NICE Citizens Council meeting
How should NICE assess future
costs and health benefits?
3rd – 4th November 2011
Contents
What we were asked to consider
3
The conclusions we reached
3
How we worked
4
What we did and what we heard
5
Final conclusions
15
Annex 1 – Background reading
17
Annex 2 – Citizens Council members
23
Annex 3 – ‘Valuing Future Benefits’ questionnaire
24
Annex 4 – Agenda
27
Annex 5 – Presentation slides
29
2
NICE Citizens Council 2012
How should NICE assess future costs and health
benefits?
The Citizens Council provides a public perspective on a range of challenging
issues encountered by NICE. The Council met on 3-4 November 2011 to
discuss “How should NICE assess future costs and health benefits?”. This
meeting explored the issue of discounting, which is the way in which
economists calculate and value the costs and health benefits that occur in the
future. This resulting report reflects the Council’s agreed perspective and has
been presented to the Board of NICE. The Council’s recommendations and
conclusions will be taken into account when the Institute develops its
processes and methods for producing guidance, including the Social Value
Judgements document.
What we were asked to consider
Should immediate costs and health benefits be treated differently from those
that occur in the future?
What factors should NICE advisory committees take into account when
considering how to assess costs and health benefits that occur in the future?
The conclusions we reached
A majority agreed that discounting is a legitimate feature of the calculation of
future costs and benefits.
Most of us accepted the relevance to health, in principle, of the three factors
used to arrive at the discount rate (“catastrophe risk”, “economic growth” and
“time preference”). But a good many of us had reservations about the
suitability of the Treasury’s standard two per cent figure for economic growth,
particularly in the light of the current state of global markets.
However we also felt that there is a case for treating costs and benefits of
health differently. With respect to benefits, most of us agreed that there are
occasions when NICE should depart from its current discounting policy which is to apply a 3.5 per cent discount rate for costs and benefits in line
with all public bodies. Although we were reluctant to compile a definitive list of
the relevant factors, those that received a mention included interventions
where costs were mostly up front but where benefits would be accrued over a
long time in the future, those that yielded a very high QALY benefit or a total
cure, and (rather less unanimously) those that involved the treatment of
children. We felt that the question of which discount rate to use in which
circumstances was beyond our competence, but that in practice it would be
up to the committee to decide as they would know when it is appropriate. We
were also aware that there is a health economic argument that suggests that
this approach would have implications for the threshold range.
3
One issue that surprised and puzzled us was the effect of discounting when
the costs of an intervention are borne in its earliest stages, but the benefits
accrue over many years or even decades: the case with most preventive and
public health projects. We felt that the benefit of these interventions could be
undervalued. We were told that, in practice, this is seldom a handicap
because most public health measures are so cheap and/or cost effective that
the negative effects of discounting are only a minor influence on the final
calculation. However, given that the saying “Prevention is better than cure” is
a piece of folk wisdom acknowledged by public and professionals alike, it
seems odd that health economists should employ a methodology offering
such a paradoxical outcome where treatment is valued over prevention.
Should circumstances arise in which a particular public health measure is
disadvantaged by standard discounting, we would recommend that NICE take
whatever measures were necessary to achieve a commonsense conclusion.
Finally, we thought creatively about how discounting might be seen by
different age groups in society. It seemed that, depending on whether the
discount rate used could potentially favour a given group rather than another,
views on the usefulness of discounting were likely to change accordingly.
How we worked
Thirty one members of our Council were able to attend the meeting, which
was held on November 3 & 4 at NICE headquarters in London. The day
began with a brief introduction to the topic, an explanation from NICE of why it
was seeking our ideas, and an overview of the social and ethical case for and
against discounting. We broke into two groups for a preliminary discussion of
our understanding of discounting and the role it plays not just in this context
but in everyday life.
In the afternoon we first took part in an exercise designed to assess our own
“time preferences” – a key component of discounting. We then heard two
different and conflicting accounts of the rationale of discount percentages and
how they are set. The day finished with a feedback session on the outcome of
our own time preference assessments, and an initial discussion of the
questions that NICE had set us.
On day two we were led through a mock appraisal of a fictional drug based on
a real anti-cancer medicine: one which had originally focussed NICE’s
attention on the discounting issues that were now the topic of our meeting.
Working in small groups we began to think through our views of the necessity
or otherwise of discounting, and whether the percentage currently in use is
the most appropriate. The meeting finished with a final discussion and an
attempt to write and/or design press releases, posters and other messages
encapsulating a response to some consequence of discounting as it might be
viewed by different community interest groups.
All sub-group deliberations were followed by feedback sessions and a general
discussion, and we had the opportunity to question the NICE staff and outside
experts who came to talk to us.
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What we did and what we heard
In his opening welcome NICE chairman Professor Sir Michael Rawlins
admitted that the issue before us was one of the most technical - and as such
among the most challenging - ever put to the Council. A subsequent show of
hands revealed that none of us, at this stage, felt we had a complete grasp of
the concept. Clearly we had much learning to do. One of us compared
discounting with the planning of our personal finances. Someone else pointed
out that as discounting in NICE calculations affected peoples’ health and lives;
the stakes were far higher.
Following a short discussion among ourselves on what we felt to be the most
important questions we had our first presentation. This was given by
Professor Peter Littlejohns, clinical and public health director of NICE. He reiterated the difficulty of what we were taking on, and warned us (correctly, as
it turned out) that we might not all agree on everything.
He began by reminding us of the role of the Council in shaping NICE’s Social
Value Judgments document, and quoted a paragraph which emphasises that
NICE decisions cannot be based on relative costs and benefits alone. NICE
has to consider other factors when developing guidance, “including the need
to distribute health resources in the fairest way within society as a whole”.
He went on to explain the concept of time preference: in essence, the extent
to which most of us prefer to have something now rather than at some point in
the future. This preference is one of the factors that creates the need for
discounting when trying to assess the value of future costs and benefits.
Health economists themselves differ over the discount rates that should be
used, whether health costs and health benefits should be subject to the same
rates as each other and as other non-health costs and benefits, and whether
the same discount should be applied over long period of time.
Ethical and social questions
Our second presentation was from Albert Weale, professor of political science
at University College, London. Pointing out that discounting raised all sorts of
ethical and social dilemmas, he described this is as a topic on which even the
most thoughtful people have found themselves favouring different sides. In
line with the Treasury’s Green Book1, he said, NICE appraisals use a discount
figure of 3.5 per cent. (We were to hear more of this later on from a Treasury
economist). He then explained the principles and the logic of discounting,
pointing out that there can be good reasons for doing it.
The first element of the total 3.5 per cent discount rate relates to ‘time
preferences’. Most of us have what is called “time preference”: an instinctive
desire to have an asset of any kind now rather at some point in the future. We
may be uncertain about that future, or feel we may not be in a position to
enjoy the asset as much then as we would if we had it now. The Treasury has
put a numerical value on how much less things are valued if they happen in
the future, rating it as 0.5 per cent – which begs the question of whether
1
In the UK, Her Majesty’s Treasury produces a ‘Green Book’. This contains guidance for government,
setting out a framework for the appraisal and evaluation of all policies, programmes and projects
5
governments should reflect our instincts even when they are irrational, or lead
by refusing to bow to them.
The second component of the 3.5 per cent figure is 1.0 per cent for what is
misleadingly called “c”, but simply represents the uncertainty over, for
example, the advent of a new technology that might make an existing one
redundant, so wiping out the value of the investment that had gone into it. The
third component, rated at 2 per cent, is the consequence of our expectation of
a continually rising standard of living. The thinking is that over time society
gets richer and the more goods we have the lower the value we attach to any
one of them. But does this apply to health care? One line of thought suggests
it does, especially if you distinguish between commodities and the benefits
those commodities confer. Headache tablets (the commodity) bring about a
reduction in headache (the benefit). To discount the value of the commodity
itself is not necessarily to discount the value of the benefit it confers.
In reaching its decisions NICE aims to get the maximum health gain,
measured in Quality Adjusted Life Years (QALYs). A gain of one QALY is
treated equally across populations regardless as to who is receiving it. But
some commentators argue that the system should take into consideration the
time in life at which these benefits are conferred – in childhood, for example.
Professor Weale left us with some questions of social value on which to
reflect.
- Should we discount the commodities, but not the benefits those
commodities bring?
- Should we discount benefits at all and, if so, why?
- How important is the fact of pure time preference? Should
governments work with or against it?
- To what extent can we separate these questions from questions about
health gains at different points in the life cycle?
First thoughts
At this point we broke into two groups to discuss the concept of discounting
and whether it should be applied to health at all. The subsequent feedback
session revealed a deep scepticism about the justification for some of the
figures currently used, not least the assumption of a two per cent growth in
the economy. If what we are currently experiencing turns out to be a blip, all
that can be said at the moment is that it does not feel like it. At this early point
in the meeting we were also doubtful whether discounting can be
appropriately applied to health in the way it is to most other commodities. And
applying any discounting process to resource allocation makes it more
complex and so less transparent to those trying to understand the logic of
decision-making.
One of our difficulties at this stage was to grasp how big an effect different
discount rates might have on the decisions that NICE has to make. On this
point Professor Littlejohns explained that he and his colleagues had felt it was
important for us to understand the nature of discounting and the issues it
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raises before we explored its effects in specific instances. This we would be
doing later.
Measuring time preference
The afternoon began with a practical exercise in which we measured our own
time preferences. It was organised by Dr Marjon van der Pol of the Health
Economics Research Unit at Aberdeen University. The measurement of time
preferences is important not only, as here, for use in economic evaluations,
but for trying to understand hazardous health behaviours such as smoking.
Thus smokers who are more present-oriented than future-oriented are less
likely to give up. Their desire for present satisfaction outweighs their desire for
future health.
Measuring time preferences is not easy, but it can be done. The findings show
that people vary widely in their preferences, and that preferences themselves
vary according to the context. To experience how these measurements are
carried out in practice Dr van der Pol gave us four tick-box questionnaires to
complete (see her slide set) on money and health (QALYs). Later on in the
afternoon she would return to tell us where we ourselves stood on the issue of
time preference.
Two views on the correct rate
Our next presentation was given by Joseph Lowe, head of the economics
branch in the Treasury’s Public Spending Group. He gave us further details of
the Green Book’s now familiar three components that go to make up the 3.5
per cent social discount rate. The figures, he pointed out, might seem rather
arbitrary, and indeed they do not represent “absolute truths”. But their
selection had followed years of debate among economists. They were in
routine use across a wide variety of sectors, and did make it possible to
compare spending options across sectors with different patterns of costs and
benefit. However, his view was that health should not be viewed liked other
commodities, so should not have the 2 per cent component associated with a
continually rising standard of living applied, resulting in his thinking that a 1.5
per cent discount rate should be applied to (health) benefits, while maintaining
the 3.5 per cent discount rate for costs.
Joseph Lowe was followed by Karl Claxton of the Centre for Health
Economics at the University of York. He likened appearing in front of the
Council to combat experience - and by the end of what was to be a rigorous
examination of the rationale of discounting and the setting of appropriate
rates, many of us shared that feeling. He argued that while economics might
seem a rather arid affair, social values and choices lay at its core. This, he
told us, is what first attracted him to the discipline. Facts and reasoning are
key components of economics. But they do not dictate values; they follow
them.
He began by reminding us of the rationale for discounting health (or any
other) costs. He then demonstrated that while discounting future health gains
in the way that we do with money and resources may not make intuitive
sense, logically and mathematically it does. The NHS, he went on, is an
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elaborate machine for turning resources into health. So, if it’s sensible to
discount NHS costs, it must also be sensible to discount health gains
because, ultimately, they are the same thing. But…what rate of discount
should be used?
This, we found, was where the going got tough. Karl Claxton’s starting point
was to pose a question: is the NHS for promoting health or consumption2? If
you aim to maximise health you must accept a consequent reduction in the
consumption value of the national budget. Likewise if you want to maximise
consumption you have to accept reduced health. His reasoning lies beyond
the scope of this report, but his preference is for a discount percentage of 1.5
rather than 3.5 per cent, and his key message was that, whatever the rate,
both costs and benefits should be discounted at equal rates, which was
different to Joseph Lowe’s view.
His contentions are that the NHS exists to maximise health rather than
consumption, that the government can borrow at 1.5 per cent or lower, that
the NICE threshold figure starting at £20,000 is unlikely to increase given the
economic climate, but that the consumption value of health will grow at
around 1 per cent. He highlighted that the only reason to discount health and
NHS costs differently is if you think the threshold is going to grow. All the
reasons for discounting health benefits at a lower rate apply equally to NHS
costs. He said that is not a question of social values or opinion but one of
reason that cannot be escaped.
Our own time preferences
At this point Marjon van der Pol returned to the microphone to give us the
results of the time preference exercise we had completed earlier. She began
by demonstrating how the discount rate is calculated and how the
questionnaire might be completed by a present-oriented subject and another
who was future-oriented. She then presented us with our results (see slide).
We were, she said, “quite an impatient bunch”. The main findings were that
our average discount rate for money is higher than that for health, and that a
majority of us place a higher value on health one year from now than on
health further into the future. Or to put it another way, we want our money
now, but take a longer term view of our health.
We also learned that our views were broadly in line with research findings
reported in the literature. That is: most individuals’ time preference rates for
health are greater than zero; and that most individuals’ time preference rates
decline with the period of delay in question. Our broader view would appear to
be that future health should be discounted, and that the use of decreasing
discount rates should be considered where long delays are involved.
2
Consumption is the term economists use for the total value of goods and services bought by people. It
is important because it is normally the largest component of Gross Domestic Product. The economic
performance of a country is judged mainly in terms of consumption levels and dynamics.
8
Experience has demonstrated that time preferences do not remain stable
throughout our lives. They change as we get older and if we get ill, for
example.
Further thoughts on discounting
Following small group discussions we reconvened to share our thoughts. The
first group found discounting a very technical subject and admitted difficulty in
getting to grips with it. This was especially so with the three components of
the social discount rate. They viewed the evidence underpinning the level at
which these had been set as less than compelling. The disagreement about
using different discounting rates for cost and health benefits between the two
economists from whom we had heard did not make matters any easier. And it
remained hard to fathom the rationale for the alternative discount levels.
Indeed, given the world in which we live, it might make more sense to raise
the catastrophe discount rate to 2 per cent, and lower the growth component
to one per cent!
The group was well aware that NICE has to make difficult decisions and, that
spending on one thing means that the money can’t be spent on something
else. If the cost of a technology relative to its benefits over other options puts
it above the threshold range it cannot be regarded as cost-effective , so a
decision about discount rates, which impact on the calculations, may have an
impact on NICE appraisals. But the members of the group were still not
entirely certain about the consequences of a 1.5 as opposed to a 3.5 per cent
or some other discount rate.
The time preference exercise had taught us all that we are inclined to want
things now. But governments shouldn’t necessarily make policy decisions,
especially in health, that simply follow what we might do in our private lives.
Governments should be paying more attention than we might as individuals to
the future and to future generations.
The second group said they agreed with much of what had already been
reported by their fellow members. It had become clearer that the discount rate
is based partly on facts, figures and logic, but partly also on judgements and
politics. The afternoon’s presentations had been a powerful reminder that
every investment decision taken can displace a different investment option
because there is a fixed budget. The findings of the time preference study had
raised the issue not only of the rate at which the discount should be set, but
whether it should be the same for the entire period in question.
The group had had a long discussion about the impact of peoples’ life stage
on their attitude to time preference. One member had said that now he was
older he tended to want things sooner than when he was younger. This raised
an intriguing question about the people who actually set the discount rate;
what life stage were they at? How widely had they consulted?
The group felt there was a big difference between discussing matters in the
abstract (as we had been asked to do) and sitting in an appraisal committee
making particular decisions about real issues. They also wondered if the
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discount rate had always been 3.5 per cent, whether some other rate had
been used at times in the past, and why they were being asked to consider
the rate at this particular time.
Peter Littlejohns rounded off the day by answering questions - beginning with
why the meeting was tackling the issue of discounting right now. He explained
that NICE had never really had to confront the matter until it came up during
one particular appraisal - which, in disguised form, would be the subject of the
next day’s presentation. It was this event that had prompted NICE to seek the
views of the Citizens’ Council on matters such as the level of the discount
rate, and whether it should be altered in certain circumstances.
In response to a question about the scale of the impact of a change to the
discount rate used by NICE, Professor Littlejohns was reassuring. In most
cases, he said, it wouldn’t make a great deal of difference. But in specific
instances such as life-saving drugs for children it could in theory have an
impact because of the anticipated long length of life to be lived. One member
quoted a friend who’d suggested that NICE shouldn’t waste money on old
people. This comment was not well-received by all members of the Council.
Another of us wondered what would happen if no discount was applied.
Professor Littlejohns accepted that it would make the calculations more
straightforward, but it could have profound implications. It would also be
difficult, he added, to ignore the guidance of the Treasury.
A mock appraisal
Day two of our meeting began with a mock appraisal: an attempt to give us a
feel of what it’s like to sit on one of the committees that produce NICE
guidance. The exercise was led by someone with firsthand experience;
besides being a consultant radiologist, Dr Jane Adam also chairs a NICE
appraisal committee.
Pancuramab is a fictional drug for the treatment of a real fatal condition,
paediatric polyarteritis nodosa3. The condition is rare - about 50 patients per
year - and this is the first new treatment for 20 years. The drug has no other
known uses. When given to children (at an average age of 13) it is curative in
about 77 per cent of cases. This represents a seven per cent increase on the
existing treatment. And with the new drug, patients live for 60+ years. Should
NICE issue guidance that it is a cost effective use of money and should
therefore be freely available on the NHS?
Dr Adam went on to remind us how NICE uses QALYs (quality adjusted life
years) to measure the benefits conferred by a drug. Combined with a
knowledge of the price of the treatment it is possible to work out the cost/
QALY gained through using it. Below a figure of £20,000/QALY NICE reckons
an intervention is cost effective. In the range £20-30,000 it may be felt cost
3
This is a progressive disease of connective tissue that is characterized by nodules along
arteries; nodules may block the artery and result in inadequate circulation to the particular
area.
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effective, subject to scrutiny. Above £30,000 an intervention will need some
strong justification if it is to be accepted.
The cost/QALY of Pancuramab is £57,000 - well above the threshold range.
But that’s using the standard 3.5 per cent discount rate to perform the benefit
calculation. Drop the discount figure to zero per cent and the cost/QALY is
just £24,000. This big difference emerges because while the costs of
Pancuramab are all incurred in the early phase of the disease, the benefits
last a lifetime - during which they are progressively discounted.
The Methods Guide that NICE committees follow recognises that there are
circumstances (as here) where a different discount rate for benefits will make
a marked difference. But paragraphs 5.6.1 and 5.6.2 of its June 2008 edition
(see slide) offered contradictory instructions. Was a committee entitled or not
to use a different discount rate? An actual committee making an appraisal on
which the Pancuramab example was based (a childhood anti-cancer drug)
found itself deeply conflicted over the issue (again, see slide). Indeed
interpretation of the guidance on discounting was so crucial to the decision
that, although it decided to reject the treatment, the discounting issue was
referred to the NICE Board.
At this point in our meeting it was suggested that we have a show of hands on
the question of whether or not to accept the drug. Unlike the committee a
significant majority of us would have accepted it.
The NICE Board’s response to the appraisal committee’s predicament related
to how to interpret the discounting guidance by issuing a clarification to the
Methods Guide (see slide) that allowed a figure of 1.5 per cent (the benefit
discount rate recommended by the Treasury prior to 2004) to be used in
circumstances where treatment benefits are substantial and sustained. In the
original (anti-cancer drug) case, applying the 1.5 per cent rate gave a
cost/QALY figure of £36,000. This was still above the £20 - 30,000 threshold
range. But having taken account of guidance in the NICE social values
judgement document the committee decided to change its original decision
and allowed the new drug.
The presentation complete we were able to discuss its implications with Dr
Adam and Professor Littlejohns. One member pointed out that while we know
what benefits a decision to accept a new drug will confer, we cannot know
what other benefits of using other drugs to treat other conditions will
consequently be lost. Another of us suggested factoring into cost benefit
calculations the possibility of a new drug having additional but as yet
unrecognised benefits in other illnesses. This might turn “near miss” drugs
into hits.
A third member wanted to know if NICE had the right to alter the discount
percentage it uses. Professor Littlejohns suggested that while Treasury
figures were for “guidance”, and NICE is independent, it would have to have
pretty good reasons to make regular departures from Treasury
recommendations. Other topics that prompted questions and/or discussion
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included: the extent to which cases like this are exceptional; the time course
of the real life appraisal and the controversy generated by it; the special
consideration given to drugs for very rare diseases; the role of the drug
companies; and the danger of setting expensive precedents.
Recap and more discussion
The final presentation of the meeting came from Dr Bhash Naidoo, NICE
associate director of research and development. He began by reminding us
about the nature of time preference and its implications and consequences.
He went on to emphasise that the criteria people use when making their own
decisions about consumption are not necessarily those they wish
governments to use when making decisions on behalf of society. People
demonstrate less time trade-off when acting collectively.
In health, he said, discounting tends to favour shorter over longer term
benefits - and this discriminates against preventive and other public health
programmes. He offered the example of cycle paths: high capital cost incurred
now, but with gains lasting a lifetime and even accruing to future generations.
Vaccination falls foul of the same trap: costs are incurred now, but benefits lie
in the (sometimes distant) future. With reference to future generations he
posed this rhetorical question. “Is a policy for allocating resources for benefits
over time which automatically value the current generation higher than future
generations fair?”
In short, discounting tends to “downgrade” public health benefits - so the
tendency is to spend more on treatment than on prevention. The advent of yet
more expensive drugs is likely to squeeze public health budgets still further.
Yet without prevention, treatment costs will never fall.
The discussion period that followed Bhash Naidoo’s presentation began with
one of us quoting the familiar saying that prevention is better than cure. How
much influence does NICE have over spending on prevention through public
health, she asked. The answer was that health authorities4 are not obliged to
act on NICE public health recommendations. There is no guarantee of funding
for its proposals.
This prompted one of our members to suggest that a full review of discounting
might be necessary. It seemed to her that if the use of a discount
automatically militates against preventive medicine we were being driven
down the wrong track. While preventive medicine offers big savings in the
long run, these don’t seem to show up in the figures. Something seems to be
wrong. She was also uncomfortable with the use of the 3.5 per cent figure,
especially when applied to public health matters. Dr Naidoo explained that
many public health interventions are so cost-effective that in practice the
4
The Health and Social Care Act 2012 abolishes primary care trusts (PCTs), the health
authorities responsible locally for public health and NHS-based disease prevention. In April
2013, local authorities take over responsibility for public health, and clinical commissioning
groups (CCGs) led by GPs will commission NHS-based disease prevention. Like the outgoing
PCTs, local authorities and CCGs will not be obliged to act on NICE’s public health
recommendations.
12
discount rate didn’t make much difference. These interventions may come out
as little as a few hundred pounds/QALY - way below the NICE threshold
starting range of £20,000.
Peter Littlejohns reminded us that earlier on we ourselves had backed a very
expensive drug treatment. This, he said, would have to be paid for, and
perhaps out of funds that might otherwise have gone to…public health! A
telling reminder to us that that these dilemmas only arise because budgets
are finite.
One member said he believed that children should be treated as special
cases. He said he’d put more value on the welfare of a child than someone of
80. An 80 year old will be using society’s resources whereas a child has the
future potential to contribute to those resources. His view was not universally
shared. As someone else commented, an 80 year old has already contributed
to society, and deserves to get something back. Moreover it may be that the
older person is caring for someone even older, or for their grandchildren or
even their own children. From a social accounting point of view they may
actually be saving the NHS money and resources.
Another suggestion was that it might be fairer not have a set discount, but to
fix the rate on a case by case basis; discount rates should be applied in a
bespoke fashion with details shown of the categories of the discounts agreed,
and the reasons why, rather than using one blanket figure. But someone else
doubted the practicality of doing this, pointing out that such an operation
would require a big and expensive bureaucratic machine. Alternatively a
middle road might lie in listing the criteria - a treatment leading to cure, for
example - that could be used to define cases meriting a different discount
rate.
Question time
The final event of the morning was an Any Questions session with some of
the day’s speakers, Dr Jane Adams, Prof. Peter Littlejohns and Dr Bhash
Naidoo, plus Mirella Marlow, the NICE programme director for Devices &
Diagnostics, forming the panel.
The session began with a brief exploration of how appraisal committees work
in practice, given that even the revised version of the NICE Methods Guide
cannot be totally prescriptive about when to alter the discount rate. The
intention, we were told, is for committees to tease out the really important
issues as early as possible in the process. Preparing a bespoke discount rate
for every assessment would make it harder to explain to stakeholders how
decisions had been reached.
One of our members suggested a sliding scale of discounts rather than set
figures to be altered in particular circumstances. The panel felt that this would
compound the problem rather than simplifying it. But, that said, NICE’s
processes were under continual scrutiny by NICE itself and its external
advisors, and did evolve over time.
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Someone else wondered if appraisal committees could use previous
decisions as a precedent, rather as happens in the legal system. We heard
that to some extent this “case law” approach does operate, at least in NICE’s
appeal system. But this must not over-ride the need to consider each
application to an appraisal committee on its merits.
On the issue of drug company pricing we were told that NICE has no say. But
it can discuss arrangements that reduce the cost to the NHS so long as the
NHS price remains the same. The present arrangements will change anyway
when value-based pricing is introduced into the NHS.
One of us asked how other health care systems around the world tackled
discounting. But as most countries do not use cost-effectiveness to make
decisions, the issue of discounting does not arise.
On the “catastrophe” discount rate one member asked if NICE knows what
new treatment developments are in the pipeline, and might therefore be able
to take account of them. The panel told us that NICE does sometimes knows
what developments are imminent - but committees can only take account of
the evidence in front of them. NICE might of course wish to delay an appraisal
if it knew that new and relevant evidence would become available in the very
near future.
Finally we learned that while appraisal committees aim for a consensus, they
may have to settle for a majority decision. The panel emphasised that the
case we had discussed earlier in the morning was exceptional because it
featured a rare disease of childhood, a curative drug with high upfront costs,
benefits that accumulated over a long time period and, consequently,
circumstances under which the discount rate played an unusually decisive
role. This is not typical. But it did serve to emphasise the need to think about
circumstances under which standard rates might be inappropriate - and
indeed whether the whole issue of discount rate setting was ripe for
reconsideration.
Final thoughts and conclusions
After lunch we separated once more into two smaller groups for further
discussion, with a series of questions to guide our deliberations. By way of a
tantalisingly different approach to the topic, we were also asked to give some
thought to a PR or advertising campaign on discounting. Each campaign was
to be in support of the viewpoint of a body representing a group of
stakeholders: the elderly; a children’s health charity; a public health charity;
and a taxpayers’ group.
Reconvening for a final feedback session we began to get a sense of our
shared views. For some of the more straightforward questions one of the
groups had organised a show of hands. On the question of whether NICE
should be applying discount rates at all the group voted 19 to one that it
should. The single “no” vote was prompted by the uncertainty implicit in
setting the figures, particularly in the light of the current state of global
markets. On the second question - whether costs and benefits should be
14
treated the same or differently - the vote was numerically identical at 19 to
one, and in favour of treating them differently. While the group was content to
see the rate for costs remaining constant, there was a desire to see sufficient
flexibility to allow benefit discount rates to be altered according to
circumstances. One objection to this was that appraisal committees might be
tempted to “move the goalposts” at will. On a vote of 18 to two the group felt
that all three key components of discounting (catastrophe risk, economic
growth and time preference) are relevant to health. Once again the dissenting
view was motivated principally by what was seen as the impossibility of
predicting future growth in the economy.
A majority of the first group agreed that there are occasions when NICE
should depart from its current discounting policy – but they were reluctant to
start listing those factors. They took the view that when such factors arise
committees “will know what they are”. The members’ view might fairly be
summarised as favouring cautious flexibility.
As with the first group, a majority of the second was in favour of discounting in
some form; but one member in particular was unhappy about the bias it
seemed to create against long term preventive interventions. Most members
felt that specific circumstances might justify departures from the standard rate.
These included interventions of relevance to children, and those where costs
were mostly up front and yielded a high QALY benefit or a total cure. There
was some disagreement about whether children should be included in this list.
On the elements of discounting relevant to health the group was prepared to
accept the Treasury figures for catastrophes and for time preference but not
for economic growth - which was viewed as currently too chaotic to pin down.
One feature of what we had heard during the meeting that had surprised
many of us was the extent to which discounting can disadvantage public
health measures. We had also been told that in practice this is seldom a
handicap because public health measures are so cost effective that they can
nonetheless jump the hurdle. That said, should instances arise in which public
health is seen to suffer through discounting, we hope that NICE would
confront the issue head on, and take appropriate action.
Final conclusions
A majority agreed that discounting is a legitimate feature of the calculation of
future costs and benefits.
Most of us accepted the relevance to health, in principle, of the three factors
used to arrive at the discount rate (“catastrophe risk”, “economic growth” and
“time preference”). But a good many of us had reservations about the
suitability of the Treasury’s standard two per cent figure for economic growth,
particularly in the light of the current state of global markets.
However, we also felt that there is a case for treating costs and benefits of
health differently. With respect to benefits, most of us agreed that there are
15
occasions when NICE should depart from its current discounting policy which is to apply a 3.5 per cent discount rate for costs and benefits in line
with all public bodies. Although we were reluctant to compile a definitive list of
the relevant factors, those that received a mention included interventions
where costs were mostly up front but where benefits would be accrued over a
long time in the future, those that yielded a very high QALY benefit or a total
cure, and (rather less unanimously) those that involved the treatment of
children. We felt that the question of which discount rate to use in which
circumstances was beyond our competence, but that in practice it would be
up to the committee to decide and as they would know when it is appropriate.
We were also aware that there is a health economic argument that suggests
that this approach would have implications for the threshold range.
One issue that surprised and puzzled us was the effect of discounting when
the costs of an intervention are borne in its earliest stages, but the benefits
accrue over many years or even decades: the case with most preventive and
public health projects. We felt that the benefit of these interventions could be
undervalued. We were told that, in practice, this is seldom an issue because
most public health measures are so cheap and/or cost effective that the
negative effects of discounting are only a minor influence on the final
calculation. However, given that the saying “Prevention is better than cure” is
a piece of folk wisdom acknowledged by public and professionals alike, it
seems odd that health economists should employ a methodology offering
such a paradoxical outcome where treatment is valued over prevention.
Should circumstances arise in which a particular public health measure is
disadvantaged by standard discounting, we would recommend that NICE’s
advisory bodies should take this issue into account when reaching their
conclusion.
Finally, we thought creatively about how discounting might be seen by
different age groups in society. It seemed that, depending on whether the
discount rate used could potentially favour a given group rather than another,
views on the usefulness of discounting were likely to change accordingly.
16
Annex 1
Background reading
NATIONAL INSTITUTE FOR HEALTH AND CLINICAL
EXCELLENCE
Research and Development
Citizens Council 3rd– 4th November 2011
How should NICE assess future costs and health
benefits?
1
Background
1.1
One of NICE’s key functions is to assess whether the NHS should
provide new treatments based on the value for money that
treatments provide for patients. In order to assess the value for
money of a new treatment, such as a drug, NICE analyses both
the costs and the health benefits of the new treatment compared
with current practice in the NHS.
1.2
By doing this, NICE’s estimate of ‘value for money’ of different
treatments, or different ways of improving health, shows how much
extra health benefit is provided for the extra cost of that treatment.
This gives a fair way of looking at how much extra health benefit a
treatment provides to patients, compared to how much extra the
NHS is asked to pay for it. If a treatment or way of improving health
is assessed as providing good extra health benefit for the extra
cost, then it is said to be ‘cost effective’.
1.3
We all make ‘value for money’ or ‘cost-benefit decisions’ in our day
to day lives. For example, it might be whether to buy a
supermarket’s own brand of washing-up liquid or pay more for a
17
leading brand name instead, if we believe that the extra cost is
justified by some extra benefit that the more expensive product
provides.
1.4
People also tend to prefer to have the benefit of items as soon as
possible. If we buy something we prefer to be able to use that item,
or get the benefit from it, straight away. Or if we were lucky enough
to be offered £100 today, most of us would prefer to take the £100
now compared to waiting for the same £100 in a year’s time
instead! However what would you do if you were offered a £100
today or £200 in a years’s time. Some of us us might prefer the
£100 now while others would be willing to wait for the £200 in a
year’s time.
1.5
Equally if we were ill we would rather feel better again in 6 months
time rather than wait for a year’s time. This is all an example of
what economists call ‘time preference’ – a fundamental
assumption about human nature.
1.6
The technical term for addressing how to incorporate time
preference into an assessment of costs and benefits is called
‘discounting.’ For example say the main cost of a treatment
occurs in the future, then we need to calculate how much the
equivalent value is today. To do this we need to adjust it by a
certain amount which is called the discount rate.
1.7
However, in terms of health benefits (as opposed to other types of
benefit such as cash or consumer goods) it is questionable whether
people value the same health benefit less if they receive it in the
future than they do if they receive it now. For example, if we
compared taking a headache tablet which cured a headache now
with taking a headache tablet in a year’s time, would we value this
same pain relief any less for the future headache as the one now?
18
1.8
There are on-going differences of opinion (even among health
economists) including:
What discount rates should be used;
Whether costs and health benefits should be discounted at the
same rates, as health benefits should be treated differently from
other products;
Whether the same discount rates should apply over very long
periods of time.
1.9
While health economists debate what the right discount rates
should be and whether they should differ between costs and health
benefits; there is a more fundamental perspective about how future
health benefits and costs should be assessed. People can hold
different views about how they value the future that are equally
legitimate and there is no “correct answer”. However when these
differing views are translated into discount rates, depending on the
nature and timing of the costs and health benefits, different
conclusions can be reached on whether a new treatment could be
considered cost effective or not.
1.10
This is a particular issue which NICE has recently been reexamining:
should the immediate costs and health benefits be treated
differently from those that occur in the future?
How NICE works out if a treatment is cost effective:
1.11
NICE presents its estimate of value for money as the ratio of the
increased costs to the increased benefits to give the so called
incremental cost effectiveness ratio or ICER.
1.12
ICER = increased costs
increased health benefits
19
1.13
The larger this number is, the less likely the treatment is to be
cost-effective, and vice versa. NICE normally measures health
benefit as the increase in number of years of life a new treatment
provides, adjusted for the quality of life during those years (for
example is the person in pain or not). This is called the quality
adjusted life year or QALY. So the final description of the value of
a drug is presented as the cost per QALY, for example£30,000 per
QALY.
1.14
While this concept is relatively straight forward there are a number
of issues that need to be addressed in making the calculation,
particularly the matter of discounting.
1.15
If a treatment costs £100 today, and the discount rate is 5%, then
the treatment would be valued at £95 in a year’s time. Similarly, if
the benefits of the new treatment was worth 10 QALYs today,
at a discount rate of 5% the benefits would be worth 9.5
QALYs if they occurred in a year’s time. By discounting the
health benefits it effectively means that the benefits gained in a
year’s time aren’t valued as much as if they are gained now. This is
based on the assumption that people would rather have benefits
now, rather than at some point in the future.
20
1.16
Consider the table below
The effect on the Cost per QALY of applying different discount rates to the
benefits of a new treatment when the costs are discounted at 3.5% a year
over a time period of 60 years
Incremental cost
Increased cost when
Increased benefit when effectiveness ratio
comparing new
Annual Discount rate
comparing new
(ICER) – calculated by
treatment with current
applied to the benefits
treatment with current dividing increased cost
NHS practice of the new treatment
NHS practice (column 2) by increased
‘Incremental cost’
(%)
‘Incremental QALY gain’ benefit (column 3)
(£)
(£/QALY)
0.0
70,000
2.80
25,000
1.0
68,000
2.11
32,000
2.0
67,000
1.64
41,000
3.5
66,000
1.17
56,000
In this example the costs of the new treatment are discounted at
3.5% ( ie the same for all examples). If the health benefits are also
discounted at 3.5% ( line 4 ) then the ICER is £56,000 per a QALY
which is much higher than NICE’s threshold range of £20-30,000
per QALY and the treatment would not be considered cost
effective. If however it was felt that future health benefits should be
treated the same as current health benefits, this means there would
be no discounting of benefits and, in this example, the treatment
would be considered cost effective. This is represented by line 1
with an annual discount rate of zero, resulting in then the cost per
QALY of £25,000 which would make this treatment cost-effective.
The considerations represented by this example most particularly
apply to childhood immunisation, screening for disease, and the
use of treatments that are effectively “cures” in children and
adolescents.
21
1.17
This meeting will address these issues in more detail and the
Citizens Council will be asked to respond to the question:
What factors should NICE’s advisory committees take into
account when considering how to assess costs and health
benefits that occur in the future .
22
Annex 2
Citizens Council Members
The following Citizens Council members were in attendance at the meeting:
Rebecca Adewale
Oyes Ahmed
Ray Allen
Alan Bacon
Betty Barnes
Trevor Betts
Ian Darracott
Steve Durrant
Arlette Fairclough
Sally Fitton
Ivan Gee
Hilary Rock Gormley
Gay Hamilton
Margaret Hunnam
Annette James
Ronald Jobling
Ernest Kemp
Annette Lewis
Marian Lord
Gary Mayall
Sarah Monks
Jake Newall
Lynn Norman
Ann Robinson
Jane Sabin
Philip Steele
Beverley Witheridge
Martin Woodward
23
Annex 3
‘Valuing Future Benefits’ questionnaire
VALUING FUTURE BENEFITS
Choices are continually being made about which investments or projects should be
undertaken, and which should not. For example, should we spend more on treating
existing patients, or in medical research? One way in which investments can differ
from one another is in the timing of the benefits that they produce. Some (such as,
expansion of existing services) may produce benefits quickly; others (such as, medical
research) may produce benefits much further in the future. In order to assist those
who make such choices, we need to know more about how people value future
benefits. Your responses to the following questions will provide information about
how future benefits are valued by members of the citizen council.
There are no right or wrong answers. Different people hold different views.
We are interested in these differing views.
THANK YOU VERY MUCH FOR YOUR CO-OPERATION.
24
SECTION 1
Imagine that you had a choice between two options:
Option A: receiving £500 in 1 year in the future
Option B: receiving some other sum of money 3 years in the future.
For each of the following 8 choices please indicate whether you prefer Option A or Option B
by placing a tick next to your preferred option.
Please check one box for each of the 8 choices.
Choice
Option A
Option B
1
£500 received 1 year in the future

£550 received 3 years in the future

2
£500 received 1 year in the future

£600 received 3 years in the future

3
£500 received 1 year in the future

£650 received 3 years in the future

4
£500 received 1 year in the future

£700 received 3 years in the future

5
£500 received 1 year in the future

£800 received 3 years in the future

6
£500 received 1 year in the future

£900 received 3 years in the future

7
£500 received 1 year in the future

£1000 received 3 years in the future

8
£500 received 1 year in the future

£1200 received 3 years in the future

SECTION 2
Imagine that you had a choice between two options:
Option A: receiving £500 in 1 year in the future
Option B: receiving some other sum of money 9 years in the future.
For each of the following 8 choices please indicate whether you prefer Option A or Option B
by placing a tick next to your preferred option.
Please check one box for each of the 8 choices.
Choice
Option A
Option B
1
£500 received 1 year in the future 
£550 received 9 years in the future

2
£500 received 1 year in the future 
£650 received 9 years in the future

3
£500 received 1 year in the future 
£800 received 9 years in the future

4
£500 received 1 year in the future 
£1000 received 9 years in the future

5
£500 received 1 year in the future 
£1300 received 9 years in the future

6
£500 received 1 year in the future 
£2400 received 9 years in the future

7
£500 received 1 year in the future 
£3500 received 9 years in the future

8
£500 received 1 year in the future 
£4800 received 9 years in the future

25
SECTION 3
Imagine you had a choice between programmes:
Programme A: would lead to 1000 QALYs gained 1 year in the future
Programme B: would lead to some other amount of QALYs gained 8 years in the future
The programmes cost exactly the same. Assume that nothing is known about the people who
will receive the QALY gains. Each programme is a one-off, leading to a number of QALYs
gained at a point in the future. Policy-makers face choices of this type, but not in such a
simplified form.
For each of the following 8 choices please indicate whether you prefer Programme A or
Programme B by placing a tick next to your preferred programme. Please check one box for
each of the 8 choices.
Choice Programme A
Programme B
1
1000 QALYs 1 year in the future

1050 QALYs 8 years in the future

2
1000 QALYs 1 year in the future

1200 QALYs 8 years in the future

3
1000 QALYs 1 year in the future

1500 QALYs 8 years in the future

4
1000 QALYs 1 year in the future

1800 QALYs 8 years in the future

5
1000 QALYs 1 year in the future

2400 QALYs 8 years in the future

6
1000 QALYs 1 year in the future

4100 QALYs 8 years in the future

7
1000 QALYs 1 year in the future

5700 QALYs 8 years in the future

8
1000 QALYs 1 year in the future

7200 QALYs 8 years in the future

SECTION 4
Imagine you had a choice between programmes:
Programme A: would lead to 1000 QALYs gained 1 year in the future
Programme B: would lead to some other amount of QALYs gained 17 years in the future
For each of the following 8 choices please indicate whether you prefer Programme A or
Programme B by placing a tick next to your preferred programme. Please check one box for
each of the 8 choices.
Choice Programme A
Programme B
1
1000 QALYs 1 year in the future 
1050 QALYs 17 years in the future

2
1000 QALYs 1 year in the future 
1400 QALYs 17 years in the future

3
1000 QALYs 1 year in the future 
2000 QALYs 17 years in the future

4
1000 QALYs 1 year in the future 
3000 QALYs 17 years in the future

5
1000 QALYs 1 year in the future 
5000 QALYs 17 years in the future

6
1000 QALYs 1 year in the future 
7500 QALYs 17 years in the future

7
1000 QALYs 1 year in the future 
11000 QALYs 17 years in the future

8
1000 QALYs 1 year in the future 
15000 QALYs 17 years in the future

26
Annex 4
Agenda
Citizens Council Discounting Meeting
Agenda
DAY 1
10.00 – 1030 Welcome and discussion on format – Facilitators. Citizen
Councillors will be invited to write down any queries about the question
and the meeting .
10.30 -10.45 Brief introduction to question and why NICE wants the
views of the Citizen Council (Professor Peter Littlejohns)
10.45 - 11.30 Explanation of the reasons for and against discounting
from an ethical and social value perspective (Professor Albert Weale)
11.30 -11.45 Break
11.45 -12.45 Small group discussions on what the citizen councillors
think of their exposure to “discounting” in their day to day lives and
whether health should be treated differently
12.45 –1.00pm Feedback from small groups
1.00 – 1.15 Feedback on issues identified by councillors in 10am
session
1.15 -2.-00 Lunch
2.00– 2:30 Citizen Counsellors undertake a their own time preference
assessment (Dr Marjon van der Pol)
2.30 -3.45. Explanation of the reasons for discounting from a health
economic perspective ( Carl Klaxton and Joseph Lowe)
3.45 -4.00 Break
27
4 .00- 4-30 Preliminary discussion on response to questions
4.30- 5pm – Feedback from Marjon van der Pol
5pm Any questions for NICE
5.30 Finish
DAY 2
9.30 - 09:45 Recap of yesterday and plan for the day (facilitators)
09:45 – 10:00 Summary of discussion so far by report writer Geoff Watts
10.00 -11-15 A mock appraisal to explore issues (Dr Jane Adam and
Professor Peter Littlejohns) plus discussion of issues raised during a real
appraisal (Dr Jane Adam)
11.15 – 11.45 Break
11.45 - 12.15 Discounting and public health interventions (Bhash Naidoo)
12.15 – 12.45 Any questions
12.45 - 1.45 Lunch
1.45 - 2.45 Small group work on answers.
2.45 - 3.30 Feedback from groups
3 -30 – 4.00 Break
4.00 – 4.45 Finalise and conclude
28
Annex 5
Presentation slides
Peter Littlejohns - Introduction
1.
Citizen Council Meeting 3rd and 4th November 2011
2.
SOCIAL VALUE JUDGEMENTS
Principles for the development of NICE guidance
second edition
Why NICE asked the
question .....
Those developing NICE’s guidance are inevitably required to make
judgements. These judgements are of two types. Scientific value
judgements are about interpreting the quality and significance of the
evidence available; social value judgements relate to society rather than
science.
Professor Peter Littlejohns
Clinical and Public Health Director
3.
4.
NICE Citizens Council question: How should NICE assess
future costs and health benefits? (i)
Social Value Judgements – number 3
People tend to prefer to have the benefit of items as soon as possible. If we buy
something we prefer to be able to use that item, or get the benefit from it, straight away.
Or if we were lucky enough to be offered £100 today, most of us would prefer to take
the £100 now compared to waiting for the same £100 in a year’s time instead!
Decisions about whether to recommend interventions should not
be based on evidence of their relative costs and benefits alone.
NICE must consider other factors when developing its guidance,
including the need to distribute health resources in the fairest way
within society as a whole.
However what would you do if you were offered a £100 today or £200 in a year’s time.
Some of us might prefer the £100 now while others would be willing to wait for the
£200 in a year’s time.
This is call ‘time preference’ – a fundamental assumption about human nature.
The technical term for addressing how to incorporate time preference into an
assessment of costs and benefits is called ‘discounting.’ For example say the main
cost of a treatment occurs in the future, then we need to calculate how much the
equivalent value is today. To do this we need to adjust it by a certain amount which is
called the discount rate. There are more features to a discount rate than just time
preference.
5.
6.
NICE Citizens Council question: How should NICE assess
future costs and health benefits? (ii)
NICE Citizens Council question: How should NICE assess
future costs and health benefits? (iii)
However, in terms of health benefits (as opposed to other types of benefit such as cash
or consumer goods) it is questionable whether people value the same health benefit
less if they receive it in the future than they do if they receive it now.
While health economists debate what the right discount rates should be and
whether they should differ between costs and health benefits; there is a more
fundamental perspective about how future health benefits and costs should
be assessed. People can hold different views about how they value the future
that are equally legitimate and there is no “correct answer”.
There are on-going differences of opinion (even among health economists)
including:
What discount rates should be used;
Whether costs and health benefits should be discounted at the same rates, should
health benefits should be treated differently from other products;
Whether the same discount rates should apply over very long periods of time.
However when these differing views are translated into discount rates,
depending on the nature and timing of the costs and health benefits, different
conclusions can be reached on whether a new treatment could be considered
cost effective or not.
7.
8.
Day 1
NICE Citizens Council question: How should NICE assess
future costs and health benefits? (iv)
10.00 – 10.30 Welcome and discussion on format – Facilitators. Citizen Councillors will be invited to write
down any queries about the question and the meeting .
10.30 -10.45 Brief introduction to question and why NICE wants the views of the Citizen Council (Professor
Peter Littlejohns)
10.45 - 11.30 Explanation of the reasons for and against discounting from an ethical and social value
perspective (Professor Albert Weale)
11.30 -11.45 Break
11.45 -12.45 Small group discussions on what the citizen councillors think of their exposure to
“discounting” in their day to day lives and whether health should be treated differently
12.45 –1.00pm Feedback from small groups
1.00 – 1.15 Feedback on issues identified by councillors in 10am session
1.15 -2.-00 Lunch
2.00– 2:30 Citizen Counsellors undertake a their own time preference assessment (Dr Marjon van der Pol)
2.30 -3.45. Explanation of the reasons for discounting from a health economic perspective ( Karl Claxton
and Joseph Lowe)
3.45 -4.00 Break
4 .00- 4-30 Feedback from Marjon van der Pol
4.30- 5.00 – Preliminary discussion on response to questions
5.00- 5.30 Any questions for NICE
5.30 Finish
“should the immediate costs and health benefits be treated
differently from those that occur in the future?”
What factors should NICE’s advisory committees take into
account when considering how to assess costs and health
benefits that occur in the future ?
9.
Programme day 2
10.
9.30 – 09.45 Recap of yesterday and plan for the day (facilitators)
09:45 – 10.00 Summary of discussion so far by report writer Geoff Watts
10.00 -11.15 A mock appraisal to explore issues (Dr Jane Adam and Professor Peter Littlejohns)
plus discussion of issues raised during a real appraisal (Dr Jane Adam)
Good Luck !
11.15 – 11.45 Break
11.45 - 12.15 Discounting and public health interventions (Bhash Naidoo)
12.15 – 12.45 Any questions
12.45 - 1.45 Lunch
1.45 - 2.45 Small group work on answers.
2.45 - 3.30 Feedback from groups
3 -30 – 4.00 Break
4.00 – 4.45 Finalise and conclude
Albert Weale - Discounting from Ethical and Social Perspectives
1.
2.
Outline
Discounting from Ethical and Social
Perspectives
Albert Weale
Department of Political Science
University College London
Presentation to NICE Citizens’ Council Meeting on
Discounting, 3 November 2011
•
•
•
Introduction: a controversial question.
The basic idea of discounting.
Issues of social value.
3.
4.
Introduction
A Controversial Question
A Controversial Question: View 1
‘Generally speaking, everybody
prefers present pleasures or
satisfactions of equal
magnitude, even when the latter
are perfectly certain to occur.
But this preference for present
pleasures does not … imply that
a present pleasure of given
magnitude is greater than a
future pleasure of the same
magnitude. It implies only that
our telescopic faculty is
defective….’
A.C. Pigou, The Economics of
Welfare (1932)
• Although the issue for NICE has been prompted
by a recent appraisal, it has been discussed over
many years.
• Thoughtful people have taken different sides.
5.
6.
A Controversial Question: View 2
The Basic Idea
‘I want the government's social
welfare function to reflect only
the preferences of present
individuals. Whatever else
democratic theory may or may
not imply, I consider it axiomatic
that a democratic government
reflects only the preferences of
the individuals who are
presently members of the body
politic.’
Stephen Marglin, ‘The Social Rate
of Discount and the Optimal
Rate of Investment’, Quarterly
Journal of Economics, 1963.
Costs = Cost in Installing Heating Insulation
Benefits = Saving on Fuel Bills
Discount at 3.5% per year
7.
Year
1
Benefits £270
Costs
(100%)
£1000
Year
2
Year
3
Year
4
Total
£261
£251
£242
£1023
(96.5%)
---
(93.0%)
---
(89.5%)
---
£1000
8.
The Basic Idea
The Approach in Practice
Issues of Social Value
• NICE appraisals use the Treasury ‘Green Book’
discount rate of 3.5% per year for costs and
benefits.
• The approach is made up of the following
elements:
• To many people it seems strange that there is any
discounting at all in health care.
• The NHS aims to give the same service in Wigan
as in Worthing.
• If we do not make allowance for place, why make
allowance for time? Why value a health gain in
Wigan or Worthing now over the same gain in,
say, five years’ time.
– ‘Catastrophe risk’ (1.0%)
– ‘Pure time preference’ (0.5%)
– Economic growth and decline in marginal value of
additional goods (2.0%)
9.
10.
Issues of Social Value
• But there may be good reasons for discounting.
• Not sensible to pay the same price for two boxes
of computer paper, one delivered now and one
next year, as for two boxes, both delivered now.
• Three reasons for a bias towards the present:
– Uncertainty
– Dislike of waiting
– Expectation of increase in living standards.
Issues of Social Value
Uncertainty (‘Catastrophe Risk’ 1.0%)
•
•
•
You never know what big
changes the future will bring.
This is sometimes called
‘catastrophe risk’, but this is a
bad term.
Better thought of as any big
change that makes an
investment redundant – for
example a new technology.
11.
12.
Issues of Social Value
Dislike of Waiting (Pure Time Preference 0.5%)
Issues of Social Value
Expectation of Increase in Living Standards (2.0%)
• Standard of living rises over time, and as living standards
rise, we attach a lower value to an increase in goods the
more we have of them. (The computer paper example.)
• But key question is: does this apply to health care?
• One suggested distinction is between commodities and the
benefits those commodities bring…
- for example headache tablets (commodity) and the
reduction in the headache (the benefit).
- Idea is that you should discount the value of
commodities, but not the value of the benefits they
bring.
• Probably right to say that people dislike waiting, but what
is the ethical significance of this?
• They may
– be uncertain about the future.
– think that in the future they will have less capacity to enjoy the
benefit.
• In neither case do we have pure time preference.
• But in any case, what should governments do?
– reflect the habits of the population – even if they are ‘irrational’?
– take a longer term view and counteract the ‘defective telescopic’
faculty?
13.
14.
Issues of Social Value
Should We Discount Costs?
Issues of Social Value
Health Gains and the Life Course
• The argument for discounting costs is straightforward:
growth means that futures costs are lower in real terms
than present costs.
• But if you discount costs but not benefits, does this mean
that you should delay the start of a programme? The ratio
of costs to benefits will be better!
• Note: cost typically come early anyway, and you have the
claims of present beneficiaries.
• The basic approach of NICE is to get as much
health gain as possible.
• The NICE appraisal spreads out the benefit to
particular people over the whole of the treatment
group.
• But some people think that it is not just a gain in
quality-adjusted life-years, but at one time in one’s
life and to whom the benefits occur.
15.
16.
Issues of Social Value
Health Gains and the Life Course
Some Questions of Social Value to Focus
On?
•
•
•
•
•
Should there be special
consideration for children?
Idea seems to be that each
person is entitled to fair go at
getting to certain stages on road
of life.
If you think this, then it is a
mistake to average out gains to
some across the group to which
they belong. You miss the
distinctive benefit to young.
17.
And finally thanks to …
• Dr Sarah Clark for research collaboration.
• The team at NICE
• The UK’s Economic and Social Research Council
• See: http://www.ucl.ac.uk/socialvalues/.
•
•
Should be discount benefits at
all, and if so why?
Should we discount
commodities but not benefits
those commodities bring?
How important is the fact of
pure time preference? Should
governments work with or
against pure time preference?
To what extent can we separate
these questions from questions
about health gains at different
points of the life-cycle?
Marjon van der Pol - Individuals’ time preferences
1.
2.
Empirical interest
• Substantial interest in measuring people’s time
preferences:
Individuals’ time preferences
– To inform discounting practice in economic evaluations
– To investigate the relationship between time
preference and health behaviours such as smoking
Marjon van der Pol
3.
• Relatively large literature within health
4.
Role of individuals’ preferences
How do we measure time preferences?
• Individuals’ time preferences can inform the
discounting debate
• Very challenging!
• Abstract questions are required to get an
estimate of individuals’ time preferences
• Information on time preferences is usually
obtained through surveys (postal questionnaires
or face-to-face)
– Economic evaluations seek to inform social decisions
– Could be argued that how health benefits are valued
over time should be informed by individual
preferences
– Discount rates should at least reflect social time
preference
5.
6.
Findings
Questionnaire
• People vary widely in their time preferences
• Developed a questionnaire to find out more
about your own time preferences
– Some people are very present oriented
– Others are more future oriented
Aims of exercise:
• Become more familiar with trade-offs over time
• Demonstrate how discount rates are estimated
• Inform discussions
• Average time preference rates also varies widely
across studies
 Preferences are highly context dependent
7.
8.
Example question
Imagine that you had a choice between two
options:
• Option A: receiving £500 in 1 year in the future
• Option B: receiving some other sum of money 3
years on the future
Example
Choice
Option A
1
£500 received 1 year in the future
2
£500 received 1 year in the future
3
£500 received 1 year in the future
4
£500 received 1 year in the future
5
£500 received 1 year in the future
6
£500 received 1 year in the future
7
£500 received 1 year in the future
8
£500 received 1 year in the future
Option B








£550 received 3 years in the future

£600 received 3 years in the future

£650 received 3 years in the future

£700 received 3 years in the future

£800 received 3 years in the future

£900 received 3 years in the future

£1000 received 3 years in the future

£1200 received 3 years in the future

9.
10.
Example
Choice
Option A
1
£500 received 1 year in the future
2
£500 received 1 year in the future
3
£500 received 1 year in the future
4
£500 received 1 year in the future
5
£500 received 1 year in the future
6
£500 received 1 year in the future
7
£500 received 1 year in the future
8
£500 received 1 year in the future
11.








Option B
Choice
Option A
£550 received 3 years in the future
1
£500 received 1 year in the future

2
£500 received 1 year in the future
£650 received 3 years in the future

3
£500 received 1 year in the future
£700 received 3 years in the future

4
£500 received 1 year in the future
£800 received 3 years in the future

5
£500 received 1 year in the future
£900 received 3 years in the future

6
£500 received 1 year in the future
£1000 received 3 years in the future

7
£500 received 1 year in the future
£1200 received 3 years in the future

8
£500 received 1 year in the future
Option B
1
£500 received 1 year in the future
£550 received 3 years in the future

2
£500 received 1 year in the future
£600 received 3 years in the future

3
£500 received 1 year in the future
£650 received 3 years in the future

4
£500 received 1 year in the future
£700 received 3 years in the future

5
£500 received 1 year in the future
£800 received 3 years in the future

6
£500 received 1 year in the future
£900 received 3 years in the future

7
£500 received 1 year in the future
£1000 received 3 years in the future

8
£500 received 1 year in the future
£1200 received 3 years in the future










£550 received 3 years in the future

£600 received 3 years in the future

£650 received 3 years in the future

£700 received 3 years in the future

£800 received 3 years in the future

£900 received 3 years in the future

£1000 received 3 years in the future

£1200 received 3 years in the future

Points to remember
Option A


12.
Choice

Option B
£600 received 3 years in the future
Example

Example
•
•
•
•
•
There are no right or wrong answers!
Different people hold different views
Your answers are anonymous
I will present aggregate results later today
Any questions let me know
Karl Claxton - Discounting: Questions of value and questions of fact
1.
2.
Discounting:
Questions of value and questions
of fact
(plus some reasoning)
Karl Claxton
Department of Economics and Related Studies,
Centre for Health Economics,
University of York.
www.york.ac.uk/inst/che
Rationale for discounting
• Real rate of return to investment (r = 3.5%)
0
£1m
1
2
3
10
3.
4.
Rationale for discounting
• Real rate of return to investment (r = 3.5%)
0
1
£1m
£1m(1+r)
£1,035,000
5.
2
3
Rationale for discounting
• Real rate of return to investment (r = 3.5%)
10
0
1
2
3
10
£1m
£1m(1+r)
£1,035,000
£1m(1+r)(1+r)
£1,071,225
£1m(1+r)(1+r)(1+r)
£1,108,718
£1m(1+r)10
£1,410,599
6.
Rationale for discounting
• Real rate of return to investment (r = 3.5%)
Rationale for discounting
• Real rate of return to investment (r = 3.5%)
0
1
2
3
10
0
1
2
3
10
£1m
£1m(1+r)
£1,035,000
£1m(1+r)(1+r)
£1,071,225
£1m(1+r)(1+r)(1+r)
£1,108,718
£1m(1+r)10
£1,410,599
£1m
£1m(1+r)
£1,035,000
£1m(1+r)(1+r)
£1,071,225
£1m(1+r)(1+r)(1+r)
£1,108,718
£1m(1+r)10
£1,410,599
?
£1m
£1m/(1+r)
£966,184
£1m
7.
8.
Rationale for discounting
• Real rate of return to investment (r = 3.5%)
What about health?
• Project costs £1m now and generates 100 QALYs in year 10
0
1
2
3
10
0
£1m
£1m(1+r)
£1,035,000
£1m(1+r)(1+r)
£1,071,225
£1m(1+r)(1+r)(1+r)
£1,108,718
£1m(1+r)10
£1,410,599
£1m
£1m/(1+r)
£966,184
£1m
£1m/(1+r)10
£708,919
2
3
10
100 QALYs
£1m
•
Not really about an individuals preferences
•
What rate?
–
–
1
Rates reflect returns on investment and preferences in markets
What could have been done with the resources (opportunity cost)
–
Rate for consumption, rc = 3.5%, Treasury rate and the one used by NICE
–
–
Rate government can borrow, rs = 1.5% or less
But good reasons why rc ≤ market rate
•
9.
Time preference (0.5%), consumption growth (2%) and risk (1%)
10.
What about health?
• Project costs £1m now and generates 100 QALYs in year 10
0
1
2
3
£1m
Cost per QALY = £14,106
What about health?
• Project costs £1m now and generates 100 QALYs in year 10
10
0
100 QALYs
£1m
1
2
3
£1,410,599
100 QALYs
Cost per QALY = £14,106
£1m
70.9 QALYs
10
100 QALYs
Cost per QALY = £14,106
• NHS turns resources into health
– If its sensible to discount NHS costs
– It must be sensible to discount health
– They are ultimately the same thing
• Question is what rate should be used?
£1,410,599
100 QALYs
11.
12.
A question of value
Costs are simply health forgone
• Purpose of the NHS?
– Purpose of the NHS is to improve health
– Health gains are valued equally across individuals
– The NHS budget is not the remit of NICE
• Determined by some socially legitimate process
• Reflects societies value of health improvement through NHS care
• Implications
– Budget must be regarded as fixed
– NHS costs are health forgone elsewhere
Year
Additional
QALYs
1
1
2
3
£40,000
Total
4
£100,000
•
Additional
Cost
£60,000
ICER = £25,000 per QALY gained
• NICE Threshold (k)
–
–
–
–
How much NHS costs displace 1 QALY elsewhere
Estimate based on the productivity of other NHS activities
Better empirical estimates underway
Will change with budget and productivity of NHS
13.
Costs are simply health forgone
14.
Year
Cost-effectiveness
threshold (kt)
Additional
QALYs
Additional
Cost
Health
forgone
Year
Cost-effectiveness
threshold (kt)
Additional
QALYs
Additional
Cost
Health
forgone
1
£20,000
1
£60,000
?
1
£20,000
1
£60,000
3
2
3
£40,000
2
3
£40,000
Total
4
£100,000
Total
4
£100,000
•
•
ICER = £25,000 per QALY gained
15.
Costs are simply health forgone
ICER = £25,000 per QALY gained
16.
Threshold constant (future cost displace health at same rate)
Costs are simply health forgone
Threshold constant (future cost displace health at same rate)
Year
Cost-effectiveness
threshold (kt)
Additional
QALYs
Additional
Cost
Health
forgone
Year
Cost-effectiveness
threshold (kt)
Additional
QALYs
Additional
Cost
Health
forgone
1
£20,000
1
£60,000
3
1
£20,000
1
£60,000
3
2
£20,000
3
£40,000
?
2
£20,000
3
£40,000
2
4
£100,000
4
£100,000
5
Total
•
17.
Costs are simply health forgone
Total
•
•
•
ICER = £25,000 per QALY gained
Future costs are future health forgone
Threshold increases (budget grows faster than productivity)?
18.
ICER = £25,000 per QALY gained
ICER > k1, not cost-effective (more health forgone than gained)
Discount health gained and costs (health forgone) at same rate (rh)
–
Discount rate for health Dh = rh
–
Discount rate for costs Dc = rh
Future costs are future health forgone
Threshold increases (budget grows faster than productivity)?
Year
Cost-effectiveness
threshold (kt)
Additional
QALYs
Additional
Cost
Health
forgone
Year
Cost-effectiveness
threshold (kt)
Additional
QALYs
Additional
Cost
Health
forgone
1
£20,000
1
£60,000
3
1
£20,000
1
£60,000
3
2
3
£40,000
2
£40,000
3
£40,000
?
Total
4
£100,000
Total
4
£100,000
19.
20.
Future costs are future health forgone
But what should rh be?
Ht+1
Threshold increases (budget grows faster than productivity)?
Year
Cost-effectiveness
threshold (kt)
Additional
QALYs
1
£20,000
1
2
£40,000
3
4
Total
•
•
•
Additional
Cost
Health
forgone
£60,000
3
£40,000
1
£100,000
4
Allocating budget over time
• Implies kt and kt+1
• Implies Ht and Ht+1
• Trade current and future
health (Rh )
D
21.
Ht
• Individual consumption and health
Bt
The big question
• Health or consumption?
– Consumption is expected to grow and faster than health
– Consumption value of health (v)
– Maximise health and accept a reduction in consumption value
– Maximise consumption value and accept reduced health
• How much consumption an individual would give up to improve their own
health
• Equity in the valuation of health gains
– Consumption value will be higher in the future (gv>0)
– Equal value of current health gains irrespective of income
– Why should the future health gain be valued more highly simply
because future patients expected to have greater income?
• Implications
– Future health gained and forgone is more valuable
• Reflect this in lower discount rate for health gains (Dh = rc - gv )
• Equity in the distribution of health
– But costs are also health forgone
– More equal distribution of health is generally preferable to less
– The future population are likely to experience greater health
• Income, innovation and growing productivity of health care
– Why value health gains higher for those already likely to
experience greater health?
• Must also be discounted at a lower rate too (Dh = rc – gv)
• Must also account for changes in the threshold
– Discount for health gains
– Discount rate for costs
Discount rate for (NHS) health
• Implied by budget allocation
• Revealed social preference
Rh = rs - gk
450
D/E = rate government can borrow
= rs
22.
What is social welfare?
E
Bt+1
Future costs are less important (displace less health)
Health gained and forgone (using kt) discounted at same rate (rh)
Or less put weight on future costs (ICER = £20,000)
–
A higher discount rate for future costs (gk = growth rate of threshold)
–
Discount rate for health Dh = rh
–
Discount rate for costs Dc = rh + gk
Dh = rc - gv
Dc = rc – gv + gk
• Social democratic process satisfy individual preferences?
– NHS budget set so that k = v and gv + gk
– But these are questions of fact
23.
24.
What is the purpose of the NHS?
Consumption
Health
Questions of fact
I.
II.
What rate can the
government borrow (rs)?
Is the threshold growing (gk)?
I.
II.
Discount policy
25.
What is the discount rate for
consumption (rc)?
Is consumption value of
health growing (gv)?
Is the threshold growing (gk)?
II.
III.
Discount policy
Dh = rs – gk = 3.5% - 2% = 1.5%
Dc = rs
= 3.5%
I.
II.
Discount policy
Dh = rs – gk = 3.5%-0% = 3.5%
Dc = rs
= 3.5%
26.
Rate for consumption is 3.5%
Consumption value of health
growing at 2%
III. Threshold is growing at 2%
IV. Implies the NICE threshold
should increase every year
Discount policy
= 1.5%
= 3.5%
Rate for consumption is 3.5%
Consumption value of health
is constant
The threshold is constant
Discount policy
Dh = rc – gv = 3.5% - 0%
Dc = rc – gv + gk
= 3.5%
= 3.5%
Other policies (Dh=1.5% and Dc=1.5%)
Consumption
Health
I.
II.
Dh = rc – gv = 3.5% - 2%
Dc = rc – gv + gk
Rate government can borrow
is 3.5%
The threshold is constant
III.
Consumption
Health
Rate government can borrow
is 3.5%
Threshold is growing at 2%
Implies the NICE threshold
should increase every year
II.
Discount policy
Other policies (Dh=1.5% and Dc=3.5%)
I.
I.
Dh = rc - gv
Dc = rc – gv + gk
Dh = rs - gk
Dc = rs - gk + gk = rs
Consumption
Health
Questions of fact
III.
Dh = rh
Dc = rh + gk
Current NICE policy (Dh = 3.5% and Dc = 3.5%)
I.
II.
Rate government can borrow
is 3.5%
Threshold is constant
Discount policy
Dh = rs – gk = 1.5% - 0% = 1.5%
Dc = rs
= 1.5%
I.
II.
III.
Rate for consumption is 3.5%
Consumption value of health
growing at 2%
Threshold is constant
Discount policy
Dh = rc – gv = 3.5% - 2%
Dc = rc – gv + gk
= 1.5%
= 1.5%
27.
28.
Your questionnaire!
What is the purpose of the NHS?
My answers!
Health
What is the purpose of the NHS?
What rate can government borrow
rs
What rate can government borrow
rs
1.5% or lower
What is the discount rate for consumption
rc
What is the discount rate for consumption
rc
1.5% or lower
Is the threshold expected to grow?
At what rate is it expected to grow?
gk > 0
gk
Is the threshold expected to grow?
At what rate is it expected to grow?
gk > 0
gk
No
0% (may fall)
Is the consumption value of health expected to grow
At what rate is it expected to grow?
gv > 0
gv
Is the consumption value of health expected to grow
At what rate is it expected to grow?
gv > 0
gv
Yes (not much)
1%
• My discount policy
– Dh = rs – gk
= 1.5%
– Dc = rs
= 1.5%
• Answers determine discount policy
• Any discount policy implies answers to these questions
• Only treat health gains and costs differently if expect threshold to
grow
• Differential discounting has implications beyond discount policy
Joseph Lowe - The Green Book Guidance Discounting
1.
2.
HM TREASURY
Future Values & Social Time Preference
The Green Book Guidance
Discounting
Why do we bother with social time preference?
We need to compare different options that have
very different patterns of costs and benefits
going forwards into the future
Discounting works a bit like compound interest
but in reverse - so that going forwards we apply
a percentage each year but we knock it off to
make things smaller
Joseph Lowe
Head of Economics Branch
Public Spending Group HM. Treasury
UNCLASSIFIED
1
4.
Appraisal: Simplified Example
E d u c a tio n o f o ffe n d e rs
T o tal C o s t B e ne fits
Components of the Social Discount Rate
Three elements apply
to almost all costs
and benefits
lo n g te rm c o s ts a n d b e n e fits d is c o u n te d
15
2%
D is c o unte d C o s t b e ne fits
10
Wealth effect
1%
+
Catastrophe risk
0.5%
+
Social time
preference
=
3.5%
5
£ M illio n
3.
2
0
-5
-10
1
2
3
4
5
6
7
8
9
10
11
Society
tends to get
richer over
time
DISCOUNTED
-15
UND IS C O UNT E D
Uncertainty
about the
future
People prefer goods /
services sooner
rather than later
-20
Years
3
4
5.
Questions and Further Information
[email protected]
Direct line
+44 (0) 207 270 4933
Further Information
Green Book homepage
http://www.hmtreasury.gov.uk/green_book.htm
5
Bhash Naidoo - Public Health & Discounting
1.
2.
Discounting: a recap
Discounting makes current cost and benefits worth more
than those occurring in the future
Public Health & Discounting
“A bird in the hand is worth two in the bush”
Dr Bhash Naidoo
Associate Director Research & Development
National Institute for Health and Clinical Excellence
3.
4.
Discounting: Example
Despite the higher cost of newly released DVDs, many
people are willing to pay the extra cost rather than wait
until the price falls.
Time Preference
5.
6.
Uncertainty
Individual & Societal Preferences
• The criteria people use for their own consumption
decisions are different from those which they wish
governments to use for societal decision-making. It is
likely that people demonstrate less time-trade-off when
thinking collectively.
• Individuals prefer
immediate consumption
because they may not be
alive at the future point in
time when the benefits
will be delivered.
7.
8.
Discounting & Health
Discounting & Public Health
• Discounting weights/values public decision making in
favour of health interventions resulting in short-term
benefits and against longer-term benefits.
• This discriminates against preventive and other public
health programmes
9.
10.
Example: Cycling Paths
Example: Vaccinations
• Substantial initial
building costs
• Cost off vaccinations are
incurred now
• Benefits for those cycling
now will be gained along
time in the future
• The benefits of
prevented disease will
only be gained a long
time in the future
• Benefits will also be
gained by future
generations of cyclists
• Discounting devalues
these long term benefits
• Discounting devalues
these long term benefits
11.
Example:
Mother and Child Interventions
• Intervention for pregnant women will benefit their
children into their adult life, and possibly their children
as well.
• Equally intervention with children will benefit them into
the adult lives as well.
12.
The Effect of Discounting
1000
1000
900
862
800
709
742
700
600
503
500
475
400
300
226
179
200
100
32
0
0
10
20
30
40
50
60
70
Years
0% Discount
1.5% Discount
3.5% Discount
80
90
100
13.
14.
Discounting: Smoking
Discounting: Lifestyle Interventions
• People heavily discount the
long-term future effects of
unhealthy lifestyles such as
smoking in favour of the
current satisfaction.
If we spend time and money to do physical activity or
eating healthily, does this mean we value our future health
equally or more than our current health?
• Many smokers do not get
lung
cancer
and
not
smoking
does
not
guarantee
protection
against the disease. So
people
will
discount
uncertain benefits.
15.
16.
Discounting: Future Generations
Prevention Vs Treatment
Is a policy of allocating resources for benefits of
over time which automatically values current
generation higher than future generations fair?
17.
Limited Resources
It could be argued that the
fact that the NHS devoting
such a high proportion of its
budget to acute treatment
reflect the same implicit
valuing of current benefits
over future benefits.
18.
Public Health Budget Squeeze
increased
treatment
spend
Health Budget
CHD Services
CHD Services
Cancer Services
Cancer Services
A&E
A&E
A&E
etc
etc
NICE approved drugs
NICE approved drugs
etc
NICE approved
drugs
Public Health
Public Health
reduced
prevention
spend
CHD Services
Cancer Services
Public Health
reduced
Health
Budget!