NICE medicines thresholds: what’s changing and where is the money coming from?

On 1 December 2025, the government announced a “landmark” trade agreement with the United States that promised 0% tariffs on UK pharmaceutical exports to the United States — “protecting UK-based manufacturing and cementing our place as a world leader for life sciences investment”, according to the Department of Health and Social Care (DHSC).

The government also announced its intention to “invest around 25% more in innovative, safe, and effective treatments”, confirming to The Pharmaceutical Journal that this increased budget would enable an increase to the National Institute for Health and Care Excellence (NICE) cost-effectiveness thresholds and a change to the methodology used to value new drugs. 

In consultation documents published on 9 December 2025, the government proposed that ministers be given powers to direct NICE to use a specific cost-effectiveness threshold and remove the requirement for NICE to consult on methods changes where these result from a ministerial direction.

Drug developers and representatives of patients who would benefit from new approvals welcomed the news of an increased threshold, but health economists have put forward a more complex analysis of the situation, with several warning that more NHS spending on drugs would mean less to spend elsewhere.

The Pharmaceutical Journal spoke to three health economists to understand how medicines spending currently works and what changes to expect, while trying to answer the question on everyone’s lips — where is the money coming from? 

How do we decide how much to pay for drugs?

Companies that develop new treatments submit them to NICE, which considers if they should be paid for by the NHS in England and Wales, and in what circumstances.

NICE does this by considering a range of factors, including the impact a drug would have on a patient’s length and quality of life, how important that improvement is believed to be by the UK population, and how much the NHS is willing to pay for it.

Can you put a number on health?

NICE has to assign a numeric value to health improvement. This is defined in quality-adjusted life years (QALYs), which draw on two scoring systems: one that describes different health states and one that attributes a different value to each, based on the views of the UK population. 

The “health state” scoring system currently used is called EQ-5D-3L, which describes three levels of problems (no problems, some problems, extreme problems) a person might have with their health, across five areas: mobility, self-care, usual activities, pain/discomfort and anxiety/depression.

These are combined to give an overall five-digit score for each possible “health state”.

This is then assigned a value based on the views of the UK population, using an algorithm created in the early 1990s.

Both the scoring system that defines each health state and the algorithm that reflects the views of the UK population are set to change. Chris Sampson, senior principal economist at research organisation the Office of Health Economics, says this will have a “long-term” impact on “the relative value of all technologies that are evaluated in future”.

First, the EQ-5D-3L scoring system that describes different health states will be replaced by a more nuanced EQ-5D-5L questionnaire that allows people to describe the impact on their health in more detail: no problems, slight problems, moderate problems, severe problems or extreme problems.

“When you only have three levels of response, it’s quite common for people to say they have no problems even if actually they do have some minor difficulties in a particular aspect of their health. So [EQ-5D-5L] it’s much more sensitive and nuanced,” says Sampson.

Second, a new value equation has been created, reflecting the current views of the UK population about how valuable they think different health states are. This is soon to be published and it will then begin to be applied to new technology evaluations by NICE.

Since the values were originally created, “there are lots of ways in which we think that people’s opinions about their health and what’s valuable to their health have changed over that time,” Sampson says.

“[With a new value set], we would expect NICE to allocate resources more effectively, so medicine that is more value to the UK population is more likely to be supported based on these figures than on the old methodology,” Sampson says. 

For instance, the new value set may reflect the higher value people now place on mental health outcomes, which may influence the types of treatment NICE approves in future.

Once NICE has determined how much of an impact a new medicine could have on a person’s quality of life, it must then decide how much it is prepared to spend to make that happen. 

Estimates from the University of York suggest that existing NHS care and treatments — including routine GP and pharmacy services as well as existing treatments — cost the NHS between £5,000 and £15,000 to give each person one year of “perfect” health.

But when new medicines are developed, they may offer years of life and health benefits to people with certain conditions, when compared with existing treatments. The NHS must therefore decide about whether to spend taxpayer’s money on these new treatments, or whether to use its budget elsewhere. 

Current NICE thresholds suggest that the NHS spends around £20,000 to £30,000 per QALY and this is set to change to £25,000 to £35,000. 

Ed Wilson, professor of health economics and health policy at the University of Exeter, says this is what NICE was set up to consider. “What do we get from our new treatments? But then what do we have to give up to get it?” he asks.

With changes to the NICE thresholds, “we’ll probably be saying yes to a few more medicines than we did previously, so there will be beneficiaries,” says Wilson, suggesting that cancer drugs may be one area where more drugs are approved.

“But who loses? Where do those resources come from? The maths suggests that we will be losing more than we gain so overall this is bad news for NHS patients.” 

Where will the money come from?

It is not clear how much the increase in thresholds will cost the NHS. Since it will only be applied to new drugs going forwards, NICE suggests that increasing the standard threshold to £25,000–£35,000 will allow it to recommend an additional three to five new medicines or indications per year. According to the Office of Budgetary Responsibility, the government has budgeted for a 25% — or £3.3bn — rise in spending on branded medicines between 2025/2026 and 2028/2029.

The DHSC confirmed to The Pharmaceutical Journal that the extra funding would come from the uplift the department received in its budget until 2028/2029 at the 2025 spending review. 

The DHSC is forecast to get a 2.8% real-terms increase in resource (day-to-day) spending — a £30bn increase from £202bn in 2025/2026 to £232bn in 2028/2029. Of this, funding allocated to NHS England will increase from £195.6bn in 2025/2026 to £226.1bn in 2028/2029 — a 3% increase in real terms, equating to an additional £30.5bn in today’s prices.

Figure: The additional spending on branded medicines will come out of the £30bn uplift the Department of Health and Social Care received at the 2025 spending review

Speaking on Radio 4’s Today programme on 3 December 2025, health secretary Wes Streeting questioned the £3bn figure, and said it was likely to be much lower.

“It’s highly variable. I think we’re looking more like the order of magnitude of around a billion pounds,” he said.

“This a hugely, hugely complicated area. It really does depend on the level of medicine spend, the level of rebate and the level of investment we get in the UK.”

Karl Claxton, professor of health economics at the University of York, says the cost to the NHS will build over time. “If you increase the NICE [upper] threshold of £30,000 to £35,000 per QALY, once you reach a steady state, the additional costs the NHS are somewhere in the region of £5bn,” he says. 

Once the reduction in the rebate rate that the pharmaceutical industry pays to the NHS is implemented, “it’s going to be a lot more than that”, he says. 

Claxton suggests that capping the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) rebates at 15% could lose the NHS £10bn each year, the impact of which on the health service would be “catastrophic”, he said.

Earlier in December 2025, the DHSC announced that the payment rate for newer medicines under the VPAG scheme will fall to 14.5% in 2026, down from 22.5% in 2025.

Both Claxton and Wilson say that other NHS services — such as tackling waiting lists or community pharmacy services and medication reviews — likely represent much better value for money than new pharmaceuticals, because they cost less to deliver per QALY gained as a result.

“If we pay more for these new drugs, it means that despite pharmacists’ best efforts in the community, we’re going to get poorer outcomes because the rest of the NHS just doesn’t have the money to do what it needs to do,” says Claxton.

Wilson adds that the government needs to be “open and upfront and say actually, there are costs as well as benefits”.

“This is a benefit for some patients, it is certainly a benefit for industry, and of course that has wider benefits to the economy as well,” he explains.

“But who loses? Nobody likes to talk about who loses, and NICE exists to ask that question. Who loses? To weigh the wins to the winners against the losses to the losers. To say, OK, are we happy that the wins to the winners exceed the losses to the losers? That is what it does in every decision that it makes.”

In this situation, Wilson suggests: “The beneficiaries will be those with the diseases treated that can be treated by the drugs that we can now say yes to. The losers will be every other NHS patient.

“Because it’ll increase pressure, it’s effectively a cut in funding of the NHS equivalent to, let’s say, a billion pounds that otherwise could have gone to greater benefit.”

And though Streeting told the Today programme: “We are not going to cut NHS services to fund this,” Wilson suggests the same argument could be applied to extra budget not yet allocated to health services.

“Where do we put the new money? Do we put the money into less efficient services or more efficient services? Which is the best investment for taxpayers’ money to generate the maximum health for the population,” Wilson says.

“We know that tackling waiting lists for various surgeries are actually likely to be a more efficient use of the funds than new drugs… the sort of medication reviews that pharmacists do, all the additional enhanced services and so on – they are likely to represent much better value for money – i.e. cost less than £25,000 per QALY gained than new pharmaceuticals,” he adds.

Too early to tell?

The area of medicines spending is opaque and complex – a lot of NICE’s decision-making and the commercial arrangements that the NHS has with pharmaceutical companies is confidential, while rebates per sale add additional complexity to calculations.

It is also difficult to isolate the effects of medicines spending from other factors. Economists, like Claxton, stand by the modelling that suggests patients will lose out as a result of the increased spend on medicines, while others say it is too early to tell. It’s clear that the government felt this decision was the only way to retain the investment in UK industry that pharmaceutical companies were threatening to pull away from.

Time will tell if that investment pays off with improved health returns for patients.