This article reviews the development of economic evaluation of health technologies in the UK and its impact on decision making. After a long period of limited impact from studies mainly carried out as academic exercises, the advent of the National Institute for Health and Clinical Excellence (NICE) in 1999 provided a transparent decision-making context where economic evaluation plays a central role. This article reviews some of the key characteristics about the way NICE works, for example, the way NICE has defined the form of analysis that it requires, reflecting its objective of maximising health gain (QALYs) from the predetermined and limited UK NHS budget. Two broad areas of widespread concern are noted. The first relates to the cost-effectiveness thresholds that NICE uses and the basis for them. The second is the patchy implementation of NICE guidance and the possible reasons for this. But even within the UK, NICE is the exception in making extensive and explicit use of economic evaluation and this article goes on to suggest that if there is to be a more widespread and consistent use of economic evaluation at both central and local levels, then health economists and others need to address three issues. The first is to be clear about what is the correct conceptual basis for determining the cost-effectiveness threshold and then to ensure that NICE has the empirical evidence to set it appropriately. The second is to recognise that even using the limited view of costs adopted by NICE, economic evaluations imply temporal and cross-service budgetary flexibility that the NHS locally does not in practice enjoy. The third issue is that with academic pressures for ever-increasing sophistication of `state of the art' economic evaluation analysis, the NHS has more and more precise understanding of the cost effectiveness of just a few new technologies and little or no analysis of most. This limits the value of the former by reducing further the scope for appropriately disinvesting from cost-ineffective technologies to meet the additional costs of investing in cost-effective new ones. Whilst NICE stands out as an example of a context where high-quality economic evaluation plays a major role in decision making, the process is far from perfect and certainly is not representative of the use made of economic evaluation by the NHS as a whole. Health economists need to engage with the public and the health service to better understand their perspectives, rather than focusing on academic concerns relating to details of theory and analytical method.
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