Module 1 · Opportunity Cost

A drug that works. Should you fund it?

In the last lesson you met a quiet idea: every pound a health system spends is a pound it can't spend somewhere else — on patients you never see.

This lesson takes that idea and makes it bite.

A new drug arrives. The evidence is clean: it genuinely helps patients. It works. The manufacturer's question to you is simple — will the system pay for it?

A drug that clearly works — should the system fund it?

To see why, you'll need to spend some money. Yours.

The fixed pot

You've just been handed a health budget. One pot, fixed for the year. When it's gone, it's gone — no overdraft, no "we'll find more."

That single constraint is where all of HTA begins. Not because money matters more than health, but because the pot is the reason your choices have consequences. If you could fund everything, you'd never have to choose — and HTA wouldn't need to exist.

Your pot this year:

£120,000.

Small, on purpose — so you can watch every pound move. A real budget has more zeros and the same logic.

We'll measure the health your money buys in QALYs — quality-adjusted life years. For now, read one QALY as one extra year of life in full health. (How a QALY is actually built, you'll learn later — here it's just our unit of "health gained.")

Your job: turn £120,000 into as much health as you can.

Here's what's on the table this year. Each programme has a price and the health it delivers. Tap to fund the ones you'd pay for — watch your budget and your health total move.

£0 / £120,000 spentHealth funded: 0 QALYs

You've got money left and health still on the table — a full pot should be a full pot.

£120,000 → 17 QALYs, and the pot is empty. Notice you didn't agonise — every one was clearly worth funding, and they happened to fit. This is the comfortable case. It's about to end.

Now the drug from the start of the lesson lands on your desk.

New cancer drug — £40,000 → 2 QALYs. The evidence is solid: it works.

It works. It costs £40,000. And your pot is empty. So fund it — but you'll have to make room. Tap to un-fund something and add the drug. Try a few combinations. Watch the health total.

£120,000 / £120,000 spentHealth funded: 17 QALYs

Look at the health counter. It went down. You funded a drug that genuinely works — and your population ended up with less health than before.

Read that again, because it's the whole lesson: a treatment can work, and funding it can still make people worse off.

The seen and the unseen

How can helping patients make things worse? Because of what you can't see.

When you fund the cancer drug, here's what's visible: real patients getting 2 QALYs they wouldn't have had. A clear good.

Here's what's invisible: the 4 QALYs of diabetes care that quietly vanished to pay for it. Those patients don't make the news. No one campaigns for them. But their health was just as real — and there was more of it.

The drug's true cost was never £40,000. The £40,000 is just money. The real cost was the 4 QALYs you had to stop buying somewhere else.

This is the move that turns much of HTA from accountancy into ethics: the cost of a treatment is not the cash you spend. It's the health you can no longer buy with that cash. Money is only the messenger.

Opportunity cost

The thing you just felt has a name: opportunity cost.

Opportunity cost — the value of the best thing you give up to get something else.

In a health system with a fixed pot, the opportunity cost of any new treatment is the health the same money was already producing elsewhere — the care that gets displaced to make room.

This is why "Is it worth it?" is a real question, not a cynical one. Every yes is also a no to something else. The discipline of HTA is refusing to let that "no" stay invisible.

A treatment is worth funding only when the health it adds is greater than the health it displaces. "It works" tells you about the first half. It tells you nothing about the second.

The exchange rate

So how do you decide without re-running this whole exercise every time?

Look back at your board. When you needed room, the smart move was to drop your least productive programme — diabetes care, £40,000 for 4 QALYs. That's £10,000 per QALY.

Programme	Cost	QALYs	Cost per QALY
Hip replacements	£40,000	8	£5,000
Stroke rehabilitation	£40,000	5	£8,000
Diabetes management	£40,000	4	£10,000 the margin
New cancer drug	£40,000	2	£20,000 above the rate

That £10,000 figure is the going rate for health in your system: at the margin, £10,000 buys one QALY somewhere in your budget. So any new treatment costing more than £10,000 per QALY buys less health than it displaces — and funding it makes your population worse off. The cancer drug, at £20,000 per QALY, is above the rate. Reject.

This going rate has a name: the cost-effectiveness threshold — opportunity cost turned into a single number, the price at which money converts to health at the margin of your system.

Real systems estimate this rather than read it off a board, and many settle on a threshold somewhere in the region of £20,000–£30,000 per QALY. Where that number truly comes from — and whether it's even the right one — is a fight we'll pick up later. For now, hold the shape: a threshold is the system's exchange rate between pounds and health.

"Just add money"

Maybe you're thinking: this is just an austerity problem. Give me a bigger pot and opportunity cost goes away.

Let's test it. Your budget jumps to £160,000 — enough to fund all three originals and the cancer drug. No one gets displaced. Problem solved?

With enough money, does opportunity cost disappear?

The moment your pot grows, a new programme walks in that you still can't afford — there's always a next-best use of the next pound. The constraint never vanishes; it relocates to a new margin. A system with ten times the money is still choosing what not to fund. Opportunity cost isn't a symptom of a tight budget — it's a permanent feature of having a budget at all. Which every system does.

More money changes which patients get displaced. It never makes displacement go away.

The ethics, cashed out

Now we can settle the question you started with — and the discomfort that comes with it.

Refusing to fund a drug that works feels like putting money over patients. But look at what you actually did when you said no: you protected 4 QALYs of diabetes care from being quietly destroyed to buy 2 QALYs of cancer care. You didn't choose money over health. You chose more health over less — and you refused to do it by sacrificing the patients no one was watching.

Saying no, in HTA, is not the absence of compassion. It is compassion extended to the people you'll never meet — the ones who'd lose their care in silence.

That is the moral core of this entire course. Cost-effectiveness analysis isn't a way to spend less. It's a way to make the unseen patients count.

The decision problem, in one breath

You now have the engine that drives everything ahead:

A health system has a fixed pot, so every choice displaces another.
The real cost of a treatment is the health given up elsewhere — its opportunity cost — not the money.
A treatment is worth it only when the health it adds beats the health it displaces.
The threshold is that trade-off as a number: the system's exchange rate between pounds and health.
And none of this is fixed by more money — the margin always exists.

"It works" was never the question. The question is: is it worth more than what it pushes out?

From here the course earns its keep by answering that precisely — how to measure the health a treatment adds (the QALY), how to weigh it against cost (cost-effectiveness, the ICER), and how to be honest about what we're unsure of. You've just built the reason all of it matters.