Health Economics
The economic analysis of health and health care has burgeoned worldwide as a field of study over the last two decades. Health economics involves the application of economic principles, theory and empirical approaches to health sector related issues.
The questions which research in this field address include: the determinants of producer and consumer decision-making regarding health and health care; the measurement of efficiency; the economic performance of alternative systems of funding and providing health services; and methods of achieving allocative efficiency through the development and use of economic evaluation techniques.
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This is an abridged version of an article that appeared in the Royal Economic Society Newsletter, Issue 104, January 1999. © Royal Economic Society, 1999
Health economics has probably been the fastest growing sub-discipline within economics over the past 20 years. During this time, it has had a high profile because of its direct policy relevance to the funding concerns that have dominated health policy debates all over the world, leading to greater interest in efficiency and equity issues.
Its key specialist journals, the Journal of Health Economics (founded in 1982) and Health Economics (founded in 1992) are in the top 15 most-cited journals in economics.
The importance of health economics is not simply in its success in applied studies and policy analysis. There have been important theoretical developments which make a considerable contribution to the mainstream. In his 1997 25th anniversary address to the UK Health Economists' Study Group, Mark Blaug argued that health economics:
may be a topic familiar only to specialists but its theoretical concerns are the bread-and-butter of every economist.
Much of the growth in health economics has, however, not taken place within academic economics departments or central government, but within University medical faculties, health care organisations and the pharmaceutical industry.
It has an unusual willingness to participate on a large scale in a genuinely multidisciplinary framework, and has become an integral part of the multidisciplinary enterprise which is medical research and teaching. In particular, it is accepted as an essential element of health services research. This has affected the development of health economics.
A wholly beneficial effect has been on health economics' growth rate, because funding for medical research is relatively generous, and has increased considerably for health services research. There has been a parallel growth in pharmaceutical industry funding. However, these have affected the balance of work carried out. The range of analytical techniques and topics covered is broad, but a large element is economic evaluation of health care technologies.
A perhaps surprising feature of this is that the economists' contribution is not predominantly concerned with cost. It might be expected that in health care cost-effectiveness studies, effectiveness measures would be dominated by medical definitions, with the economist's role being restricted to measuring medical resources use and analysing cost-effectiveness ratios.
In fact, economics has mounted a serious challenge to medically-defined effectiveness measures, and is in the forefront of the health outcomes movement, seeking to apply utility-based measures to health in order to quantify the impact of health care.
Although health economics has achieved great success, two major problems are the extent to which it has become separated from mainstream economics and its continuing low profile in academic economics departments.
A concern is that advances in economics, both mainstream and in other sub-disciplines, may have applications in health and health care which are not being pursued. Moreover, mainstream economists may not be aware of the potential for health economics to inform their work.