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PPP Currency Conversion & WTP Thresholds

Source: vignettes/ppp-converter.Rmd
ppp-converter.Rmd

Overview

When comparing health technology costs across countries, market exchange rates are misleading – they reflect capital flows, not the actual purchasing power of money in each economy. Purchasing Power Parity (PPP) conversion factors adjust for price-level differences, making costs genuinely comparable.

ParCC ships with World Bank PPP data for 30 countries and automatically assesses costs against WHO-CHOICE willingness-to-pay thresholds.

Tutorial: Is a US Drug Affordable in India?

The Scenario

A new oncology drug is priced at $50,000 per year in the United States. You are advising HTAIn on whether this price is justifiable for the Indian market.

Why Market Exchange Rates Are Wrong

At the 2022 market rate of ~INR 78.6 per USD:

$50,000×78.6=INR39,30,000\$50{,}000 \times 78.6 = INR 39{,}30{,}000

But this dramatically overstates the burden, because goods and services are much cheaper in India. A doctor’s consultation, hospital bed-day, or meal costs far less in India than in the US.

The PPP Approach

PPP conversion uses international dollars as an intermediate currency:

CtargetPPP=CsourcePPPsource×PPPtargetC_{target}^{PPP} = \frac{C_{source}}{PPP_{source}} \times PPP_{target}

Step 1: Convert US dollars to international dollars:

$50,000÷1.00=Int$50,000\$50{,}000 \div 1.00 = \text{Int}\$50{,}000

(The US PPP factor is 1.00 by definition.)

Step 2: Convert international dollars to Indian rupees:

Int$50,000×23.2=INR11,60,000\text{Int}\$50{,}000 \times 23.2 = INR 11{,}60{,}000

In ParCC

  1. Navigate to the PPP Converter tab.
  2. Set Source Country = United States, Cost = 50,000.
  3. Set Target Country = India.
  4. Click Convert & Assess.

Reading the Output

ParCC displays three key results:

Metric Value
PPP-adjusted cost INR 11,60,000
Market FX cost INR 39,30,000
PPP/FX ratio 0.30

The PPP-adjusted cost is 70% lower than the market FX conversion. This means the drug’s true economic burden in India is much less than the naive exchange rate suggests.

WTP Threshold Assessment

ParCC automatically calculates WHO-CHOICE thresholds for the target country:

Threshold India (2022)
1x GDP per capita (highly cost-effective) INR 1,87,750
3x GDP per capita (cost-effective) INR 5,63,250

At INR 11,60,000 the drug exceeds 3x GDP per capita and is flagged red – not cost-effective by WHO-CHOICE criteria at this price.

Implications for Pricing

The PPP analysis suggests that a price of INR 11,60,000 is the PPP-equivalent economic burden. But even this is above the WTP threshold. A price negotiation should target below INR 5,63,250 (3x GDP/capita) to be considered cost-effective, or below INR 1,87,750 (1x GDP/capita) to be highly cost-effective.

Override Values

The default data is from the World Bank 2022 ICP round. If you have more recent data:

  • Enter custom PPP factors, exchange rates, or GDP per capita in the Override Values section.
  • Leave fields blank to use the defaults.

This is useful when a country has experienced significant currency fluctuation since the last ICP round.

Supported Countries (30)

India, United States, United Kingdom, Germany, France, Japan, China, Brazil, Australia, Canada, South Korea, Thailand, Mexico, South Africa, Turkey, Indonesia, Nigeria, Egypt, Poland, Sweden, Norway, Switzerland, Italy, Spain, Netherlands, Belgium, Ireland, New Zealand, Malaysia, Philippines.

Important Caveats

  1. PPP factors are economy-wide averages. Health-sector-specific PPP factors exist but are not widely available. The World Bank general PPP is the standard in most HTA submissions.

  2. WHO-CHOICE thresholds are guides, not rules. Many countries now use empirical thresholds (UK: GBP 20,000-30,000/QALY; India: 1x GDP/capita per HTAIn guidelines). ParCC shows the WHO-CHOICE thresholds as a starting point.

  3. No exchange rate conversion is applied to module outputs. The PPP converter is a standalone analysis tool. The currency selector in Settings affects display formatting only.

References

  1. World Bank. International Comparison Program (ICP). PPP conversion factors. World Development Indicators. 2022.
  2. WHO-CHOICE. Cost-effectiveness thresholds. World Health Organization. Choosing Interventions that are Cost-Effective.
  3. Pichon-Riviere A, Augustovski F, Garcia Marti S, Sullivan SD, Drummond M. Transferability of health technology assessment reports in Latin America. Value in Health. 2012;15(1):S60-S66.