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Towards a social discount rate for the economic evaluation of health technologies in Germany: an exploratory analysis

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Abstract

Over the last decades, methods for the economic evaluation of health care technologies were increasingly used to inform reimbursement decisions. For a short time, the German Statutory Health Insurance makes use of these methods to support reimbursement decisions on patented drugs. In this context, the discounting procedure emerges as a critical component of these methods, as discount rates can strongly affect the resulting incremental cost-effectiveness ratios. The aim of this paper is to identify the appropriate value of a social discount rate to be used by the German Statutory Health Insurance for the economic evaluation of health technologies. On theoretical grounds, we build on the widespread view of contemporary economists that the social rate of time preference (SRTP) is the adequate social discount rate. For quantifying the SRTP, we first apply the market behaviour approach, which assumes that the SRTP is reflected in observable market interest rates. As a second approach, we derive the SRTP from optimal growth theory by using the Ramsey equation. A major part of the paper is devoted to specify the parameters of this equation. Depending on various assumptions, our empirical findings result in the range of 1.75–4.2% for the SRTP. A reasonable base case discount rate for Germany, thus, would be about 3%. Furthermore, we deal with the much debated question whether a common discount rate for costs and health benefits or a lower rate for health should be applied in health economic evaluations. In the German social health insurance system, no exogenously fixed budget constraint does exist. When evaluating a new health technology, the health care decision maker is obliged to conduct an economic evaluation in order to examine whether there is an economically appropriate relation between the value of the health gains and the additional costs which are given by the value of the consumption losses due to the additional health care expenditures. Therefore, a discount rate lower than the SRTP for consumption should be applied if an increase in the consumption value of health is expected. However, given the limited empirical evidence on the relationship between consumption and the value of health, it is hardly possible to make reliable forecasts of this value. Regarding the practice of the German evaluation authority, it is not recommended to use differential discounting in the base case. Instead, the issue of differential discounting should be addressed in sensitivity analyses. Reducing the discount rate for health compared to the rate for costs by a figure in the range between near 0% and 3% may be considered to be appropriate for Germany.

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Notes

  1. In the context of this paper, the measurement of the following components is neglected: (1) the precise value of the shadow price of capital; (2) the amount by which the expenditure of private investment is decreased by an additional dollar of public investment; and (3) the amount of private investment funds that can be financed through the output or benefits from one dollar of public investment.

  2. The discount factor (DF) is given as: DF = 1/(1 + DR), where DR stands for the discount rate.

  3. See for example Spackman [36].

  4. For more details of the characteristics of a want-independent product as well as the derivation of the equation, see for example Evans et al. [45].

  5. The CEM is given by ln f = α + β ln c + γ ln pf + δ ln pnf + ε, where f stands for the expenditure on food per capita and the other parameters are explained below in the context of the AIDS model.

  6. In the AIDS model, the income elasticity is given by 1 + β/s and the compensated price elasticity equals γ/s − (1 – s).

  7. The derived result of e refers to a mean budget share of 0.30 as estimated by Selvanathan and Selvanathan [46].

  8. For a detailed derivation, see Evans et al. [45].

  9. In determining the discount rate for health outcomes, Klok et al. point out that the second term of the Ramsey equation is approximately zero, as the growth rate in life expectancy is almost zero.

  10. For a formal analysis, see Gravelle and Smith [59, p. 596f].

  11. The resulting discount rates are based on the parameter estimations presented in Table 7, whereas the estimation variations are neglected and the outcomes solely comprise the ‘best estimates’.

  12. According to the formula: r h  = ρ − k, where k is the growth rate of the direct utility gain from being healthy. Thus, supposing a direct as well as an indirect effect of health on utility, the discount rate for health effects can be about zero assuming a non-negative discount rate for costs.

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Acknowledgments

The authors are grateful for the support provided by Martin Schellhorn. Financial support for this research was received from GlaxoSmithKline, Sanofi Pasteur MSD and Wyeth Pharma, which is gratefully acknowledged here. The authors have no conflict of interest that is directly relevant to the content of the manuscript.

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Schad, M., John, J. Towards a social discount rate for the economic evaluation of health technologies in Germany: an exploratory analysis. Eur J Health Econ 13, 127–144 (2012). https://doi.org/10.1007/s10198-010-0292-9

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