Threshold Price

Threshold Price: Solving a Cost-Effectiveness Model for the Highest Acceptable Price

A threshold price is found by solving a cost-effectiveness model for the unit price of a new technology at which its incremental cost per QALY just reaches the threshold, so that any lower price makes it cost-effective and any higher price does not. Health technology assessment (HTA) bodies and payers use it to turn an incremental cost-effectiveness ratio into a price figure that can be negotiated, and manufacturers use it to see how far a list price sits above what a threshold will bear. This page sets out the formula, how the price is computed from a model, the threshold ranges used by NICE and by the Institute for Clinical and Economic Review (ICER) in the US, its link to value-based pricing, an illustrative worked example and the common errors in reading it.

Why the ICER can be solved for price

The incremental cost-effectiveness ratio (ICER) divides the extra cost of a technology by its extra health gain against a comparator. The price of the technology enters only the numerator, through its acquisition cost, while the health gain usually does not depend on price. The ICER is therefore a straight-line function of price, and there is exactly one price at which it equals a given cost-effectiveness threshold.

Splitting incremental cost into the acquisition cost of the new technology and all other incremental costs gives a closed-form solution:

$$p^{*} = \frac{\lambda , \Delta E - \Delta C_{o}}{Q}$$

where $p^{*}$ is the threshold price per unit (a pack, dose or course), $\lambda$ is the threshold in currency per QALY, $\Delta E$ is the incremental discounted QALYs per patient, $\Delta C_{o}$ is the incremental discounted cost per patient other than the technology's own acquisition cost (administration, monitoring and adverse events, net of any costs avoided), and $Q$ is the discounted number of units used per patient.

The same price sets incremental net monetary benefit to zero, since $\lambda \Delta E - \Delta C_{o} - pQ = 0$ at $p = p^{}$. In net health benefit terms, the health gained by patients at the threshold price exactly matches the health expected to be lost elsewhere when the extra spending displaces other care. NICE's manual (PMG36) describes negative net health benefit as health benefits that are "not large enough to prevent overall health loss" from care not funded elsewhere. A price above $p^{}$ therefore reduces population health at that threshold, and a price below it adds to it.

Computing the threshold price from a model

In practice the threshold price is computed inside the full economic model rather than from published summary figures, because units, wastage and discounting all sit in the model's cost structure. The usual route is a one-way threshold analysis on the price parameter: price is varied, every other input is held at its base-case value, and the price at which the ICER crosses the threshold is reported. NICE's manual (PMG36, section 4.7.22) calls the value at which a decision would change a "switching value" and gives 25,000 and 35,000 GBP per QALY as example thresholds.

Several modelling choices change the answer:

• Units and dosing. Weight-based dosing, vial sharing, wastage and treatment duration determine $Q$, so a per-pack threshold price depends on how the model counts packs.
• Discounting. Future packs are discounted like other costs, so $Q$ is a discounted quantity and is smaller than the undiscounted pack count.
• Comparator prices. NICE's manual (section 4.4.4) bases reference-case analyses on prices actually paid in the NHS, including patient access schemes and other known price reductions. A confidential discount on the comparator lowers the new technology's threshold price.
• Uncertainty. In a probabilistic model, the decision-relevant threshold price uses expected (mean) costs and QALYs across simulations. When the number of units varies between simulations, averaging the per-simulation threshold prices gives a different and incorrect figure.
• Several comparators. With more than one relevant alternative, the technology must have the highest net benefit of all options, so the binding threshold price is the lowest of the prices computed against each comparator.

Sometimes no positive threshold price exists. When $\Delta C_{o}$ exceeds $\lambda \Delta E$, the technology is not cost-effective even if given free, which ICER's framework notes can happen when a treatment is added to existing care that is already near or above the threshold. NICE's manual (section 4.4.16) allows the committee to consider a non-reference-case analysis with background care costs removed when a technology extends survival in people whose current care is expensive or would not itself be cost-effective.

Which threshold: NICE, ICER and opportunity cost

The threshold price is only as meaningful as the threshold put into it, and the main HTA bodies state ranges rather than single values. Because $p^{*}$ rises by $\Delta E / Q$ for each unit added to $\lambda$, the choice of threshold moves the price directly.

NICE (England). NICE's technology appraisal manual (PMG36) was updated in March 2026 to include a change to the cost-effectiveness threshold. Under section 6.3.4, below a most plausible ICER of 25,000 GBP per QALY gained the recommendation normally rests on the cost-effectiveness estimate. Between 25,000 and 35,000 GBP the committee makes explicit reference to factors such as uncertainty, uncaptured benefits and health inequalities (section 6.3.7), and above 35,000 GBP it needs an increasingly stronger case (section 6.3.8). For highly specialised technologies the figure is 100,000 GBP per QALY. NICE states (section 6.3.1) that it uses no precise maximum acceptable ICER, so an English threshold price is a range, not a point. The severity modifier (Table 6.1) weights QALYs by 1.2 or 1.7 according to absolute and proportional QALY shortfall, which multiplies $\Delta E$ and so raises the threshold price. NICE's committee cannot make recommendations on the pricing of technologies (section 6.1.15), but it can consider a commercial arrangement, so a lower price reaches an appraisal through routes such as a patient access scheme.

ICER (United States). ICER's Health Benefit Price Benchmark is the range of prices that would achieve ICERs of 100,000 and 150,000 USD per QALY or per equal value of life year (evLY) gained. ICER states that these are prices paid by insurers "net of rebates and other concessions" and that the top of the range is usually read as a ceiling price. Its framework frames the benchmark on the QALY at 100,000 USD and the evLY at 150,000 USD, reports threshold prices at 50,000, 100,000, 150,000 and 200,000 USD in its potential budget impact analysis (the fourth was added in June 2025), and keeps the range as a level playing field for stakeholders while stating that single thresholds should not be used as a blunt decision rule.

Opportunity-cost estimates. Claxton and colleagues estimated the central NHS threshold at 12,936 GBP per QALY (2008 expenditure), with a probability of 0.89 that it lies below 20,000 GBP. Because the threshold price falls as $\lambda$ falls, an opportunity-cost threshold of that size gives a far lower price than a policy range, so the threshold behind any quoted price should be stated.

Worked example: one drug against standard care

The figures below are illustrative and not taken from any appraisal. A new drug is compared with standard care in an English model. Per patient, the model gives $\Delta E = 0.50$ discounted QALYs, other incremental costs of 3,000 GBP for administration and monitoring offset by 1,500 GBP of avoided hospital care, so $\Delta C_{o} = 1{,}500$ GBP, and $Q = 10$ discounted packs. The list price is 1,800 GBP per pack.

At list price, incremental cost is 1,800 x 10 + 1,500 = 19,500 GBP per patient, so the ICER is:

$$ICER_{list} = \frac{19{,}500}{0.50} = 39{,}000$$

where $ICER_{list}$ is the incremental cost per QALY at list price, in GBP. This sits above the top of NICE's range. Net health benefit at 25,000 GBP per QALY is 0.50 minus 19,500/25,000, or -0.28 QALYs per patient, a net loss of population health.

The threshold prices at the two ends of the NICE range are:

$$p^{*}_{25k} = \frac{25{,}000 \times 0.50 - 1{,}500}{10} = 1{,}100$$

where $p^{*}_{25k}$ is the threshold price per pack, in GBP, at 25,000 GBP per QALY.

$$p^{*}_{35k} = \frac{35{,}000 \times 0.50 - 1{,}500}{10} = 1{,}600$$

where $p^{*}_{35k}$ is the threshold price per pack, in GBP, at 35,000 GBP per QALY. As a check, (1,100 x 10 + 1,500)/0.50 = 25,000 GBP per QALY. Reaching the lower end needs a discount of 38.9 per cent on list (1 minus 1,100/1,800), and the upper end 11.1 per cent (1 minus 1,600/1,800).

Three further readings follow from the same model:

Each 1,000 GBP rise in the threshold adds $\Delta E / Q \times 1{,}000 = 50$ GBP to the price per pack. With the 1.2 severity weight, the list price of 1,800 GBP gives a weighted ICER of 19,500/0.60 = 32,500 GBP per QALY, inside the range. A 20 per cent fall in the health gain (0.50 to 0.40) cuts the threshold price at 25,000 GBP by 22.7 per cent (1,100 to 850), because other costs are fixed. A company and payer reading this model would see a negotiating zone of roughly 1,100 to 1,600 GBP per pack, moving with the committee's view of uncertainty, severity and the most plausible health gain.

How the threshold price links to value-based pricing

Value-based pricing sets a price with reference to the value of a technology's health gain rather than its production cost, and the threshold price is that idea applied with a cost-effectiveness threshold as the yardstick. At the threshold price, the whole value of the health gain at $\lambda$, net of other incremental costs, goes to the manufacturer and net health benefit to the system is zero. Any price below it shares part of that value with the health system. Garrison and Towse note that when the same health gain is concentrated in a smaller, better-targeted group, a higher price is justified at any given cost-per-QALY threshold. This is the arithmetic of $\Delta E$ per patient in the formula above. A dedicated page on value-based pricing covers its policy forms.

Boundaries with nearby concepts

The threshold price is easily confused with neighbouring terms, partly because several share the word threshold or price. Each of the terms below answers a different question, and some have their own pages.

• Cost-effectiveness threshold. The threshold ($\lambda$) is a value per QALY and an input; the threshold price is a value per unit of product and an output.
• Threshold analysis. Threshold analysis is the general method of finding a switching value for any parameter; the threshold price is its application to price.
• Economically justifiable price. A market-access term for the prices that cost-effectiveness evidence could support when a launch is being planned; this page covers the HTA calculation underneath.
• Headroom. Headroom analysis estimates, early in development, the maximum cost at which a technology could still be cost-effective; the threshold price applies to a defined product with trial evidence.
• Benchmark price. A benchmark price is a payment reference, such as a Medicare Advantage benchmark, not a price derived from cost-effectiveness; ICER's Health Benefit Price Benchmark, despite its name, is a pair of threshold prices.
• Affordability. A threshold price says nothing about total spending; that is the role of budget impact analysis.

Where threshold prices mislead

A threshold price inherits every assumption of the model that produced it. Its main weaknesses come from that dependence and from treating a derived figure as a target.

• It is a ceiling, not a fair price. At the threshold price the health system gains nothing at the margin; lower prices leave net health benefit with patients elsewhere in the system.
• It moves with the comparator. A cheaper or confidentially discounted comparator lowers it, and a change of comparator can move it more than any clinical input.
• It ignores budget impact. A technology at its threshold price for a large population may still be unaffordable; ICER reports potential budget impact at each threshold price alongside its benchmark.
• The per-unit figure hides units. Threshold prices per pack, per dose and per course differ, and comparisons across models need the same unit and discounting basis.
• A point estimate hides uncertainty. Committees work from the most plausible ICER and weigh uncertainty, so a price exactly at $p^{*}$ for the base case may still be rejected.
• It is not always positive. When other incremental costs exceed the value of the health gain, no price makes the technology cost-effective.

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 31 March 2026. Chapters 4 and 6 and update information. https://www.nice.org.uk/process/pmg36
• Institute for Clinical and Economic Review. 2023 Value Assessment Framework. Updated 25 September 2023, with revisions to July 2026. https://icer.org/wp-content/uploads/2025/12/ICER_2023_2026_VAF_070126.pdf
• Claxton K, Martin S, Soares M, Rice N, Spackman E, Hinde S, Devlin N, Smith PC, Sculpher M. Methods for the estimation of the National Institute for Health and Care Excellence cost-effectiveness threshold. Health Technology Assessment. 2015;19(14):1-503. https://doi.org/10.3310/hta19140
• Garrison LP, Towse A. Value-based pricing and reimbursement in personalised healthcare: introduction to the basic health economics. Journal of Personalized Medicine. 2017;7(3):10. https://doi.org/10.3390/jpm7030010
• Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. 4th ed. Oxford: Oxford University Press; 2015.
• Briggs A, Claxton K, Sculpher M. Decision Modelling for Health Economic Evaluation. Oxford: Oxford University Press; 2006.