OBJECTIVES: Decision-makers in health care often use cost-effectiveness thresholds (CET) to inform their reimbursement decisions. There is growing interest in identifying a CET rooted in economic theory and demand-supply models to understand how competing objectives should be balanced in defining an optimal CET. We seek to develop a theoretical framework for identifying the optimal CET. With a view to specifying a way forward, we have identified the factors that such a framework could include and considered the likely impact on the CET.

METHODS: Through a literature review, we identified 40 factors, which we assessed on the basis of five criteria: i) quality of research, ii) quantity of research, iii) feasibility, iv) relevance, and v) separability. We shortlisted eight key candidate factors for further consideration including opportunity cost and displacement, flexible budgets, inflation, market regulation and competition, bargaining power distribution, elasticity of response of innovators, discounting, and severity. We assessed the theoretical and practical feasibility of incorporating each factor into a framework to identify an optimal CET.

RESULTS: The opportunity cost and displacement, budget flexibility, and inflation resulted the most feasible factors for their incorporation into a new CET framework. The exploratory case studies analysed showed that for budget expansion the threshold should unambiguously increase while for inflation the real effect on the CET is ambiguous.

CONCLUSIONS: We conclude that accounting for changes in the real budget is the most feasible factor to consider. The magnitude of any increase will depend on a set of plausible but currently unobserved assumptions around the availability of new technologies at the prevailing CET and the elasticity of marginal productivity to changes in the budget. We identified many additional factors that could be considered in understanding the optimal CET. However, further theoretical and empirical research is needed to allow for these factors to be feasibly considered.