The Three Percent Discount Rate: Is It Really Time to Move On: How Much Does It Matter?

ISSUE: When the US Second Panel on Cost-Effectiveness in Health and Medicine recommended a three-percent annual discount rate in 2016, it suggested that this recommendation remain unchanged for at least 10 years. As we approach the potential “sell by” date for this recommendation, there are important questions about whether revision is warranted, and what discount rates are appropriate for economic evaluations across the globe. Last year, Josh Cohen wrote that it may be “time to reconsider the three-percent discount rate” and instead use a lower rate. But anyone in the market for a house mortgage knows that conditions have since changed. Is it time to reconsider the three-percent rate? And how much does it matter for cost-effectiveness analysis? OVERVIEW: Joshua Cohen will present the case suggesting that health economists should move on from the Second Panel’s three-percent discount recommendation and from similar recommendations adopted in many other high-income countries. Dave Vanness will present the case that uncertainty about the future suggests that discount rates should remain at their current level, or if anything, increase. The argument for reducing the discount rate primarily rests on steady declines in real interest rates since the early 1990s, largely attributed to decreasing marginal productivity in developed countries – a trend that is uncertain in the face of a potential AI revolution. But beyond reflecting opportunity costs of competing public investments, discount rates also reflect the salience of future outcomes to decision-makers. Given rapid (yet uneven) technological progress, as well increasing price and other policy uncertainty, an argument can be made for giving less, not more, weight to health and cost outcomes in far-future years – and therefore, a higher, not lower discount rate. Jason Shafrin will take the debate out of the more academic realm and explore the extent to which alternative discount rate assumptions may influence cost-effectiveness projections and hence estimates of value. He will survey discount rates used by US government agencies such as the Office of Management and Budget, General Accounting Office, Department of Energy, and Environmental Protection Agency and describe the justifications for these rates. Jason will then apply these examples to real-world to therapies, including Advanced Therapy Medicinal Products.