NICE local government briefings
Published 01 September 2013

How NICE measures value for money in relation to public health interventions

NICE's approach to economic analysis for public health interventions

Introduction

Up to 2012, based on Methods for the development of NICE public health guidance (2nd edition), cost–utility analysis was NICE's main method of determining the cost effectiveness of public health interventions.

Drawing on experience gained from producing public health guidance, the latest edition (3rd edition) of 'Methods for the development of NICE public health guidance', published in 2012, places more emphasis on cost–consequences and cost–benefit analyses when assessing public health interventions (see Chapter 6).

This dual approach aims to ensure all relevant benefits (health, non-health and community benefits) are taken into account. The idea is to help local authorities (and other organisations interested in improving people's health) better judge whether or not a public health intervention represents value for money.

Cost–utility analysis is also used, when needed, to make comparisons with previous economic analyses, as well as to compare treatment and prevention programmes.

Cost–utility analysis

Cost–utility analysis considers people's quality of life and the length of life they will gain as a result of an intervention. The health benefits are expressed as quality-adjusted life years (QALYs).

Generally, we consider that interventions costing the NHS less than £20,000 per QALY gained are cost effective. Those costing between £20,000 and £30,000 per QALY gained may also be deemed cost effective, if certain conditions are satisfied (see section 6.4.1 of 'Methods for the development of NICE public health guidance' 3rd edition).

There may be other significant benefits that are not captured by the QALY. Where this is the case, the analysis may not provide a good measure of value for money and would not be used as the sole basis for decisions.

Cost–consequences analysis

Cost–consequences analysis considers all the health and non-health benefits of an intervention across different sectors and reports them in a disaggregated form. It accepts that different types of benefit cannot be gauged using the same units.

The following costs can be included:

  • direct costs, including for health care, social services and transportation

  • indirect costs, including productivity losses and for criminal justice expenditure

  • intangible costs, including those related to quality-of-life and the impact of living with pain.

All impacts and costs are considered (even if the impacts cannot be costed) when deciding which interventions represent the best value. This distinguishes it from cost–benefit analysis.

Effectively, this type of analysis provides a 'balance sheet' of outcomes that decision makers can weigh up against the costs of an intervention.

If, for example, a commissioner wants to ensure the maximum health gain for the whole population, they might prioritise the cost per QALY gained. But if reducing health inequalities is the priority, they might focus on interventions that work best for the most disadvantaged groups, even if they are more costly and could reduce the health gain achieved in the population as a whole.

Cost–benefit analysis

Cost–benefit analysis considers health and non-health benefits but converts them into a single monetary value, rather than reporting each individually. Once this has been done, 'decision rules' are used to decide which interventions to undertake. Several metrics are available for reporting cost–benefit analysis results. One example is the net present value (NPV).

NPV is found by estimating all the annual benefits of an intervention in monetary terms, but successively discounting the benefits after year 1, and then summing the result over all the years included in the calculation. This yields what is called the 'present benefit'.

The same calculation is performed on the estimated costs each year to get the 'present cost'. The net present value is calculated by subtracting the present cost from the present benefit. Generally, only interventions with a positive net present value would be considered for adoption.

There may be other significant costs and benefits, some of which cannot be presented in terms of money. Where this is the case, the analysis may not provide a good measure of value for money and would not be used as the sole basis for decisions.