After NICE's threshold rise...what now?

Should the Government create a branded pharmaceutical fund?

The UK Government’s recent move to raise the NICE cost-effectiveness threshold has been widely interpreted as a signal of greater generosity towards pharmaceuticals. This is of course correct, but as we indicated in our last blog post on the threshold rise, the Government is trying to stretch an existing decision rule to accommodate objectives it was never designed to serve.

Raising the threshold does not resolve the underlying tension between three competing aims: protecting NHS budgets, improving access to new medicines, and using pharmaceutical spending as an instrument of industrial policy. If the government is serious about the latter objective, it should stop forcing NICE’s threshold to do incompatible work and instead make the political choice explicit.

A centrally funded branded pharmaceutical budget — with its own threshold — would be a more coherent next step.

We already ring-fence pharmaceuticals to some extent

The UK already has experience with earmarked pharmaceutical budgets. The Cancer Drugs Fund (CDF) and the Innovative Medicines Fund (IMF) are explicit departures from NICE’s standard decision rules, justified on the grounds of uncertainty, severity, or innovation. They operate with higher effective thresholds and sit, at least partially, outside routine NHS budget constraints.

These funds demonstrate two things. First, that ring-fencing medicines spending is institutionally feasible (although as was so evident in the case of the CDF, careful design is needed to ensure sustainability). Second, when political pressure becomes strong enough, the UK is willing to suspend the fiction of a single, uniform cost-effectiveness threshold.

What they do not do is confront the broader question: if the Government wishes to spend more on pharmaceuticals as a matter of policy, why continue to treat this as an exception rather than a design principle?

The threshold problem is not technical, it is political

In theory, a cost-effectiveness threshold should approximate opportunity cost within a fixed heath budget. It is a rationing device, not a tool for industrial strategy. Asking it to absorb objectives such as supporting life sciences growth or signalling openness to innovation inevitably distorts its role.

Arguably, NICE’s threshold was never an approximation of opportunity cost. Rather it was an ad hoc attempt to justify how its committees were making their decisions when it became clear that an implicit threshold could be back calculated from the decisions that were being made. So it was always political (with a small p) in that sense.

The recent threshold change reflects a move to the Political realm, with the Starmer Government claiming a major win with their negotiated zero tariffs for pharmaceuticals (although it is by no means clear the US will follow through on the agreement). But the loser in all this is our NHS and our patients. Rather than clarifying what the NHS is being asked to give up, the Government has obscured the trade-off by embedding a political choice inside a technical parameter. The result is less transparency, not more.

If pharmaceutical spending is increasingly justified on grounds other than health maximisation, then it should no longer be judged solely against NHS opportunity costs. That is not an argument for abandoning economic discipline; it is an argument for applying it at the right level.

A pharmaceutical fund as an institutional solution

A centrally funded pharmaceutical budget would make this logic explicit.

Under such an arrangement, the Government would create a defined pharmaceutical envelope, funded directly by the Treasury and sitting alongside — not within — core NHS budgets. NICE would continue to appraise technologies, but those meeting specified criteria would be assessed against a higher threshold aligned with the Government’s stated greater willingness to pay for pharmaceuticals on the grounds of industrial policy and UK plc.

The opportunity cost of funding medicines through this route would no longer be framed as foregone NHS care, but as foregone alternative public spending which could have been directed to other areas that could also arguably promote economic growth. That is a political choice, and one that should be owned by ministers and Parliament rather than smuggled into NICE’s methods with increased spending foisted on an already cash-strapped NHS.

So this does not eliminate opportunity cost, but it does relocate it to the appropriate decision-maker.

Why this is more consistent than the status quo

At present, the UK operates three partially incompatible systems in parallel:

1. NICE thresholds, grounded (at least theoretically) in NHS opportunity cost;

2. Voluntary Scheme for Branded Medicines Pricing and Access (VPAG), which manages pharmaceutical expenditure at the aggregate level through rebates;

3. Political commitments to support innovation and growth, which are rhetorically strong but operationally vague.

A pharmaceutical fund would align these systems rather than forcing them to coexist awkwardly.

VPAG already accepts that pharmaceutical spending is best controlled at the macro level, through expenditure caps and rebates rather than product-by-product rationing. A pharmaceutical fund would provide an allocative counterpart to this fiscal control, giving NICE a budgetary framework that reflects how medicines are actually managed in practice.

Rather than undermining VPAG, the fund would complete it: VPAG would manage the quantity of spending, while NICE would manage its allocation within a transparent envelope. It also raises an intriguing possibility — that the appropriate threshold would become the shadow price of the pharmaceutical fund. If operated in this way, then increasing pressures on the fund would drive down the threshold.

Not a panacea — and not costless

This proposal does not solve every problem.

Budget silos would remain, and opportunity costs between pharmaceutical and non-pharmaceutical interventions would not disappear. There would still be hard choices about which products qualify for the fund and how large the envelope should be. Pharmaceutical companies are likely to respond strategically by pricing to the higher threshold.

These risks are real and must be designed for, not wished away. Safeguards would be essential: fixed multi-year budgets, explicit caps, mandatory re-pricing at reassessment, and sunset clauses requiring periodic political re-authorisation. Criteria for eligibility will need careful thought in order to avoid potential distortions, or gaming.

But none of these challenges are unique to a pharmaceutical fund. They already exist — only in a less transparent form.

The real choice the Government faces

The Government can continue to adjust NICE’s threshold incrementally, hoping that technical changes will reconcile incompatible objectives. Or it can accept that it is making a political choice to value pharmaceuticals differently and design institutions and systems accordingly.

A pharmaceutical fund would not represent a retreat from evidence-based decision-making. On the contrary, it would clarify what evidence is being used for, and what it is not. NICE would remain a scientific assessor of value, but no longer be asked to disguise industrial policy as health technology assessment.

If ministers want to pay more for medicines, they should say so — and show where the money comes from.

Raising the threshold was the easy part. Designing institutions and systems that match the Government’s ambitions is the harder, and more important, task.