Discounting in the Economic Evaluation of Health Care Interventions

Do economic theories that underlie discounting have specific implications for program evaluation in health? In this study, both the contemporary practice and the theoretical foundations of discounting are reviewed. The social discount rate controversy is considered, and the two major concepts (i.e., opportunity cost and time preference) involved in the formulation of a social discount rate are outlined. Also described are the arguments for discounting proposed by thinkers in noneconomic disciplines. Finally, the implications of choosing a discount rate for evaluation of individual health care programs are considered. It is argued that the conventional practice of discounting all health care programs at a rate of 5% may not consistently reflect societal or individual preference. Specific recommendations arising from this paper are: 1) given the considerable disagreement at the theoretical level as to the appropriate social discount rate, analysis should be specific about what theoretical approach underlies their choice of rate, especially when the analytic result is sensitive to the discount rate; 2) the discount rate chosen should be appropriate for the perspective of the analysis (social vs. individual vs. institutional, etc.); 3) when appropriate, measures should be taken to avoid double discounting, because some health related outcome measures already incorporate individuals' time preference; and 4) it is suggested that the political process may serve as the appropriate means of reflecting social values in the choice of a discount rate. In addition, the authors argue that a consensus conference approach, with political participation, offers a flexible, pragmatic, and explicit way of synthesizing the empirical, normative, and ethical considerations that underlie choice of a discount rate.