Cost Per QALY

Cost per quality adjusted life year (QALY) is the incremental cost of an intervention divided by its incremental gain in QALYs compared with an alternative, serving as a standard measure of cost effectiveness in health care decision making. A QALY combines survival time with health related quality of life into a single metric: one QALY equals one year lived in perfect health, while a year lived with diminished quality of life counts as less than one QALY. The cost per QALY ratio allows comparison of the value for money offered by interventions across different disease areas and patient populations, because the outcome measure is standardized.

Cost per QALY is the primary metric used by many health technology assessment (HTA) agencies worldwide to determine whether a new drug, device, or health program represents good value for the health care system. NICE in England has used a range of 25,000 to 35,000 pounds per QALY since April 2026 (previously 20,000 to 30,000 pounds) to guide its technology appraisal recommendations. Agencies in other countries, such as Canada, Australia and the Netherlands, also weigh cost per QALY, although not all of them publish a fixed threshold. For researchers, reporting cost per QALY enables their work to directly inform these decisions. For clinicians and patients, understanding cost per QALY helps contextualize the trade offs involved in treatment choices.

Researchers first estimate the QALYs gained by the intervention compared with the alternative. This requires data on survival (or time in different health states) and utility values (quality of life weights for each health state on a scale where 0 represents death and 1 represents perfect health; some very severe states are valued below 0). Utility values are typically derived from generic preference based instruments such as the EQ 5D, HUI, or SF 6D. QALYs are calculated by multiplying the time spent in each health state by its utility value and summing across all states and time periods. The incremental cost is calculated by subtracting the total cost of the comparator from the total cost of the intervention. The cost per QALY ratio is then: incremental cost divided by incremental QALYs. Decision makers compare this ratio against a willingness to pay threshold to determine whether the intervention is cost effective.

Report cost per QALY in any cost utility analysis submitted to HTA agencies, included in health policy deliberations, or published in journals that inform health care resource allocation. It is relevant for evaluating pharmaceuticals, medical devices, surgical procedures, screening programs, and public health interventions. Cost per QALY is most useful when decision makers need to compare the value of investing in different clinical areas and need a common metric to make these cross disease comparisons.

A critical mistake is using inappropriate utility values, such as values derived from a disease specific instrument rather than a generic preference based measure, which prevents valid comparison across conditions. Another error is comparing the cost per QALY of an intervention against the wrong threshold; thresholds vary by country and context, and applying one country's threshold to another's health system can produce misleading recommendations. Researchers sometimes fail to discount future QALYs at the rate their decision maker recommends (NICE, for example, uses 3.5% per year; other agencies use different rates), which inflates the apparent benefit of interventions with long term health gains. Ignoring uncertainty by reporting a single deterministic cost per QALY without probabilistic sensitivity analysis is another common shortcoming. Finally, cost per QALY cannot capture all dimensions of value, including equity considerations, severity of illness, and unmet need, and researchers should acknowledge these limitations.

A pharmaceutical company submits a cost utility analysis to NICE for a new biologic treatment for moderate to severe psoriasis. Over a 10 year time horizon, the biologic produces an additional 1.2 QALYs compared with conventional therapy, at an incremental cost of 28,000 pounds. The cost per QALY is 23,333 pounds (28,000 ÷ 1.2), below the lower end of NICE's range of 25,000 to 35,000 pounds per QALY. Probabilistic sensitivity analysis shows a 78% probability of being cost effective at a threshold of 30,000 pounds per QALY. NICE's appraisal committee considers this acceptable and recommends the biologic for patients who have failed conventional treatments, subject to a patient access scheme that discounts the drug price.