Resource

Resource: Scarce Inputs, Opportunity Cost and the Building Blocks of Costing

Every health economic question starts with inputs that could have been used in another way: a nurse's shift, a vial of a medicine, a hospital bed or a scanner session. Health economics calls these inputs resources, and the reason for studying them is that using one for a patient, service or programme means it is unavailable for the next best use. That forgone use is the opportunity cost of the resource, and it is what an economic evaluation is ultimately trying to weigh against health gained.

This page treats resource as the general concept on which costing rests. It separates three terms that are often run together: the resource itself (the kind of input), resource use (the quantity of that input consumed) and cost (the resource use valued in money). It then covers kinds of resource, how the perspective decides which count, opportunity cost under a fixed budget, and an illustrative example of released bed days.

Scarcity and the purpose of tracking resources

Economic evaluation exists because resources are limited relative to the uses that could be made of them. The condition of scarcity means that every choice to fund one intervention is also a choice not to fund something else, so a decision maker needs to know what is being given up as well as what is being gained.

The World Health Organization's World Health Report 2000 identifies three principal health system inputs: human resources, physical capital and consumables. In the language of production, resources are the inputs to a healthcare production function.

Resource, resource use and cost

The three terms describe one chain, from what is used, to how much of it, to what it is worth. Keeping them apart shows whether a difference between options comes from different inputs, different quantities or different prices.

The valuation step is usually written as a sum of quantities multiplied by unit costs:

$$ C = \sum_{i=1}^{n} q_i , p_i $$

where $C$ is the total cost of an option, $n$ is the number of resource types identified, $q_i$ is the quantity of resource $i$ used (the resource use) and $p_i$ is the unit cost of resource $i$. Resources are the categories indexed by $i$, resource use supplies the quantities and unit costs supply the prices.

Reporting guidance follows the same split. The CHEERS 2022 reporting statement has an item headed "Measurement and valuation of resources and costs" (item 14), and a separate item on currency, price date and conversion (item 15) asks authors to report the dates of the estimated resource quantities and unit costs, together with the currency and year of conversion.

Kinds of resource in a health economic analysis

Resources differ in how long they last and whether they carry a market price. Each kind therefore needs its own approach to measurement and valuation.

Staff time accounts for the largest share of health system recurrent spending: the World Health Report 2000 states that in many countries two-thirds or more of total recurrent expenditure on health reflects labour costs. Medicines, single-use devices and other consumables are used up in a single episode of care and are typically valued at the price the payer actually pays. Capital resources, such as buildings, beds and equipment, last for several years; an evaluation spreads their opportunity cost over their useful life rather than charging the full purchase price to the year of acquisition, a standard textbook step.

Some resources have no invoice. Patient time, time given by family carers and volunteer input are all scarce and have alternative uses, but no market transaction records their value. Where they are counted, an analyst must choose a valuation method, often a shadow price that reflects the input's opportunity cost.

Money is a special case. A budget is a claim on the staff, medicines and capital it can buy, and is not itself used up in producing care, so costing works from real inputs and treats money as the unit of valuation; counting both would count the same resources twice. Priority-setting usage often treats the budget as shorthand for the resources it buys: the NICE manual describes its evaluations as aiming at an efficient use of available NHS and PSS resources (paragraph 4.2.9), and the displacement argument below treats extra spending as inputs withdrawn from other care.

Which resources count: perspective and the decision problem

An analysis cannot track every resource in the economy, so the perspective adopted, and the decision problem it serves, decide which resources are in scope. A payer perspective counts resources the payer funds; a societal perspective adds those supplied by patients, families, employers and other public services.

The NICE manual for technology appraisal and highly specialised technologies (PMG36) sets this out for its reference case. Costs should relate to resources under the control of the NHS and personal social services (PSS), valued at the prices relevant to the NHS and PSS (paragraph 4.4.1). Estimates of resource use should include changes in infrastructure, use and maintenance and staff training where appropriate (paragraph 4.4.2), and may include service use outcomes such as length of hospital stay (paragraph 4.4.3). The manual also allows the time of family members, friends or a partner to be considered when that care might otherwise have been provided by the NHS or PSS, with such analyses shown separately (paragraph 4.4.24).

Within a decision problem, resources sit alongside the other elements of the comparison. The intervention and its comparators consume resources, the population determines how many people do so, and the parameters of a health economic model hold the quantities and unit costs. The decision itself then commits resources to one option and away from the others.

Opportunity cost under a fixed budget

In a health system with a fixed budget, the next best use of a resource is usually other health care. Funding a more expensive technology therefore displaces existing activity, and the opportunity cost is the health that the displaced activity would have produced. This is the logic behind a cost-effectiveness threshold and behind net health benefit, which expresses costs as health forgone.

Claxton and colleagues set out this reasoning for the NHS in a 2015 Health Technology Assessment report, describing the threshold as the additional cost that has to be imposed on the system to forgo one quality-adjusted life year (QALY) of health through displacement. Their empirical estimate of the threshold carries substantial uncertainty, but the conceptual point is that the opportunity cost of resources falls on other NHS patients.

A resource that would otherwise sit idle has a low opportunity cost. Consistent with this, the NICE manual permits a marginal cost analysis alongside the average-cost analysis when a technology already recommended for another purpose has enough spare capacity for the new use (paragraph 4.4.20).

Worked example: bed days released by a shorter stay

The figures below are illustrative. A new care pathway shortens the average inpatient stay for a surgical procedure from 6 days to 4 days. The hospital performs 500 of these procedures a year, the average cost of a bed day is £400, and the variable part of that cost (meals, laundry, consumables) is £120 per bed day.

1. Measure the resource released. The change in resource use is 500 × (6 − 4) = 1,000 bed days a year. Spread over a year, 1,000 ÷ 365 = 2.74, so at full occupancy the pathway frees the equivalent of just under three beds.

2. Value the release at average cost. 1,000 × 400 = 400,000, so the resource released is worth £400,000 a year at average (full) unit cost. This is the conventional measure; even for shared technologies with spare capacity, the NICE manual starts from average cost and allows a marginal-cost analysis only in addition (paragraph 4.4.20).

3. Value the release at variable cost. 1,000 × 120 = 120,000, so if the beds stay open and empty, the cash the hospital stops spending is £120,000 a year, because staffing and building costs do not fall. This figure describes the short-run cash effect, not the value of the released resource.

4. Interpret. The resource released is the same 1,000 bed days in every case; what changes is its next use. If waiting-list patients fill the beds, cash spending barely changes and the gain is the health those patients receive. If about three beds are closed and their staff redeployed, more of the £400,000 can become cash, but only if those staff replace spending that would otherwise have happened, such as agency shifts or new posts. Reporting £400,000 as a cash saving without saying which applies confuses a resource gain with cash.

Where the term is used differently

Usage varies between fields. In economic evaluation, a resource is a real input and money is the measure of its value. In health systems analysis, the World Health Report 2000 uses resources more broadly, treating the creation of resources through investment and training as one of four health system functions and including financial resources as the means of buying inputs.

In discrete event simulation, resource has a narrower modelling meaning: a constrained server, such as a clinician or bed, that simulated patients queue for and occupy while being treated. The model's resource definition sets how many units exist, and the simulation tracks their availability over time rather than their value.

Common misunderstandings about resources

The most frequent error is to treat a resource as if it were its price. A list price, tariff or charge is one way of valuing a resource, but the resource itself is the staff time, bed or medicine, and its opportunity cost can differ from any price attached to it.

A second error, shown in the worked example, is to treat released resources as cash savings.

A third error is to ignore resources that carry no invoice, such as carers' time or donated equipment, when the perspective requires them, or to add them to a payer analysis without the separate reporting the perspective needs. The NICE manual, for example, allows carer time to be considered under its NHS and PSS perspective when that care might otherwise have been provided by the NHS or PSS, and asks for it to be shown separately. The perspective and the list of resources should be stated together.

Sources

• Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. 4th ed. Oxford: Oxford University Press; 2015.
• National Institute for Health and Care Excellence. NICE technology appraisal and highly specialised technologies guidance: the manual (PMG36). London: NICE; published 31 January 2022, last updated 31 March 2026. Sections 4.2 and 4.4.
• Claxton K, Martin S, Soares M, Rice N, Spackman E, Hinde S, Devlin N, Smith PC, Sculpher M. Methods for the estimation of the National Institute for Health and Care Excellence cost-effectiveness threshold. Health Technology Assessment. 2015;19(14):1-503. doi:10.3310/hta19140.
• Husereau D, Drummond M, Augustovski F, de Bekker-Grob E, Briggs AH, Carswell C, et al. Consolidated Health Economic Evaluation Reporting Standards 2022 (CHEERS 2022) statement: updated reporting guidance for health economic evaluations. BMJ. 2022;376:e067975.
• World Health Organization. The World Health Report 2000. Health Systems: Improving Performance. Geneva: WHO; 2000. Chapter 4.