A QALY (quality-adjusted life year) is a measure of health benefit that combines how long a person lives with the quality of that life. An ICER (incremental cost-effectiveness ratio) is the extra cost of a new health technology divided by the extra health benefit it brings, usually expressed as cost per QALY gained.
Together, they are the most common way health technology assessment (HTA) bodies judge whether a new medicine or device offers good value for money compared with current care.
What is a QALY?
A QALY weights each year of life by a quality score, called a utility, on a scale where 1 represents full health and 0 represents death. Some very severe health states can even be valued below 0.
The calculation is simple: QALYs = years of life × utility.
- One year in full health = 1 × 1.0 = 1 QALY.
- Two years with a utility of 0.5 = 2 × 0.5 = 1 QALY.
- A treatment that extends life by one year at a utility of 0.7 adds 0.7 QALYs.
Utilities are usually obtained from patients with a standardised questionnaire, such as the EQ-5D, and converted into values with a national “value set” that reflects the preferences of the general population. Many countries, including Portugal, have their own EQ-5D value sets.
The strength of the QALY is that it puts very different benefits, such as longer survival, fewer symptoms or better mobility, on a single scale. That makes it possible to compare treatments across different diseases.
What is an ICER?
The ICER compares a new technology with its comparator:
ICER = (cost of new treatment − cost of comparator) ÷ (QALYs with new treatment − QALYs with comparator)
An illustrative example: a new treatment costs €30,000 per patient and yields 4.0 QALYs, while current care costs €10,000 and yields 3.5 QALYs. The ICER is €20,000 ÷ 0.5 = €40,000 per QALY gained.
The ICER is only meaningful when the new treatment is both more effective and more costly. If it is more effective and cheaper, it is called “dominant”. If it is less effective and more costly, it is “dominated” and there is no reason to adopt it.
How do HTA bodies use the ICER?
Decision-makers compare the ICER with a reference value, often called a willingness-to-pay threshold. In England, NICE used a range of £20,000 to £30,000 per QALY for about 20 years and raised it to £25,000 to £35,000 per QALY from April 2026, with additional flexibility for severe conditions. Other countries do not publish an explicit threshold and weigh the ICER alongside clinical need, severity, budget impact and uncertainty.
In Portugal, economic evaluation is part of the assessment carried out by INFARMED under the national HTA system (SiNATS), which follows its own methodological guidelines for economic studies. There is no official published threshold, so the ICER is interpreted together with the added therapeutic value and the price negotiation.
The ICER answers “is it good value?”. It does not answer “can the health system afford it?”. That is the role of budget impact analysis. Read our article on the difference between cost-effectiveness analysis and budget impact analysis, and our guide to budget impact analysis in Portugal.
Handling uncertainty
An ICER comes from a model built on many inputs, such as treatment effects, utilities, costs and survival extrapolations. HTA bodies expect companies to show how robust the result is:
- Deterministic sensitivity analysis changes one input at a time to see which ones drive the result.
- Probabilistic sensitivity analysis varies all inputs together and shows the probability that the treatment is cost-effective at different thresholds.
- Scenario analyses test alternative assumptions, such as a different time horizon or survival model.
When data are scarce, structured expert elicitation can inform or validate key assumptions. See how we used it in our case study on validating health economic model assumptions.
Limitations of QALYs
QALYs are widely used but not perfect. They may not capture everything that matters to patients, such as effects on carers or productivity, and generic questionnaires can be less sensitive in some conditions, including many rare diseases. For this reason, HTA bodies often consider additional elements alongside the ICER.
Frequently asked questions
What is a good ICER?
There is no universal value. It depends on the threshold or decision criteria of each country and on factors such as disease severity and the strength of the evidence.
What is the difference between cost-effectiveness and cost-utility analysis?
A cost-utility analysis is a type of cost-effectiveness analysis in which the benefit is measured in QALYs. When the benefit is measured in natural units, such as life years or events avoided, it is usually called a cost-effectiveness analysis in the narrow sense.
Is a lower ICER always better?
A lower ICER means better value for money, but decisions also consider budget impact, unmet need, equity and uncertainty.
Final thoughts
The QALY measures how much health a treatment brings. The ICER shows how much each unit of that health costs. Understanding both, and the uncertainty behind them, is essential to prepare a convincing economic case for HTA and reimbursement.
At Clevidence, we develop and adapt cost-effectiveness, cost-utility and budget impact models for HTA. See our cost-effectiveness assessment for an orphan drug, or learn more about our health economics and outcomes research services.