Healthcare budgets are fixed. This implies that approving a new treatment for reimbursement will reallocate resources and curtail supplies and/or services elsewhere in the healthcare system. This is explicitly represented as a cost-effectiveness threshold, also referred to as an opportunity cost. This threshold reflects the resources that the decision-maker is willing to spend on one unit of health outcome gained from a new intervention.
In the United Kingdom, the cost-effectiveness threshold is between £20,000 and £30,000 per quality-adjusted life year gained. This means that the National Institute for Health and Care Excellence (NICE) is unlikely to recommend a treatment if its extra cost per extra unit of health outcome, a quantity also known as the incremental cost-effectiveness ratio, exceeds the threshold. The threshold is defined to strike a compromise between encouraging pharmaceutical innovation and ensuring fair and equitable access to healthcare. Many researchers are currently exploring the best way to determine the cost-effectiveness threshold.