An essay explores how health economics might draw valuable insights from the environmental economics discourse on discounting, especially in addressing the dilemmas posed by advanced therapy medicinal products (ATMPs) and climate change mitigation policies. Discounting is a complex yet crucial aspect of economic evaluations, posing significant challenges in sectors such as healthcare and environmental policy, especially for therapies and interventions with high up-front costs and long-term benefits.
Discount rates serve as a method to adjust future costs and benefits to their present value, based on the premise that individuals value immediate outcomes more than future ones. This principle applies universally across various sectors, including health technology assessment (HTA) and environmental policy evaluation. However, the application of discounting reveals a stark impact when analyzing interventions with immediate costs but deferred benefits, as seen with ATMPs—innovative treatments offering potentially life-altering benefits but accompanied by substantial initial costs.
The healthcare sector, particularly when evaluating ATMPs, faces a critical challenge due to the standard approach to discounting. These therapies offer significant long-term health benefits, but their upfront costs are steep, leading to a devaluation of their benefits over time when subjected to traditional discounting methods. This mismatch raises concerns about the accessibility of transformative treatments, highlighting a potential barrier to patient care posed by conventional discounting practices.
The National Institute for Health and Care Excellence (NICE) in England, for example, employs a standard discount rate of 3.5%, with provisions for a reduced rate under specific circumstances. However, the selective application of this reduced rate has sparked debate over its consistency and the incentives it may create for pharmaceutical manufacturers. This scenario underscores the need for alternative discounting approaches that can equitably evaluate ATMPs.
Adopting New Discounting Approaches for Long-term Benefits
Turning to environmental economics for inspiration, we find parallel challenges in the evaluation of climate change policies, where high initial investments are weighed against long-term benefits or avoided damages. The debate within environmental economics over discounting policies provides a fertile ground for health economics to explore new methodologies and ethical considerations that could enhance the evaluation of health interventions.
In setting discount rates, two primary schools of thought emerge the Social Opportunity Cost of Capital (SOC), which emphasizes efficiency, and the Social Rate of Time Preference (SRTP), which considers societal preferences for current versus future consumption. The UK, for instance, adopts the SRTP approach to inform its social discount rate, utilized by NICE for discounting in HTA.
The essay suggests several lessons from environmental economics that could inform health economics, including re-evaluating the ‘wealth’ component in discounting. This component assumes that a wealthier future society will value goods less, a notion that may not apply to health or environmental goods due to their irreplaceable nature and increasing scarcity. Consequently, it proposes that health benefits be discounted at a lower rate than costs, recognizing the growing value society places on health over time.
Moreover, the concept of declining discount rates (DDR) is explored as a means to better accommodate the long-term horizon of certain health interventions and environmental policies. The DDR approach, recommended by the UK Green Book for long-term projects, adjusts discount rates over time, potentially offering a more nuanced valuation of future benefits.
Reevaluating Time Preference: Ethical Paths to Long-term Health Equity
Ethical considerations also play a critical role in the discussion on discounting. The essay challenges the ethical basis for applying a positive rate of pure time preference, which inherently prioritizes the welfare of current generations over future ones. It argues for a reevaluation of this approach, particularly in contexts where the benefits of interventions span multiple generations.
In conclusion, health economics stands to benefit from a closer examination of environmental economics’ approaches to discounting. By adopting lessons from the debate on climate change policy evaluation, health economics can explore alternative discounting methods that more accurately reflect the value of long-term health benefits. This exploration could lead to more equitable access to innovative treatments like ATMPs, ultimately shaping a healthcare landscape that values and invests in the long-term health and well-being of society.
Resource: Office of Health Economics, February 05, 2024
This article has been prepared with the assistance of AI and reviewed by an editor. For more details, please refer to our Terms and Conditions. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the author.