Health today versus health tomorrow: does Australia really care less about its future health than other countries do?

Abstract

Economic evaluation provides important evidence on value for money in health care and is routinely used in health technology assessment processes. The relevant costs and benefits of health care that are considered may arise now and/or in the future, and the relative importance placed on costs and benefits in the future is reflected in the discount rate applied to them. In this paper we note that Australia appears to apply one of the highest discount rates in the world to the assessment of future healthcare benefits. At a time when healthcare systems worldwide are calling for a rebalance of effort towards prevention, Australia's discount rate risks pulling resource allocation in precisely the opposite direction, locking in institutional short-sightedness to funding decisions.

Full text

Health today versus health tomorrow: does Australia really
care less about its future health than other countries do?
Nancy Devlin
1
,
3
PhD, Professor of Health Economics, Director
Paul Scuffham
2
PhD, FAHMS, Professor of Health Economics, Director
1
Centre for Health Policy, Melbourne School of Population and Global Health, The University of
Melbourne, 207 Bouverie Street, Melbourne, Vic. 3010, Australia.
2
Centre for Applied Health Economics, Menzies Health Institute Queensland, Griffith University,
G40_8.83, Gold Coast Campus, Southport, Qld 4222, Australia. Email: p.scuffham@griffith.edu.au
3
Corresponding author. Email: nancy.devlin@unimelb.edu.au
Abstract. Economic evaluation provides important evidence on value for money in health care and is routinely used in
health technology assessment processes. The relevant costs and benefits of health care that are considered may arise now
and/or in the future, and the relative importance placed on costs and benefits in the future is reflected in the discount rate
applied to them. In this paper we note that Australia appears to apply one of the highest discount rates in the world to the
assessment of future healthcare benefits. At a time when healthcare systems worldwide are calling for a rebalance of effort
towards prevention, Australia’s discount rate risks pulling resource allocation in precisely the opposite direction, locking
in institutional short-sightedness to funding decisions.
Received 6 April 2020, accepted 19 May 2020, published online 1 June 2020
Introduction
The use of cost-effectiveness analysis to assess value for money
in health care has gained widespread acceptance and use. It is
most commonly used to assess new healthcare technologies via
health technology assessment (HTA) processes. HTA considers
the context for the use of a new technology, including the
intended population, the clinical evidence on its safety, efficacy
and effectiveness relative to the technology most likely to be
displaced (i.e. comparator), the evidence on cost-effectiveness
and the financial implications.
1
HTA is intended to support
healthcare decision making through use of systematic, transpar-
ent, scientific methods. For example, evidence on cost-
effectiveness is routinely considered by Australia’s Pharmaceu-
tical Benefits Advisory Committee (PBAC), which was one of
the world’s first HTA organisations and the first, in 1993, to
mandate pharmaceutical companies to include economic evalu-
ation evidence in their submissions for reimbursement.
2
The use
of economic evaluation continues to grow apace as the world’s
most highly populated countries (i.e. China, India, Brazil,
Mexico) take bold steps towards universal health care, and put
HTA processes into place as a means of managing demand and
cost. Even the US, which famously once banned cost-
effectiveness analysis of health care by an act of federal law, is
now enthusiastically taking up the use of cost-effectiveness
analysis via the Institute for Clinical and Economic Review.
Indeed, such is the predominance of cost-effectiveness evi-
dence in healthcare decision making globally that health eco-
nomics could be argued to have achieved more widespread use
and positive impact than almost any other field of applied
economics.
In essence, this approach to economic evaluation assesses the
costs and benefits of an intervention relative to the costs and
benefits of an existing treatment, and the incremental changes
are expressed as an incremental cost-effectiveness ratio (ICER).
That sounds straightforward, but there are many aspects of
economic evaluation methods that rely on value judgements.
Importantly, ‘value for money’ can never be assessed in an
entirely objective value-judgement-free way: what ‘value’
means depends on the perspective from which it is assessed.
These methodological issues can appear to be quite arcane, but
they are important because they can have a substantial bearing
on the evidence presented and decisions about who gets access
to treatments.
An example of this is the way that future costs and benefits
are factored into the analysis. Things that happen in the future
are ‘discounted’ (i.e. they carry less weight) than costs and
benefits in the short term. This includes, for example, the years
of life gained in the future by preventing a premature death now.
Nearly all examples of cost-effectiveness analysis discount
future costs and benefits in this way, and the higher the discount
rate used, the less importance is attached to costs and benefits
that occur in the future. Where all else is equal, a higher discount
rate tips the balance towards approving technologies that yield
benefits in the short term.
The standard rationale for discounting includes the existence
of pure time preference (a preference for benefits today rather
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Perspective
POLICY REFLECTIONS – HEALTHCARE AFFORDABILITY

than in the future), uncertainty over future outcomes (a ‘bird in
the handy’) and the expectation of positive economic growth,
meaning a dollar today is ‘worth more’ than a dollar in the future
when we are richer.
What discount rate should be used, and what exactly it
represents, is something health economists continue to debate,
which does not make this issue any easier for policy makers to
engage with. There are two competing schools of thought on
what the discount rate should be based on.
3
The first proposes
that the discount rate should reflect the opportunity cost of
capital used in the project (i.e. the benefits to society that the
funds would have returned if used elsewhere in the economy),
and the second proposes that the discount should reflect ‘pure
time preference’, namely society’s willingness to give up
consumption now in order to have greater consumption in the
future.
Further, there is debate about whether costs and benefits
should be discounted at the same or at different rates.
4
For
example, as countries grow richer, they spend an increasing
percentage of gross domestic product (GDP) on health care; this
is consistent with the idea that the marginal value of health is
increasing and that future benefits should be discounted at a
lower rate than future costs.
5
That is, as we get wealthier, we
place a greater value on health relative to what it costs to
generate that health.
In the 1970s and 1980s, a discount rate of 5% was often used
in published studies and became the default discount rate. This
5% discount rate was introduced in the PBAC guidelines in
1995,
2
with the basis for the choice of that discount rate being
unknown but referenced by those 1995 guidelines to an associ-
ated ‘Background Document’ that is now unavailable. Never-
theless, this 5% discount rate, applied to both costs and benefits,
has remained for the past 25 years.
Most countries currently have lower discount rates. For
example the discount rates currently recommended for use in
the US and New Zealand are 3%
6,7
and 3.5%
8
respectively. The
discount rates currently being used in HTA in a range of
countries are given in Table 1, which lists countries in rank
order from the highest to lowest discount rates applied to future
health in HTA.
Notably, Australia is at the top of this list. Of course, this is
not a comprehensive list of all HTA systems, but we are not
aware of any country that uses a higher discount rate in its HTA
process. Is there any evidence to suggest that there are underly-
ing factors, either in terms of preferences or the financial
markets, that justify Australia being so different from these
other countries in this respect? We doubt it. This is one league
table that Australia does not necessarily want to be at the top of.
Because the discount rate can be important to conclusions
about cost-effectiveness, HTA bodies generally ask for evidence
on how sensitive results are to the use of both higher and lower
discount rates. Interestingly, the PBAC recommendations for
sensitivity analysis are 3.5% and 0%, both of which are lower
than the PBAC’s base-case discount rate of 5%. The Medical
Services Advisory Committee (MSAC), which appraise thera-
peutic and diagnostic services and devices, also use a base-case
5% discount rate for both costs and outcomes, and recommend
sensitivity analyses that include 0% for outcomes alone and then
0% for both costs and outcomes jointly. Using a 5% discount rate
as the base-case means the base case reflects the worst-case
scenario in terms of the value of future benefits: they are
minimised compared with those in the sensitivity analyses.
What are the implications of using relatively high discount
rates? Healthcare interventions that reduce risks of ill-health
(i.e. preventative health care), such as lipid-lowering drugs,
antihypertensives, breast and bowel cancer screening programs
and immunisations, will appear less cost-effective and may not
be recommended in Australia. Compared with other countries,
risk-reducing interventions will appear less cost-effective even
if the clinical benefits and costs of delivery are roughly the same.
Similarly, other interventions with long time horizons for
accruing benefits, such as gene-editing technologies, which
offer the promise of lifetime ‘cures’ for diseases, will also
appear less cost-effective in Australia compared with other
countries simply because of the choice of discount rate.
It is likely that differences in which healthcare interventions
are approved for government subsidy are most apparent between
Australia compared with the Netherlands and Belgium, where
lower discounts rates are used for benefits compared with costs.
In England, the National Institute for Health and Care Excel-
lence (NICE) applies a lower discount rate of 1.5% to benefits
that extend over long time frames (at least 30 years into the
future),
13
although the selective use of lower discount rates for
benefits creates other issues.
20
The application of discount rates
for costs and benefits is clearly being handled in very different
ways across the world and, in many cases, the rationale for the
choice of discount rate is poorly justified.
21
However, health is
valued more highly as we get wealthier
5
and, arguably, it is
appropriate to recognise this in how we assess value for money
in health care. Further, as real, risk-free interest rates fall close to
zero in financial markets, there will be growing pressure to
reduce discount rates in many countries.
At a time when healthcare systems are continually calling for
a rebalance of effort towards prevention and with public health
issues more important than ever, Australia’s discount rate is
Table 1. Discount rates applied to benefits (e.g. quality-adjusted life
years) and costs in health technology assessment in a selection of
countries, ranked from highest to lowest discount rates
Note, bolded values indicate cases where the recommended discount rate is
lower for benefits than for costs
Country Discount rate (%)
Benefits Costs
Australia
9
55
France
10
44
Ireland
11
44
New Zealand
8
3.5 3.5
England and Wales
12,13
3.5
A
3.5
Scotland
14
3.5 3.5
USA
6,7
33
Sweden
15
33
Japan
16
22
Belgium
17
1.5 3
Canada
18
1.5 1.5
Netherlands
19
1.5 4
A
In special circumstances (e.g. longer-term benefits of at least 30 years), a
rate of 1.5% is used.
338 Australian Health Review N. Devlin and P. Scuffham

resulting in the systematic undervaluation of long-term health
benefits. This makes some healthcare interventions appear not
cost-effective and less likely to be recommended for govern-
ment funding. This pulls healthcare resource allocation in
precisely the opposite direction to supporting prevention and
locks in institutional short-sightedness to funding decisions. It is
time for the PBAC and MSAC to reconsider how they weigh up
health today versus health tomorrow in HTA.
Competing interests
Paul Scuffham has contracts with the Australian Government’s
Department of Health to undertake HTA for the MSAC and
PBAC. Nancy Devlin has no competing interests to declare.
Acknowledgements
The authors did not receive any funding to write this article. All opinions and
views expressed in this article are the sole responsibility of the authors.
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