It's time to reconsider the three percent discount rate.

Date: March 8, 2024
Journal: Value in Health
Citation: Cohen JT, It’s time to reconsider the three percent discount rate., Value in Health (2024), doi:

Objectives: Health technology assessment (HTA) guidance often recommends a 3 percent real annual discount rate, the appropriateness of which has received limited attention. This paper seeks to identify an appropriate rate for high-income countries because it can influence projected cost-effectiveness and hence resource allocation recommendations.

Methods: The author conducted two searches. The first sought articles on the theory for selecting a rate. The second sought HTA guidance documents.

Results: The first search yielded 21 articles describing two approaches. The “Ramsey Equation” sums contributions by four factors: pure time preference, catastrophic risk, wealth effect, and macroeconomic risk. The first three factors increase the discount rate because they indicate future impacts are less important, while the last, suggesting greater future need, decreases the discount rate. A fifth factor – project-specific risk – increases the discount rate but does not appear in the Ramsey Equation. Market interest rates represent a second approach for identifying a discount rate because they represent competing investment returns and hence opportunity costs. The second search identified HTA guidelines for 32 high-income countries. Twenty provide no explicit rationale for their recommended rates, ten appeal to market interest rates, four to consistency, and three to Ramsey Equation factors.

Conclusions: Declining consumption growth and real interest rates imply HTA guidance should reduce recommended discount rates to 1.5 – 2+ percent. This change will improve projected cost-effectiveness for therapies with long-term benefits and increase the impact of accounting for long-term drug price dynamics, including reduced prices attending loss of market exclusivity.

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