Monetary Value

Theoretically Appropriate Threshold

The decision problem can be conceptualized as an attempt to maximize health benefits for a given cost. The implicit $/QALY is the shadow price on a QALY from this maximization, which represents the opportunity cost of the resources devoted to producing an additional QALY (technically speaking, the shadow price is the value of the Lagrange multiplier on the budget constraint). Hence, the threshold depends on any parameter of the decision context that affects the objective function or the constraints. Examples of factors that would affect the optimal threshold include the nature of the decision maker's utility function (e.g., extent of risk aversion), the position on utility function (how many other programs already funded), the available budget, and the discount rate. In addition to these factors, some research implies that the willingness to pay may be higher when the condition being treated is life threatening versus a condition that impairs only quality of life or that social willingness to pay for health benefits may differ by characteristics of the beneficiary such as age. This suggests that the basic premise that “a QALY is a QALY” may not be valid in some contexts, which would further require different thresholds based on the type of condition being treated.

The many determinants of the optimal threshold value should give the analyst and decision maker pause in adopting a “generic” threshold that is not attuned to their specific context. However, without appealing to a generic threshold, the decision maker would be left with little of a framework on which to make necessary adjustments. Similarly, the analyst is often writing for an unknown client with an unknown context (e.g., when publishing a CEA in the peer-reviewed literature). Therefore, the analyst's desire to conclude with a generic recommendation is also understandable.

Common Generic Thresholds