ISSUE: How can treatments be cost effective but not affordable? What is the correct relationship between health technology assessment (HTA) and budget constraints? Will budget constraints impact innovation? Adrian Towse will moderate the session providing a context for the discussion by referring to a report from an interview program with US and EU payers, which reveals an emphasis on the primacy of budgets rather than of cost-effectiveness analysis (CEA). Patricia Danzon will consider whether/how value-based pricing using CEA can be adapted to take into account budget impact and/or population size without reducing optimal incentives for innovation. Mark Sculpher will present a paper which argues that an empirical estimate of the cost-effectiveness threshold based on opportunity cost is needed to guide decisions and shows that this estimate is expected to vary depending on the magnitude of budget impact. Steven Pearson will present the rationale for the use of budget thresholds as well as cost-effectiveness thresholds when assessing the value of new products. OVERVIEW: The new treatments for hepatitis C and the prospect of gene therapies and treatments for Alzheimer’s have raised the issue of affordability for payers. Budget caps, competitive tendering, price discounts, limits on patient sub-groups treated have been used to control costs. Options for potential resolution via alternative payment approaches have been debated at previous ISPOR issues panels. Many payers look at cost effectiveness and have found these drugs to be cost effective. Can a drug be cost effective but not affordable? Cost effectiveness and value assessment has to have an implicit or explicit opportunity cost. Is the opportunity cost in an HTA different to that in the budget? If so, which takes priority and over what time period? What are the institutional implications for Europe? Do we need an independent HTA agency that considers both cost effectiveness and budget impact in the United States to guide payers making formulary decisions?