13 Research methods, statistics, critical review and evidence-based practice13.6 Economic analysis
13.6.7.3 Opportunity cost
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Written by Resident Doctor Committee · Published
Definition
Opportunity cost is the value of the benefit given up by not putting a limited resource to its next best use.
It is the best feasible alternative forgone, not the sum of every alternative.
When a service loses funding or staff, the health gain lost is the opportunity cost of that choice.
An implicit cost
Opportunity cost is usually an implicit cost, because no payment is made.
A salaried clinician's session costs the employer the same in clinic or supervision, but giving it to one gives up the other.
Seconding a nurse from the pain clinic to the electroconvulsive therapy list pays no new salary, yet the pain clinic activity is lost.
Other costs it is told apart from
Opportunity cost is distinct from direct, indirect, intangible, incremental, fixed and sunk costs.
Cost | What it means |
|---|---|
Sunk | Money already spent that cannot be recovered; it is the same whichever option is chosen, so it should not decide the choice |
Fixed budgets
When the budget is fixed, funding one service displaces care elsewhere as longer waits, fewer appointments or services never commissioned.
An opportunity-cost-based threshold estimates the health displaced per pound spent; York research put this at around £13,000 per quality-adjusted life year.