Following the creation of the UK’s National Institute for Health and Care Excellence (NICE) in 1999, a cost-effectiveness threshold of £20,000 to £30,000 per Quality-Adjusted Life Year (QALY) was chosen to appraise new drugs. Two decades later, this threshold remains unchanged.
Recently, tensions have been simmering between big pharma and the UK’s Department of Health and Social Care (DHSC), with Eli Lilly’s CEO Dave Ricks calling the UK the “worst country in Europe” for drug prices. Catalysed by threats of tariffs for imported drugs and a looming Most Favoured Nation (MFN) policy for deciding drug prices in the US, the UK Government is considering increasing NICE’s cost-effectiveness threshold by up to 25%, as per a report by Politico.
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While industry experts warn that the UK is in danger of missing out on innovative medicines due to a low threshold, some health economists argue that certain exemptions already allow drugs to be covered under higher approval thresholds. The situation has come to a head under mounting pressure, says Victoria Wood director of value and access policy at the Association of The British Pharmaceutical Industry (ABPI).
Separately, negotiations for the UK’s Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) scheme concluded without resolution in August 2025, as Secretary of State for Health and Social Care Wes Streeting walked out of negotiations. With an extended opt out deadline of 16 December, general industry sentiment is geared towards expecting imminent changes in the UK’s cost control mechanisms.
What is the rationale for changes to the cost-effectiveness threshold?
In recent months, several pharma companies have scaled back UK investment. Among them, Eli Lilly has paused on plans for a £279m biotech lab, MSD is scrapping a £1bn research centre in London and AstraZeneca has delayed on a £200m research site in Cambridge.
One argument is that the fixed cost-effectiveness threshold for branded medicines is restricting access to innovative treatments in the UK. Grant Castle, partner at UK-based law company Covington & Burling, says that drugs are often recommended for only specific patient subgroups within approved indications, meaning access is restricted to narrower patient populations.
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By GlobalDataThe ABPI argues that based on inflation alone, the upper end of the cost-effectiveness threshold would have risen to around £56,794.
Meanwhile, Sally Gainsbury, a senior policy analyst at Nuffield Trust, questions the relevance of an inflationary increase given that the initial basis for establishing the cost-effectiveness threshold lacked empirical evidence. A 2013 analysis by the University of York estimated the average cost per QALY to the NHS at £12,936. This was later uplifted to £15,000 and adopted by the DHSC, which says the estimate has since been validated.
On the other hand, Wood says there are “a lot of large assumptions” made with cost per QALY estimates, which don’t reflect the complexity of the NHS and different disease areas. She also says that in many cases drugs are approved at the lower end of the threshold.
An increase in the cost-effectiveness threshold would be a step in the right direction, says Wood, but such an increase doesn’t go far enough. Based on engagement with ABPI members, Wood says the threshold should rise to around £40,000-£50,000 to ensure that pharma companies prioritise UK markets for new medicines.
Introduction of the NICE severity modifier in 2022 has provided greater flexibility in the cost-effectiveness threshold in relation to disease severity. Though an improvement on the previous end-of-life modifier, which gave greater weighting for terminal illnesses, Wood says the bar for classifying a disease as ‘severe’ is set too high, meaning medicines are still being excluded.
Pressures from the Trump administration
Gainsbury says that industry lobbying in the UK is being “significantly bolstered” by pressures from the US. “The game changer this time around is obviously Trump and the most favoured nation policy,” she says.
The UK is facing “bullying” from the US Government, says Els Torreele, an independent researcher and adviser, and founding director of æqua, a think space on equity and economic justice for health. She says that a drive to lower drug prices in the US has led the Trump administration to call on other developed countries to pay more.
Torreele adds that she’s “astonished” that instead of conceding to Trump, there is not more consideration for how the UK can build and invest in its existing research capabilities.
The proposed increase to the cost-effectiveness threshold appears to be a response to threats of tariffs as high as 100% on imported branded medicines, as well as signs of reduced industry investment, based on what’s been reported in the news, says Castle. He adds that the MFN policy potentially linking the cost of drugs in the US to that of countries such as the UK, could mean that companies become less willing to adjust their prices to meet the current NICE threshold.
Increasing the cost-effectiveness threshold may not be enough
At the centre of the ongoing tension is the net price of drugs, which Wood says won’t be substantially impacted by a cost-effectiveness threshold change in isolation.
“If a decision was made and the NICE threshold was increased, and there were no changes to the VPAG, the industry would completely pay back all of the additional spend that that change in the threshold would incur for the new medicines that do come through,” says Wood.
The VPAG scheme effectively caps the amount by which annual NHS spending on branded medicines can increase per year. For any amount over that, companies are required to pay back sales to the NHS. However, payback rates could change dramatically by year, and a surge in drug sales in recent times led to rebate levels increasing to 22.9% in 2025.
Wood says that currently the UK is a “huge outlier” in terms of VPAG, and that the ABPI would like rebate rates to remain within “single digits” to align with its European neighbours. However, Gainsbury calls for closer examination of the factors that lead to higher-than-expected sales.
She adds that new drugs are exempt from rebates for the first three years under that current VPAG scheme, at which point hefty research and development (R&D) costs are, on average, recouped. It is argued that the VPAG scheme can help counterbalance industry’s market dominance while patents remain in place.
On the other hand, ABPI reasons that a cap on branded medicine spending means that any increase in the overall NHS budget is not reflected as greater investment in new drugs. As a result, the proportion of the overall NHS budget spent on branded medicines has decreased over time, says Wood.
The bigger picture
Torreele says that the pharmaceutical industry should focus less on products that can be “maximally monetised” and more on delivering drugs that can improve people’s lives and be affordable to public health systems.
Gainsbury also notes that evidence suggests there is no direct link between what a local market pays for a drug and where R&D investments are directed. Rather, investment is dictated by local policy, tax breaks and government grants.
Nonetheless, the UK biopharma industry has been lobbying for changes to cost-effectiveness assessment for years, a move which they say will attract investment from industry and drive economic growth that can then be invested back in the UK. In recent years, the UK appears to be sinking in global rankings for pharma investment and research, according to reports by the ABPI.
“We want to attract the global pharmaceutical industry. We want them to invest in the country. We want them to bring their medicines here,” says Wood.
