The Mölnlycke O.R. blog
“But, money is not the central problem of health economics”
The title quote comes from the summary of a 1958 article by Selma J. Mushkin1, an economist who was a pioneer in defining health economics long before health economics was a discrete field. I could not agree more. All too often people believe that health economics, and economics in general, is all about money. Certainly, money is important in the economics of health but - I believe - those who equate health economics simply with money matters in healthcare miss the essence of health economics. So if not only money, what is health economics about?
The word “health” originates from the Old English “hælþ”, which means "wholeness, a being whole, sound or well"2. The World Health Organization (WHO) definition of “health” reflects nicely this origin: “Health is a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity.”3 The word “economy” originates from the Greek “oikonomia”, which means “household management” (oikos house + nemein to manage)4. When we manage, we plan, we analyse and identify; we organize, we evaluate possible outcomes and most importantly we make decisions – considering our priorities and the information we have. We try to get the most out of what we have – our resources, which are limited and can be used in different ways. Consequently, economics implicitly involves dealing with efficiency, which measures the output of a system relative to its input. Considering health economics, the output is the health of an individual or a population and the input is the available resources. The ultimate purpose is to maximize health, given our resources.
But what are these resources? People may instantly think that the two most limited resources are time and money. Often this is further simplified by equating the two, which may partly explain the belief addressed in the title. In everyday speech and thought, asking how much something costs generally refers only to the price, which does not reflect the real value of everything that contributes to the real cost. There’s no such thing as free lunch! People equate price with cost, but in economics, cost takes multiple other factors into account.
In contrast with the everyday assumption, economists do not consider money as a resource5. Economic resources are the factors of production: natural resources (land and raw materials), human resources (people, their skills and labour) and capital resources (buildings, equipment, etc.). These are a part of the aforementioned “cost”. Considering the production of health, specific examples from the surgical field for the aforementioned groups of resources are pharmaceuticals, nonwoven materials, surgeons, nurses, operating theatres, hospital beds, imaging technologies, implants, etc.
Money, on the other hand, is only a medium of exchange that expresses our value for the economic resources. However, due to the special characteristics of health and healthcare, often it is challenging to value the health resources in monetary units. Just consider how much your kidney is worth. Would 3,000 USD reflect its real value6? If money, in whatever form, were an economic resource, simply increasing the amount of money would result in more production, in our case more health. Why don’t governments just print more money to cover health expenditures?
Also, if health economics were only about money, then the ultimate goal would be to manage health-related resources to maximize financial profit. Simply considering the dominance of not-for-profit institutions within healthcare it is easy to understand this is not the case.
In summary, the central problem of health economics is the maximization of health of the individual and the population given scarce health resources, which is elegantly phrased in the definition:
“Health economics is a branch of economics concerned with issues related to efficiency, effectiveness, value and behavior in the production and consumption of health and health care.”7
- Mushkin SJ. Toward a definition of health economics. Public health reports. 1958;73(9):785-93. PubMed ID: 13579116
- Online Etymology Dictionary [Internet]. health [cited 2013 Nov 7]; [about 1 screen]. Available from: http://etymonline.com/index.php?allowed_in_frame=0&search=health&searchmode=term
- World Health Organisation. Preamble to the Constitution of the World Health Organization as adopted by the International Health Conference, New York, 19-22 June 1946, and entered into force on 7 April 1948.
- Online Etymology Dictionary [Internet]. economy [cited 2013 Nov 7]; [about 1 screen]. Available from: http://etymonline.com/index.php?allowed_in_frame=0&search=economy&searchmode=term
- Brue SL, Grant RR. The evolution of economic thought. 8th ed. Mason, Ohio Andover: South-Western ; Cengage Learning distributor; 2013. Chapter 5, The Classical School – Adam Smith; p.67-90
- Scott Carney. Why a Kidney (Street Value: $3,000) Sells for $85,000. Wired. [Internet]. 2007 May 8. [cited 2013 Nov 7]. Available from: http://www.wired.com/medtech/health/news/2007/05/india_transplants_prices
- Wikipedia contributors. Health economics: Wikipedia, The Free Encyclopedia; [updated: 31 October 2013 00:20 UTC, accessed: 7 November 2013 18:25 UTC]. Available from: http://en.wikipedia.org/w/index.php?title=Health_economics&oldid=579546954