1. Introduction

Cost-effectiveness thresholds in public funding refer to the legal, economic and administrative standards used by governments and public institutions to determine whether a particular treatment, medicine, healthcare technology, public programme or other intervention deserves financial support from public resources.

The central question is:

How much public money should the government be willing to spend to obtain a particular improvement in public welfare?

In healthcare, this question commonly arises when governments decide whether to finance expensive medicines, biotechnology products, cancer treatments, vaccines, medical devices and innovative therapies.

For example, a new biotechnology drug may cost ₹25 lakh per patient annually, while an existing treatment may cost ₹2 lakh. If the new drug produces only a marginal improvement in survival or quality of life, the government must evaluate whether the additional expenditure is justified.

Cost-effectiveness thresholds attempt to make such decisions systematic, transparent and accountable.

They connect three important legal principles:

Efficient utilisation of public resources.

Equality and fairness in access to publicly funded services.

Protection of constitutional and statutory rights.

Cost-effectiveness is therefore not merely an economic calculation. It is also a question of public law, administrative accountability, distributive justice and human rights.

2. Meaning and Nature of Cost-Effectiveness Thresholds

A cost-effectiveness threshold is a benchmark representing the maximum additional expenditure considered acceptable for obtaining an additional unit of health or social benefit.

In healthcare, the most widely used measurement is the Incremental Cost-Effectiveness Ratio (ICER).

\[ ICER=\frac{C_1-C_0}{E_1-E_0} \]

Where:

\(C_1\) = Cost of the new intervention.

\(C_0\) = Cost of the existing intervention.

\(E_1\) = Effectiveness of the new intervention.

\(E_0\) = Effectiveness of the existing intervention.

Effectiveness may be measured through additional life-years, quality-adjusted life-years (QALYs), disability-adjusted life-years (DALYs) or other relevant health outcomes.

Illustration:

Suppose a new treatment costs ₹10 lakh more than an existing treatment and produces two additional QALYs.

\[ ICER=\frac{₹10,00,000}{2}=₹5,00,000 \]

The additional cost is ₹5 lakh per QALY gained.

If the applicable decision-making threshold is ₹6 lakh per QALY, the treatment may be considered cost-effective. However, this does not automatically establish that it should be publicly funded.

Affordability, budget impact, clinical uncertainty, disease severity and equity must also be examined.

3. Legal Foundations of Cost-Effectiveness Thresholds

Cost-effectiveness thresholds operate through several legal and policy principles.

A. Public resource allocation

Governments operate within limited financial resources. Public authorities must therefore establish priorities among competing public needs.

These may include:

Cancer treatment and rare-disease medicines.

Vaccination and preventive healthcare.

Maternal and child healthcare.

Emergency medical services.

Biotechnology and advanced medical research.

Medical infrastructure and public hospitals.

A government cannot necessarily finance every available treatment. However, its decisions must be based on rational, transparent and legally defensible criteria.

B. Equality and non-discrimination

A cost-effectiveness threshold should not become an instrument for arbitrary exclusion.

Two patients with substantially similar clinical conditions should not receive different treatment merely because of irrelevant personal or economic characteristics.

Public funding criteria must be consistent with equality principles and should account for legitimate differences in clinical need.

C. Proportionality

A funding restriction should maintain a reasonable relationship between the financial objective and the consequences for patients.

For example, refusing an expensive treatment with negligible additional clinical benefit may be justified. Refusing a potentially life-saving treatment without examining its clinical effectiveness, severity of disease or available alternatives may raise serious legal concerns.

D. Transparency and procedural fairness

Public authorities should disclose:

The methodology used to calculate cost-effectiveness.

The evidence supporting the threshold.

The financial assumptions adopted.

The clinical outcomes considered.

The reasons for approving or rejecting funding.

The procedure for reconsideration and appeal.

A numerical threshold should not replace reasoned administrative decision-making.

4. Economic Methodologies Used to Establish Thresholds

Several economic methodologies influence the legal determination of public funding priorities.

Important distinction: A treatment can be cost-effective but unaffordable. Conversely, a treatment may exceed a conventional cost-effectiveness threshold but still warrant special consideration because it addresses an extremely severe or neglected disease.

5. International Cost-Effectiveness Threshold Models

A. United Kingdom: NICE model

Bringing evidence-based medicine into reality - a committee member's story

National Institute for Health and Care Excellence (NICE)

The United Kingdom uses health technology assessment to inform decisions about NHS funding.

NICE traditionally uses a reference range of approximately £20,000–£30,000 per QALY gained in its technology appraisal framework.

The assessment is not purely mechanical. Other considerations include:

Uncertainty in clinical evidence.

Severity of the disease.

Innovation and therapeutic benefits.

Quality-of-life improvements.

Special characteristics of the patient population.

The threshold helps maintain consistency across different medical conditions, while allowing justified exceptions.

NICE+1

B. India: Health Technology Assessment in India

Health Technology Assessment in India (HTAIn) - Health Technology Assessment in India (HTAIn)

Health Technology Assessment in India (HTAIn)

HTAIn evaluates healthcare technologies for clinical effectiveness, cost-effectiveness and affordability.

India has developed a framework for using economic evaluation in public healthcare decisions.

The Indian reference-case literature recognises an important limitation: India does not have a formally recognised, universally applicable national cost-effectiveness threshold.

Per-capita GDP-based values may be used for analytical purposes, but they should not be treated as automatic funding rules.

The assessment must also consider:

Healthcare inequalities.

Regional differences in access.

Out-of-pocket expenditure.

Public healthcare budgets.

Disease burden.

Affordability for the population.

Opportunity costs of alternative interventions.

The HTAIn framework is particularly important for evaluating medicines, medical devices, diagnostics, surgical interventions and public-health programmes.

PMC+2

C. World Health Organization approach

Historically, WHO-CHOICE popularised the use of GDP-based benchmarks:

Below one times per-capita GDP per DALY averted: historically described as very cost-effective.

Below three times per-capita GDP per DALY averted: historically described as cost-effective.

However, these historical benchmarks should not be used as automatic funding entitlements or rigid decision rules.

The more developed approach recognises opportunity costs, affordability, fairness, feasibility and local health-system circumstances.

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6. Important Judicial Decisions and Case Laws

The following judgments establish important principles concerning public healthcare funding, resource scarcity, rationality, equality and administrative discretion. Some directly concern cost-effectiveness or health technology assessment; others provide the constitutional and administrative law foundations for reviewing funding decisions.

Case 1. R v Cambridge Health Authority, ex parte B (1995)

Citation: [1995] 1 WLR 898.

Facts:

The case concerned a child suffering from leukaemia whose parents sought continued treatment at public expense. The health authority refused further funding after concluding that the proposed treatment had little prospect of success and involved substantial costs.

Legal issue:

Whether courts should interfere with healthcare authorities' decisions to withhold expensive treatment where public resources are limited.

Judgment and principle:

The English court recognised that public healthcare authorities must allocate limited resources among competing patients and treatments.

Courts should exercise caution before substituting their own medical and resource-allocation judgments for those of properly constituted health authorities.

Significance:

The judgment establishes that the existence of a potentially beneficial treatment does not automatically create an unlimited entitlement to publicly funded treatment.

It also recognises the legitimacy of considering clinical effectiveness, expenditure and competing healthcare needs.

Case 2. R v North West Lancashire Health Authority, ex parte A, D and G (2000)

Citation: [2000] 1 WLR 977.

Facts:

The applicants sought public funding for gender reassignment treatment. The health authority maintained a restrictive funding policy, allowing treatment only in exceptional circumstances.

Legal issue:

Whether a public healthcare authority may establish funding priorities and restrict access to particular treatments.

Judgment and principle:

The court accepted that healthcare authorities may establish priorities because financial resources are limited.

However, policies must be legally rational and must not operate arbitrarily or unlawfully.

Significance:

This decision supports the principle that cost-effectiveness and competing resource demands can legitimately influence public healthcare decisions.

It also demonstrates that exceptional funding policies require defensible criteria.

Case 3. R (Rogers) v Swindon Primary Care Trust (2006)

Citation: [2006] EWCA Civ 392.

Facts:

The claimant, a breast cancer patient, sought funding for Herceptin (trastuzumab).

The Primary Care Trust had adopted a policy under which funding could be provided in exceptional circumstances, but its approach to identifying exceptional cases was legally problematic.

Legal issue:

Whether a healthcare authority could distinguish between clinically similar patients through an irrational exceptional-funding policy.

Judgment:

The Court of Appeal held that the funding policy was irrational and unlawful.

The authority could not disregard financial considerations and then use irrelevant personal circumstances to distinguish between patients with equivalent clinical needs.

Significance:

This is one of the most important cases for understanding the legal limits of cost-effectiveness-based funding decisions.

It establishes that:

Funding policies must have a rational foundation.

Comparable patients must be treated consistently.

Exceptional-funding criteria must be relevant.

Personal circumstances cannot arbitrarily determine access.

Administrative discretion remains subject to judicial review.

Bailii

Case 4. R (Eisai Ltd) v National Institute for Health and Clinical Excellence (2008)

Citation: [2008] EWCA Civ 438.

Facts:

The pharmaceutical company challenged NICE's assessment of medicines for Alzheimer's disease.

The dispute concerned the economic assessment methodology, including the cost-per-QALY approach and the evaluation of competing treatments.

Legal issue:

Whether NICE had lawfully exercised its technical and administrative judgment when assessing the cost-effectiveness of medicines.

Judgment:

The Court of Appeal examined the relationship between economic evaluation, evidence, methodology and administrative decision-making.

The judgment discussed NICE's approximate £20,000 per QALY benchmark and its treatment of higher cost-effectiveness ratios.

Significance:

The decision demonstrates that expert assessment bodies have considerable technical discretion, but their methods and conclusions remain subject to legal scrutiny.

Cost-effectiveness methodologies must be applied coherently and in accordance with the applicable procedural and evidentiary requirements.

Bailii

Case 5. R (Servier Laboratories Ltd) v NICE (2009)

Citation: [2009] EWHC 281 (Admin).

Facts:

The pharmaceutical company challenged aspects of NICE's appraisal of medicines, raising questions concerning economic assessment and the use of cost-per-QALY comparisons.

Legal issue:

Whether NICE's appraisal methodology and its treatment of competing health technologies were legally defensible.

Legal principle:

The court examined the use of a common cost-per-QALY benchmark to compare different treatments and promote consistency in resource-allocation decisions.

It recognised that the process was not a purely mechanical exercise.

Significance:

The case supports the legitimacy of using common economic benchmarks in public healthcare funding while retaining the need for reasoned expert judgment.

Bailii

Case 6. Paschim Banga Khet Mazdoor Samity v. State of West Bengal (1996)

Citation: (1996) 4 SCC 37.

Facts:

A seriously injured person was refused admission by several government hospitals because of inadequate facilities and the unavailability of beds.

Legal issue:

Whether financial and administrative limitations could excuse the State's failure to provide essential medical assistance.

Judgment:

The Supreme Court held that failure to provide timely medical treatment in government hospitals violated Article 21 of the Constitution.

The State has a constitutional obligation to provide adequate medical facilities and cannot simply avoid its responsibilities by citing financial constraints.

Significance for cost-effectiveness thresholds:

This judgment establishes an important constitutional limitation on economic prioritisation.

Although public authorities may allocate resources according to financial capacity, cost considerations cannot be used to justify the denial of essential emergency medical care.

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Case 7. State of Punjab v. Mohinder Singh Chawla (1997)

Citation: (1997) 2 SCC 83.

Facts:

A government employee required specialised heart surgery that was unavailable in Punjab's government hospitals. He underwent treatment at AIIMS, New Delhi, and sought reimbursement of the associated hospital expenses.

Legal issue:

Whether the State was constitutionally obligated to reimburse expenses associated with necessary medical treatment.

Judgment:

The Supreme Court recognised that the right to health is integral to the right to life under Article 21.

It upheld the employee's entitlement to reimbursement of the hospital room expenses that formed an integral part of his inpatient treatment.

Significance:

The judgment demonstrates that financial policies must be interpreted consistently with the constitutional obligation to provide medical facilities.

Public expenditure considerations cannot automatically override legitimate medical entitlements.

Indian Kanoon+1

Case 8. Consumer Education and Research Centre v. Union of India (1995)

Citation: (1995) 3 SCC 42.

Facts:

The case concerned occupational health hazards affecting workers employed in asbestos industries and the government's responsibility to protect their health.

Legal issue:

Whether the right to health and medical care forms part of the fundamental right to life.

Judgment:

The Supreme Court recognised that the right to health and medical care is an integral component of Article 21, read with relevant Directive Principles of State Policy.

Significance:

The decision provides a constitutional foundation for evaluating public healthcare expenditure.

Government funding policies must consider the protection of human dignity, occupational health and access to necessary medical care.

hcph.gov.in+1

7. Constitutional Framework in India

Cost-effectiveness thresholds in public funding must be examined within the framework of the Indian Constitution.

Articles 38, 41 and 47 are particularly important in understanding the relationship between public expenditure and welfare obligations.

Article 41 expressly recognises the relevance of the State's economic capacity and development in fulfilling its public-assistance responsibilities.

However, constitutional obligations under Article 21 cannot be reduced to a purely economic calculation.

8. Legal Problems Associated With Cost-Effectiveness Thresholds

A. Arbitrary numerical thresholds

A government may establish a numerical threshold without adequate scientific or economic justification.

For example, a government might reject every treatment costing more than ₹5 lakh per QALY.

Such an approach may be legally questionable if the threshold is unsupported by evidence or ignores important differences between diseases and patient populations.

B. Discrimination against rare-disease patients

Rare-disease treatments frequently involve extremely high development and manufacturing costs.

Their cost-effectiveness ratios may appear unfavourable because relatively few patients benefit.

A rigid threshold may therefore disadvantage patients suffering from rare genetic disorders.

Special consideration may be required for:

Disease severity.

Lack of alternative treatments.

Unmet medical needs.

Potential long-term benefits.

The small number of affected patients.

C. Discrimination against elderly and disabled persons

QALY-based assessments may generate difficult ethical questions.

A treatment that extends the life of a younger, healthier patient may generate more QALYs than a treatment benefiting an elderly or disabled patient.

If QALYs are used without appropriate safeguards, funding decisions may systematically disadvantage certain populations.

The assessment must distinguish between measuring health outcomes and assigning unequal human worth to different individuals.

D. Pharmaceutical pricing and monopolistic practices

High medicine prices can make otherwise effective treatments appear economically unattractive.

This creates a legal policy question: should public authorities reject the treatment, negotiate its price, introduce price controls or adopt alternative procurement arrangements?

The availability of compulsory licensing, generic competition and negotiated pricing may affect the ultimate cost-effectiveness calculation.

E. Uncertainty in biotechnology

Advanced biotechnology products may have limited long-term clinical evidence.

Examples include:

Gene therapies.

Cell therapies.

Personalised cancer medicines.

CAR-T treatments.

Genetically engineered biologics.

A treatment may demonstrate significant short-term effectiveness without establishing long-term durability.

Public authorities should therefore consider evidence uncertainty, post-market monitoring and conditional funding arrangements.

9. Judicial Review of Cost-Effectiveness Decisions

Public funding decisions are generally subject to judicial review where they involve illegality, irrationality, procedural unfairness or constitutional violations.

The following principles are particularly relevant.

The judgments in Rogers, Eisai and North West Lancashire demonstrate that courts can examine the legality of healthcare funding policies without necessarily taking over the technical role of medical and economic assessment bodies.

10. Special Issues in Public Funding of Biotech Drugs

Cost-effectiveness thresholds are particularly significant in biotechnology because innovative treatments may involve substantial research, manufacturing and administration costs.

Consider the following hypothetical example:

The new treatment generates three additional QALYs at an incremental cost of ₹18 lakh.

Its ICER is ₹6 lakh per QALY.

However, the government should not automatically approve or reject the treatment based on this figure.

It should additionally consider:

Whether the clinical evidence is reliable.

Whether the treatment produces durable benefits.

Whether alternative medicines are available.

Whether the price can be negotiated.

Whether the total number of eligible patients creates an excessive budget impact.

Whether patients from economically disadvantaged backgrounds can access it.

Whether conditional funding and outcome-based payment arrangements are feasible.

Outcome-based reimbursement

Under this model, the government or public insurer pays according to the treatment's demonstrated performance.

For example, a biotechnology company may receive full reimbursement only if the medicine produces an agreed clinical outcome.

This can reduce the financial consequences of clinical uncertainty.

11. Recommended Legal and Regulatory Safeguards

A legally defensible public funding framework should incorporate the following safeguards.

1. Evidence-based thresholds: Thresholds should be supported by transparent health-economic and epidemiological evidence.

2. Periodic revision: Economic benchmarks should be reviewed as healthcare budgets, technologies and population needs change.

3. Disease-specific flexibility: Rare diseases, severe illnesses and conditions without alternative treatments may require additional consideration.

4. Independent assessment: Health technology assessment should be conducted through scientifically competent and institutionally independent bodies.

5. Patient participation: Patient organisations and affected communities should have meaningful opportunities to contribute.

6. Transparent reasoning: Funding authorities should publish the principal reasons supporting approval or rejection.

7. Appeal mechanisms: Patients and healthcare providers should have access to appropriate review procedures.

8. Price negotiation: Authorities should consider procurement negotiations, generic competition and other lawful affordability mechanisms.

9. Budget impact assessment: Cost-effectiveness should be examined alongside the total financial implications of funding.

10. Constitutional protection: Economic considerations should not be used as an automatic justification for arbitrary discrimination or denial of essential healthcare.

12. Critical Analysis: The Conflict Between Economic Efficiency and Social Justice

The central difficulty with cost-effectiveness thresholds is that economic efficiency and social justice do not always produce identical outcomes.

An intervention may generate substantial aggregate health benefits while leaving disadvantaged populations without access to essential treatment.

Similarly, an expensive treatment for a small group of patients may generate fewer aggregate QALYs but address a particularly serious unmet medical need.

Three competing approaches emerge:

A balanced framework must recognise all three.

The most defensible approach is not to abandon economic evaluation but to prevent economic indicators from becoming the exclusive determinants of public healthcare entitlements.

13. Conclusion

Cost-effectiveness thresholds in public funding represent an important mechanism for balancing financial responsibility, scientific evidence and public welfare.

Their legal legitimacy depends upon the manner in which they are established and applied.

The English decisions in Cambridge Health Authority, North West Lancashire, Rogers, Eisai and Servier demonstrate that public healthcare authorities may establish funding priorities but must exercise their discretion rationally and consistently.

Indian Supreme Court decisions, particularly Paschim Banga Khet Mazdoor Samity, Mohinder Singh Chawla and Consumer Education and Research Centre, establish that public healthcare allocation must also respect constitutional obligations concerning life, health and human dignity.

The fundamental legal proposition is that cost-effectiveness may guide public funding, but it cannot independently determine the boundaries of constitutional healthcare protection.

India's future framework should combine health technology assessment, transparent economic thresholds, affordability analysis, distributive justice and constitutionally compliant decision-making.

14. Important Case Law Reference List

Useful primary and institutional references

Government of India – Health Technology Assessment in India.

HTAIn Manual – Cost-effectiveness thresholds.

NICE – Assessing cost-effectiveness.

Eisai v NICE – Full judgment.

Rogers v Swindon PCT – Full judgment.

Paschim Banga – Supreme Court judgment.

Academic qualification: The Indian constitutional cases above establish the broader legal principles governing healthcare obligations; they do not themselves prescribe a numerical cost-effectiveness threshold. Similarly, the UK cases concern particular funding policies and appraisal decisions rather than creating a universally applicable threshold.