement matters because many offsets are freed capacity rather than cash. Fewer bed days or clinic visits release money only if staffing, wards or contracts actually change. A forecast that subtracts every avoided resource at full unit cost can understate the cash the budget holder must find. Section 4.11.4 of the manual also lists knock-on effects on staff, training, support services and facilities, which may appear as capacity limits in natural units rather than as currency.

Annual, cumulative and normalised results

Budget holders plan and account by financial year, so the primary result is a series of annual figures, one for each year of the forecast. The time profile is usually uneven, because uptake builds over several years, one-off implementation costs fall early, and some offsets arrive only after patients have been treated for a while. A medicine can have a small first-year impact and a large third-year impact.

A cumulative figure, the sum of the annual impacts over the forecast, answers a different question about total exposure over the period. It hides the peak year, which is often the year that decides whether funding has to be phased. When a present value is also requested, it is a third quantity and is best reported separately, because a discounted total no longer equals the cash a budget must hold in each year. Results may also be expressed per treated patient or per member per month for an insurer, provided the denominator, currency and price year are stated.

How the NICE budget impact test uses the figure

In England, NICE technology appraisal recommendations normally carry a statutory requirement to fund the technology within 3 months of publication, as section 5.10.1 of PMG36 sets out from the 2013 regulations. Section 5.10 of the manual then describes how net budget impact can vary that requirement. NICE estimates the potential budget impact as the net annual cost to the NHS (section 5.10.7), and the comparison is made year by year.

Since a June 2025 update, recorded in the manual's update information, the threshold for the budget impact test is GBP 40 million, increased from GBP 20 million. If the potential net budget impact of a technology is expected to exceed GBP 40 million a year in any of the first 3 financial years of its use in the NHS, NHS England will offer to engage in commercial discussions with the company before requesting a variation to the funding requirement (sections 5.10.4 and 5.10.5). NICE's guidance executive then decides whether to vary the funding requirement, normally for up to 3 years, and treats a met test as one consideration among others such as training needs (sections 5.10.28 and 5.10.29). For technologies funded from national specialised commissioning budgets, NHS England's application should set out any phasing of funding (section 5.10.25).

The test sits outside the cost-effectiveness judgement. Section 4.11.9 says committees may consider budget impact analyses when exploring decision uncertainty, but in section 5.10 the GBP 40 million figure triggers commercial discussions and a possible change in the timing of funding, rather than a different recommendation. The wider idea of a cash line of this kind, and how other jurisdictions set one, is covered under affordability threshold.

Worked example of gross, net and an unrealised saving (illustrative)

The figures below are illustrative and do not describe any real medicine. The NHS in England has 10,000 eligible patients each year, all currently on a standard therapy costing GBP 2,000 per patient per year. A new medicine costs GBP 10,000 per patient per year, replaces the standard therapy in every patient who takes it, and avoids GBP 1,500 of hospital care per treated patient per year. Introducing it needs a one-off GBP 1,000,000 for training and infusion capacity in year 1. Uptake is 20%, 40% and 60% of eligible patients in years 1 to 3, so 2,000, 4,000 and 6,000 patients are treated.

$$BI_t = n_t \times (p - d - h) + K_t$$

where $n_t$ is the number of patients treated with the new medicine in year $t$, $p$ is its annual cost per patient (GBP 10,000), $d$ is the displaced standard therapy cost per patient (GBP 2,000), $h$ is the hospital cost avoided per treated patient (GBP 1,500), and $K_t$ is the fixed implementation cost in year $t$ (GBP 1,000,000 in year 1 and zero after). The net cost per treated patient is $p - d - h = 10{,}000 - 2{,}000 - 1{,}500 = 6{,}500$ GBP.

1. For year 1 the result is $BI_1 = 2{,}000 \times 6{,}500 + 1{,}000{,}000 = 14{,}000{,}000$ GBP. The gross spend on the new medicine is $G_1 = n_1 \times p = 2{,}000 \times 10{,}000 = 20{,}000{,}000$ GBP, where $G_t$ is gross spend in year $t$.
2. For year 2 the result is $BI_2 = 4{,}000 \times 6{,}500 = 26{,}000{,}000$ GBP, against a gross spend of 40,000,000 GBP.
3. For year 3 the result is $BI_3 = 6{,}000 \times 6{,}500 = 39{,}000{,}000$ GBP, against a gross spend of 60,000,000 GBP.
4. The cumulative total is $BI_{1:3} = 14{,}000{,}000 + 26{,}000{,}000 + 39{,}000{,}000 = 79{,}000{,}000$ GBP, where $BI_{1:3}$ is the sum of the three annual impacts.

Read as gross spend, the medicine reaches GBP 40 million in year 2 and exceeds it in year 3, but the test uses net budget impact, which peaks at GBP 39 million in year 3, just below the line. The last column assumes the avoided hospital care frees beds that are filled by other patients, so no cash is released and $h$ is effectively zero. The net cost per treated patient rises to $p - d = 10{,}000 - 2{,}000 = 8{,}000$ GBP, and year 3 becomes $BI_3 = 6{,}000 \times 8{,}000 = 48{,}000{,}000$ GBP, above GBP 40 million. Year 1 in that column is $BI_1 = 2{,}000 \times 8{,}000 + 1{,}000{,}000 = 17{,}000{,}000$ GBP. One judgement about whether a saving can be realised, the question section 4.11.6 asks submissions to answer, moves the budget holder's cash requirement across a GBP 40 million line, although nothing in its clinical evidence or price has changed. NICE's own resource impact process still models avoided bed days as capacity impacts that may not release cash, so a cash forecast and the NICE test figure can differ.

Budget impact beside the analysis, the model and affordability

Several neighbouring terms are often used as if they meant the same thing. Keeping them apart avoids treating a forecast as a decision, or a tool as its output.

• Budget impact is the estimated change in spending for a named budget holder in each period.
• Budget impact analysis is the structured method that defines the scenarios, gathers the inputs and tests the assumptions.
• Budget impact model is the calculator or cohort model that turns those inputs into annual figures.
• Affordability is the judgement about whether the payer can meet that change from available resources, given its budget constraint and what else the money could fund.
• Cost-effectiveness analysis asks whether the health gained per patient justifies the extra cost, judged against a cost-effectiveness threshold, usually over a lifetime horizon.

The 2007 ISPOR report described a comprehensive economic assessment of a new technology at launch as needing both a cost-effectiveness analysis and a budget impact analysis. The two answer separate questions and can point in different directions. A cost-effective medicine for a common condition can carry a large budget impact, and a medicine that lowers short-term spending is not cost-effective if it leaves patients worse off. Budget impact feeds coverage decisions, pricing and managed entry agreements, but it does not by itself say whether a technology should be funded.

Assumptions that move the number

Budget impact is often more sensitive to planning assumptions than to clinical evidence. The largest drivers are usually the eligible population, the speed of uptake, which treatments are displaced, treatment duration, and the price basis, since list prices and confidential net prices can give very different answers. Offsets and implementation costs, as the worked example shows, can move a result across a policy line.

Both ISPOR reports recommend presenting uncertainty as alternative scenarios chosen from the decision maker's perspective, and the 2014 report adds that a computer model should let users include or exclude different categories of cost. Coherent scenario analysis changes linked inputs together, for example slower uptake alongside a capacity limit, rather than combining extremes that could not occur at the same time.

Common misreadings of a budget impact figure

Most errors come from leaving scope, timing or the sign implicit. The ones below change both the size of the number and what a reader believes it shows.

1. Gross read as net. Acquisition spending on the new technology is reported as the budget impact, with displaced treatment and offsets left out.
2. Every saving counted as cash. Freed beds, staff time or clinic slots are subtracted at full unit cost although no expenditure falls.
3. Cumulative read as annual. A multi-year total is compared with an annual threshold, or the peak year is hidden inside an average.
4. Budget impact read as value. A low or negative budget impact is taken as evidence of cost-effectiveness, or a large one as evidence of poor value.
5. One payer's figure applied to another. A national estimate is used for a local budget whose population, prices and cost categories differ.
6. An old threshold applied. NICE's earlier GBP 20 million figure is quoted, although the manual has used GBP 40 million since its June 2025 update.

A budget impact figure is a forecast under stated assumptions, and actual spending will differ as uptake, prices and practice change, so its use lies in showing the size and timing of the funding need and which assumptions drive it.

Sources

• National Institute for Health and Care Excellence. NICE technology appraisal and highly specialised technologies guidance: the manual (PMG36). Published 31 January 2022; last updated 13 October 2026. Sections 4.11, 5.10 and 6.2.32, and Update information. https://www.nice.org.uk/process/pmg36
• Sullivan SD, Mauskopf JA, Augustovski F, Jaime Caro J, Lee KM, Minchin M, Orlewska E, Penna P, Rodriguez Barrios JM, Shau WY. Budget impact analysis: principles of good practice. Report of the ISPOR 2012 Budget Impact Analysis Good Practice II Task Force. Value in Health. 2014;17(1):5-14. https://doi.org/10.1016/j.jval.2013.08.2291
• Mauskopf JA, Sullivan SD, Annemans L, Caro J, Mullins CD, Nuijten M, Orlewska E, Watkins J, Trueman P. Principles of good practice for budget impact analysis: report of the ISPOR Task Force on good research practices, budget impact analysis. Value in Health. 2007;10(5):336-347. https://doi.org/10.1111/j.1524-4733.2007.00187.x
• National Institute for Health and Care Excellence. Assessing resource impact process manual. Updated January 2026. https://www.nice.org.uk/implementing-nice-guidance/cost-saving-resource-planning-and-audit/assessing-the-resource-impact-of-nice-guidance