PNS37 SHOULD WE CONSTANTLY BE COUNTING WITH CONSTANT DISCOUNTING?

Abstract

In economic evaluations, costs and effects are recommended to be discounted in order to reflect the loss-in-value over time based on preference observations. Guidelines most often recommend use of a social discount rate, constant over time. There are, however, situations where non-constant discount rates are recommended. In HAS’ reference case, a constant discount rate is recommended. For economic evaluations with long time horizons, HAS recommends replacing the time-consistent model with a time-inconsistent, arguing that discounting follows a hyperbolic function with a relatively larger discount rate closer in time. The hyperbolic function is, however, difficult to translate intuitively to discount rates. Therefore, a discount rate of 4% for the first 30 years and 2% thereafter is suggested; typically implemented with the Lebègue formula. A tool was implemented contrasting constant discount rate of 4%, and time-dependent step function implementation from 4 to 2% after 30 years to the hyperbolic discounting function. In addition, a linearly changing discount rate from 4 to 2% over 30 years was explored as a novel option. Pairwise comparisons among the approaches were performed using squared error estimation. Over different time-horizons (5, 10, 30 and 100 years) the different discounting functions were compared, showing that the step-function performed better in estimating a hyperbolic function compared to the constant discount rate. When implementing a linear change in the discount rate, an even better fit was obtained. Errors at year 100 amount to 2.68, 1.26 and 0.364, respectively. The discrete step function gives discount factors similar to the desired time-dependent hyperbolic function. However, a linear and also continuous implementation results in an intuitive and more accurate representation of the hyperbolic shape of the discount factors. The large impact of discounting methodology - relative to other model parameters – motivates careful handling as well as consistency across jurisdictions.