9.5.4 Opportunity Cost

Describes Opportunity Cost

Opportunity cost is a fundamental concept in economics and refers to the cost of any activity measured in terms of the value of the next best alternative forgone. In the context of healthcare, opportunity cost is the value of the best alternative use of resources that are being consumed in the production of a particular healthcare intervention.

For example, if a hospital decides to invest in a new expensive piece of equipment, the opportunity cost of this decision is the value of the next best alternative use of the resources that were consumed to buy the equipment, such as hiring more staff or building a new ward.

Opportunity cost is important in healthcare decision-making because resources are scarce and must be allocated in the most efficient manner possible. This means that decision-makers must consider the opportunity cost of every decision they make to ensure that the resources they have available are being used to achieve the greatest possible health benefits for the population they serve.

References:

1. Drummond, M. F., Sculpher, M. J., Claxton, K., Stoddart, G. L., & Torrance, G. W. (2015). Methods for the economic evaluation of health care programmes. Oxford university press.