Health interventions such as new medicines produce costs and health-related effects not only in the year they are introduced but in all future years until they are discontinued. People generally care less about future outcomes (for example, having better health today is generally preferred to having better health in 10 years’ time). To reflect this, health economic evaluations value present outcomes more than future outcomes. The extent to which present outcomes are valued more than future outcomes is represented by the discount rate.
Following a request from the Association of Innovative Pharmaceutical Industry in the Slovak Republic (AIFP), a member of EFPIA, the Office of Health Economics (OHE) accepted the challenge of estimating the most appropriate, up-to-date discount rate, underpinned by the strongest rationale across the different approaches for potential use in health technology assessment (HTA) in the Slovak Republic.
For this purpose, we estimated the country-specific social rate of time preference, a common method for setting discount rates for economic evaluation of public investments. We used the best available official macroeconomic and demographic data. Based on our analysis, we have formulated seven recommendations to the relevant departments of the Slovak government, and we summarise the four most relevant ones below.
Lower the discount rate for use in reference case health economic evaluations from 5% to 3.3% per year.
We estimate that the social rate of time preference for the Slovak Republic is currently 3.3% per year, contrasting with the 5% discount rate currently required for pharmacoeconomic analysis. The discrepancy between the two rates comes in the estimate for expected growth in consumption over time. We argue that our estimate is more suitable given the current economic and demographic characteristics of the Central European country.
Explore whether a lower discount rate should be used for health effects compared to costs (differential discounting).
Economic theory suggests that under certain circumstances it is appropriate to use a lower discount rate for health effects than costs if the opportunity cost of new health investment (reimbursing a new drug for example) is expected to increase over time. Differential discounting may also be appropriate if the consumption value of health (the rate at which society is willing to trade consumption for health) is expected to increase over time. Further research is required to estimate these two parameters for the Slovak Republic and therefore to determine whether differential discounting is appropriate.
Increase transparency around the choice of discounting method and rate(s) for use in HTA.
HTA agencies’ choice of discounting method and rate(s) should be based on accepted economic theory and the best available data. HTA agencies need to be transparent about their chosen discounting methods so that they can be evaluated. HTA agencies should ideally collaborate with relevant government departments such as finance departments and statistical offices to produce rigorous and consistent estimates of the key parameters of discount rate models, such as the Ramsey Rule which we use in our analysis.
Continue to update the discount rate every four to five years in line with updates to HTA methods guides in other countries.
The rates at which people are willing to trade present consumption or health for future consumption or health understandably change with macroeconomic and demographic conditions. HTA agencies should regularly repopulate the relevant equations behind their discount rates with the most recent data and update their official discount rates when necessary.
While our discount rate estimate is specific to the Slovak Republic, many of the recommendations contain important considerations that all HTA agencies incorporating economic evaluation in their methods should consider when setting a discount rate.
To read the full report containing the full set of recommendations and details of our analysis, click here.
Hitch J., Berdud M., Cubi-Molla P., Garau M., Towse A., 2023. Setting the right discount rate for health technology assessment in the Slovak Republic. OHE Consulting Report. Available from: https://www.aifp.sk/sk/media-a-verejnost/69/spravne-nastavenie-diskontnych-sadzieb-v-ramci-hta-setting-the-proper-discount-rate-for-health-technology-assessment/