The Healthcare Entrepreneur Blog

Opportunity cost in private practice healthcare

by Tannus Quatre PT, MBA | June 17th, 2008 | 2 responses

I love working with numbers to model sound business decisions for healthcare clinics.  I haven’t always been that way, and in fact it wasn’t until after business school was well underway that I began to understand how truly important numbers are to making good decisions.

One of the most valuable concepts I learned in business school is the concept of opportunity costs.  Opportunity costs are the costs associated with the “opportunity” foregone when decisions are made, or resources are allocated to a certain area – necessitating that those same resources can no longer be applied elsewhere.  By nature, opportunity costs are easily obscured, and for those unfamiliar with the concept, poor decisions can be made in the absence of an opportunity cost analysis.

This concept has tremendous applicability in business, and especially in healthcare.  As the industry becomes more resource intensive and as reimbursement for healthcare services dwindles, making the right decisions about the allocation of resources is critical to the survival of healthcare practices.

I published an article on this topic in Advance for Directors in Rehabilitation that I’d like to share with you here.  The article goes into detail about the concepts that underlie the definition of opportunity cost as well as some practical examples of using opportunity cost analysis to make good business decisions in private practice healthcare.  The principles apply whether your business is a medical clinic, physical therapy practice, dental facility…or even a used car lot.

Opportunity cost is the trade-off associated with a decision or purchase-something that must be given up in order to get something else. Stated differently, opportunity cost is the cost related to not putting your resources to their best alternative use. When speaking of purchases or monetary decisions, the monetary cost of something plus the opportunity cost yields the true cost of the decision.

Tannus Quatre PT, MBA
Tannus Quatre is a private practice consultant and principal with Vantage Clinical Solutions, Inc., a nationwide healthcare consulting and management firm located in Bend, OR and Denver, CO. Tannus specializes in the areas of healthcare marketing, strategy, and finance, and can be reached through the Vantage Clinical Solutions website.
  • Juliana

    Do you have the article link” Advance for directors in rehabilitation”? It’s not working aboce. I would like to read it… thank you

  • Absolutely. I will email you a copy – thank you for letting us know the link is broken :)