Estimating the Reference Incremental Cost-Effectiveness Ratio for the Australian Health System

Spending on new healthcare technologies increases net population health when the benefits of a new technology are greater than their opportunity costs-the benefits of the best alternative use of the additional resources required to fund a new technology.

The objective of this study was to estimate the expected incremental cost per quality-adjusted life-year (QALY) gained of increased government health expenditure as an empirical estimate of the average opportunity costs of decisions to fund new health technologies. The estimated incremental cost-effectiveness ratio (ICER) is proposed as a reference ICER to inform value-based decision making in Australia.

Empirical top-down approaches were used to estimate the QALY effects of government health expenditure with respect to reduced mortality and morbidity. Instrumental variable two-stage least-squares regression was used to estimate the elasticity of mortality-related QALY losses to a marginal change in government health expenditure. Regression analysis of longitudinal survey data representative of the general population was used to isolate the effects of increased government health expenditure on morbidity-related, QALY gains. Clinical judgement informed the duration of health-related quality-of-life improvement from the annual increase in government health expenditure.

The base-case reference ICER was estimated at AUD28,033 per QALY gained. Parametric uncertainty associated with the estimation of mortality- and morbidity-related QALYs generated a 95% confidence interval AUD20,758-37,667.

Recent public summary documents suggest new technologies with ICERs above AUD40,000 per QALY gained are recommended for public funding. The empirical reference ICER reported in this article suggests more QALYs could be gained if resources were allocated to other forms of health spending.