Health economics – what it is and what it isn’t

Economics is the science of scarcity. Within the health care context, health economics reflects a universal desire to obtain maximum value for money by ensuring not just the clinical effectiveness, but also the cost-effectiveness of healthcare provision [1]. Although there is a growing interest in health economics, there is still a poor understanding about health economics as a topic and as a discipline. As a health economist by training, I want to demonstrate in this reflection the fundamental misconceptions about health economics. Moreover, I want to investigate whether Snow’s ‘Two Cultures’ [2] still exist in today’s world by looking at health economics as a discipline.

The first important thing to note is that a health economist has to address different needs in the market than an economist. Why? Because the health care market is not comparable to a well-functioning market. We do have a market failure within the health care context for the reason that none of the assumptions for a well-functioning market, such as the absence of market power, symmetry of information, and absence of externalities hold true [3]. The unique features of health and health care as commodities are the reasons why we do not accept market forces in health care and require government intervention. It is also important to note that health economists address different needs across countries because of the variations in the health care systems and the different values by which the countries are characterized.

The second misconception results from the fact that all too often people believe that health economics is all about money [4]. But in fact, health economists are interested in resources and not in money. Money is not considered as a resource but only a medium of exchange that expresses our value for the economic resources. Resources are those things that contribute to the production of output. Within the health care context, these include pharmaceuticals, surgeons, nurses, operating theatres, hospital beds, imaging technologies, implants, etc. The concept of opportunity cost is often used, which illustrates that choosing to use resources for one purpose precludes using it for another and, therefore, indicates a forgone benefit [5].

Very often the terminology also causes problems in this discipline. People tend to use the terms economic evaluation, cost-effectiveness analysis, and cost-benefit analysis interchangeably. In fact, cost-effectiveness analysis and cost-benefit analysis are specific types of economic evaluation, depending on how the effect is being measured [6]. In general, the term economic evaluation should only be used if there is a comparative analysis between two or more alternatives in terms of both costs and effects. Concentrating on one intervention only or collecting cost data only is not sufficient for a full economic evaluation.

The role of economic evaluation became increasingly important based on the rising demand of health care, the rapid development of medical technological possibilities, and the budget constraints. Many countries have now developed national health-technology assessment (HTA) agencies to inform and guide reimbursement decisions. While economic evaluation is part of the HTA pillar, other criteria such as safety, clinical efficacy and effectives, or social consequences etc. are also taken into consideration. In this context, it is worthwhile to say that a health economist is not the decision maker but provides only evidence on the economic evaluation.

When I recently read Snow’s ‘The Two Cultures and the Scientific Revolution’ [2], I was wondering if we still live in a world where two or more cultures exist. I remembered a series of tweets last year from the Editor of the The Lancet, Richard Horton [7]. These tweets with the subject ‘Economics, second only to ‘management’, may just be the biggest fraud ever perpetrated on the world’, listed ten cases against economics. Three economists had then the opportunity to respond to these tweets in The Lancet itself and argued that there is still a poor understanding of the discipline and that there is no evidence to support the assertions that economics is a ‘fraud’ and offers ‘false promise’. The authors pointed out that economics is seen as a toolkit that enables a better understanding of how people live, and how societies work, but it does not exclude other explanations of human behavior derived from other disciplines, such as anthropology or psychology [7]. As a health economist, I hope that one day these biases and prejudices can be overcome, in particular in the view of the increased interest in doing interdisciplinary research.


1. Haycox, A. (2009): What is Health Economics? Available from: Accessed on February 25th, 2014.
2. Snow, C.P. (1959): The Two Cultures and the Scientific Revolution. Cambridge University Press, New York.
3. Hurley, J.E. (2010): Health Economics. First Edition. Toronto: McGraw-Hill Ryerson.
4. Gergely, V. (2013): But, money is not the central problem of health economics. Available from: Accessed on February 25th, 2014.
5. Mooney, G.H. and Drummond, M.F. (1982): Essentials of health economics: Part 1 – What is economics? Br Med J, 285(6346): 946-950.
6. Drummond M.F., Sculpher M.J., Torrance G.W., O’Brien B.J., Stoddart G.L. (2005): Methods for the Economic Evaluation of Healthcare Programmes. 3rd Ed. Oxford University Press.
7. Parkin, D., Appleby, J., Maynard, A. (2013): Economics: the biggest fraud ever perpetrated on the world? Lancet, 382(9900) e11-5. doi: 10.1016/S0140-6736(13)61178-2.


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