Key messages
- NHS background healthcare costs, those incurred in treating patients beyond the price of medicine itself, rise over time due to inflation. This pushes up the overall cost of providing new treatments when assessed by health technology appraisal bodies, even when the treatment’s own price has not changed.
- When the cost-effectiveness threshold, the maximum a health system will pay per additional unit of health benefit, remains fixed, treatments launched in later years appear progressively less cost-effective, not because they have changed, but because the world around them has. Rising background NHS costs progressively erode the cost-effectiveness of a given medicine in later launch years.
- The effect is most pronounced for treatments that extend patients’ lives, since additional life-years mean more accumulated background healthcare costs. This creates a systematic bias against the types of innovation that deliver the greatest survival gains: life-extending treatments and those used in high-cost care settings. Treatments that save costs or do not extend life are largely unaffected.
Inflation reshapes the economic landscape in which new treatments are evaluated. Yet cost-effectiveness thresholds tend to remain fixed over time. This report examines how inflation in NHS healthcare costs associated with resource use affects the estimation of incremental costs in health technology assessment (HTA), and what this means for the cost‑effectiveness and commercial viability of new technologies when decision thresholds do not adjust accordingly.
Throughout this paper, we distinguish between intervention costs (e.g. the price of treatments) and background NHS costs (i.e. healthcare resource use associated with delivering care related or unrelated to an intervention). Annual publications of NHS unit cost data show that background costs have risen steadily across almost all categories of healthcare activity. Many new treatments extend life, generating additional years during which patients consume NHS services, increasing their exposure to inflating costs even when treatment prices remain fixed. This raises an important policy question: what happens to the incremental cost, incremental cost-effectiveness ratio (ICER), and the value placed on a new technology when the costs of delivering care rise but thresholds remain static?
We address this question through two complementary analyses. First, we conducted a top-down analysis of 11 published economic evaluations from PharmacoEconomics-Open, applying stylised inflation assumptions to explore how different cost structures and treatment characteristics mediate the relationship between inflation and incremental costs. Second, we developed a bottom-up oncology cost-effectiveness model using hypothetical interventions calibrated to three recent National Institute for Health and Care Excellence (NICE) technology appraisals (in breast cancer, non-small cell lung cancer, and lymphoma). The model applied historical NHS cost data (1999-2024) and projected inflation (2025-2030) to quantify the effect of rising background NHS costs on incremental costs and ICERs in different launch years, defined as the year in which an HTA is assumed to occur for the hypothetical intervention.
Inflation in background NHS costs causes incremental costs to rise over time for treatments that extend survival or incur higher NHS resource use than their comparators. In our bottom-up analyses, ICERs increased by between 30% and 45% over the period 2000 to 2030, with the economically justifiable prices of each case study treatment declining by between 34% and 53%. Therefore, maintaining a consistent pricing signal would require thresholds to have increased by at least 30-45%.
All three base case treatments, anchored to be cost-effective at £25,000 per quality-adjusted life year (QALY) in the launch year 2000, exceeded a £30,000 threshold by a launch year of 2030, with the lymphoma case study crossing this threshold as early as 2019. Importantly, the direction of the effect reversed for treatments without an overall survival benefit, where ICERs declined marginally in later launch years, confirming that the mechanism is driven by the accrual of inflating costs during additional life years.
Based on our oncology case studies, the effects vary substantially across treatment types. Proportional EJP erosion was largest for treatments with longer post-progression survival. More efficacious treatments showed higher incremental costs and are therefore at greater risk of exceeding a static threshold. These findings underscore the importance of understanding how inflation interacts with incremental cost estimation in HTA, and suggest that the relationship between background NHS cost inflation and approval norms warrants explicit consideration in the design and review of cost-effectiveness thresholds.
This Contract Research Report was conducted as a collaboration between OHE and Pfizer Ltd, which was commissioned and funded by Pfizer Ltd.