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Estimating the Reference Incremental Cost-Effectiveness Ratio for the Australian Health System



Spending on new healthcare technologies increases net population health when the benefits of a new technology are greater than their opportunity costs—the benefits of the best alternative use of the additional resources required to fund a new technology.


The objective of this study was to estimate the expected incremental cost per quality-adjusted life-year (QALY) gained of increased government health expenditure as an empirical estimate of the average opportunity costs of decisions to fund new health technologies. The estimated incremental cost-effectiveness ratio (ICER) is proposed as a reference ICER to inform value-based decision making in Australia.


Empirical top-down approaches were used to estimate the QALY effects of government health expenditure with respect to reduced mortality and morbidity. Instrumental variable two-stage least-squares regression was used to estimate the elasticity of mortality-related QALY losses to a marginal change in government health expenditure. Regression analysis of longitudinal survey data representative of the general population was used to isolate the effects of increased government health expenditure on morbidity-related, QALY gains. Clinical judgement informed the duration of health-related quality-of-life improvement from the annual increase in government health expenditure.


The base-case reference ICER was estimated at AUD28,033 per QALY gained. Parametric uncertainty associated with the estimation of mortality- and morbidity-related QALYs generated a 95% confidence interval AUD20,758–37,667.


Recent public summary documents suggest new technologies with ICERs above AUD40,000 per QALY gained are recommended for public funding. The empirical reference ICER reported in this article suggests more QALYs could be gained if resources were allocated to other forms of health spending.

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The authors gratefully acknowledge the cooperation and effort of the data providers (Independent Hospital Pricing Authority, Department of Human Services, Department of Veterans’ Affairs, Australian Coordinating Registry) in the health authorities of the States and Territories and the Australian Government; the Australian Bureau of Statistics for access to the Census of Population and Housing 2011 through Tablebuilder; and the Household, Income and Labour Dynamics in Australia (HILDA) survey. The HILDA Project was initiated and is funded by the Australian Government Department of Social Services and is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute). The findings and views reported in this article, however, are those of the authors and should not be attributed to either the Department of Social Services or the Melbourne Institute. The authors thank Prof. Mark Sculpher for his conceptual input and Dr. James Lomas for useful comments on the statistical methods. The authors also acknowledge the members of their advisory group; Prof. Rosalie Viney, Prof. Robyn Ward, Prof. Catherine Cole, Prof. Jonathan Craig and Associate Prof. Rachael Moorin for their input to the overall research methodology.

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Authors and Affiliations



Jonathan Karnon, Hossein Haji Ali Afzali and Terence C. Cheng conceptualised the study, all authors contributed to the development of the methods used and approved the analyses. Laura C. Edney wrote the first draft of the manuscript. All authors contributed to subsequent drafts, responses to the peer reviewers and approved the final version.

Corresponding author

Correspondence to Laura Catherine Edney.

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This study was funded by a National Health and Medical Research Council Project Grant (No. 108-4387).

Conflict of interest

Jonathan Karnon is a member of the Economic Sub-Committee of the Pharmaceutical Benefits Advisory Committee and Hossein Haji Ali Afzali is a member of the Evaluation Sub-Committee of the Medical Services Advisory Committee. Terence C. Cheng and Laura C. Edney have no conflicts of interest directly relevant to the contents of this article.

Ethics approval

Ethics approval was granted by the South Australian Health Human Research Ethics Committee (Ethics Reference No. HREC/14/SAH/159).

Data availability statement

The datasets generated and analysed during the current study are not publicly available owing to strict confidentiality requirements imposed by the data custodians.

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Edney, L.C., Haji Ali Afzali, H., Cheng, T.C. et al. Estimating the Reference Incremental Cost-Effectiveness Ratio for the Australian Health System. PharmacoEconomics 36, 239–252 (2018).

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