Health economics is the study of how health and healthcare resources are produced, valued and used, including the costs and outcomes of different treatments and services. In the NHS, it underpins NICE decisions on medicines and technologies, which compare the extra cost of a treatment with the extra health it delivers, usually measured in quality-adjusted life years (QALYs).
NICE's health technology evaluations manual sets a reference case: costs are taken from the perspective of the NHS and personal social services, health effects are measured in QALYs using the EQ-5D questionnaire for adults, and costs and benefits are discounted at 3.5% a year. Since April 2026, NICE has applied a standard threshold of £25,000 to £35,000 per QALY, up from £20,000 to £30,000. Separate rules apply to very rare conditions, and a severity modifier gives extra weight to QALYs for the most severe conditions. NHS England's budget impact test, which triggers commercial discussions for medicines expected to cost the NHS more than £40m a year in any of their first three years, rose from £20m in 2025.
Most NHS funding decisions now depend on an economic case as well as clinical evidence. For medicines, the economic model often decides whether NICE recommends a product and at what price. The extension of NICE technology appraisal to some devices, diagnostics and digital products from April 2026 brings the same discipline to more of medtech. Locally, Integrated Care Boards and NHS Trusts expect business cases that show savings, released staff time or avoided activity, so companies need economic evidence at both national and local level.
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