Medical Economics: An Integrated Approach to the Economics of Health

By Konrad Obermann and Christian Thielscher

Health economics has become an established field of enquiry over recent years and is now an important contributor to normative health policy, and decisions concerning the allocation of resources and the quality of healthcare provision across the world.

Medical Economics, written by two physicians who are also qualified economists, introduces readers to the core economic considerations in healthcare provision and management. Addressing concerns that are relevant to both the individual and to public health, the authors draw on a wider range of economic tools and analytical frameworks than typically offered by standard textbooks. Combining thought experiments with real-world examples they illustrate the healthcare challenges facing today’s policy-makers.

The book is aimed specifically at courses in medicine, public health, and healthcare management and administration, but also at economists looking for a broader perspective on healthcare systems, including healthcare financing, markets, the role of the state and other macroeconomic considerations, evaluation methods, healthcare technology, paying for medical care, health insurance and ethical issues.

• Language: English
• Publisher: Agenda Publishing
• Release date: Dec 2, 2021
• ISBN: 9781788215268

Konrad Obermann

Konrad Obermann is Senior Staff Scientist at the Mannheim Institute of Public Health, Heidelberg University. He is a medical doctor and economist with over 25 years experience in clinical care, research and strategic planning. His particular research interests are in international health economics, health system development and healthcare financing.

Book preview

MEDICAL ECONOMICS

MEDICAL ECONOMICS

An Integrated Approach to the Economics of Health

KONRAD OBERMANN AND

CHRISTIAN THIELSCHER

For Elisabeth

For Nina

© Konrad Obermann and Christian Thielscher 2022

This book is copyright under the Berne Convention.

No reproduction without permission.

All rights reserved.

First published in 2022 by Agenda Publishing

Agenda Publishing Limited

The Core

Bath Lane

Newcastle Helix

Newcastle upon Tyne

NE4 5TF

www.agendapub.com

ISBN 978-1-78821-189-5 (hardcover)

ISBN 978-1-78821-190-1 (paperback)

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Typeset by Newgen UK

Printed and bound in the UK by TJ Books

CONTENTS

Preface and acknowledgements

Introduction: approaching health economics

Part I Health, healthcare and healthcare systems

1Understanding health in health economics

2From disease to care

3Ethics, values and the idea of a good life

4Healthcare management

5Financing healthcare

6The relationship between macroeconomics and health

7Comparing healthcare systems

Part II Health economic theory

8Approaching healthcare from an economic perspective

9Neoclassical economics: the prevailing approach

10Markets, market failure, state intervention and state failure

11Options for financing medical care

12Evaluation methods in health economics

13Health technology and health technology assessment

14Paying for medical care: balancing appropriateness, quality and cost

Part III From theory to practice: using medical economics to improve global health

15Medical economics: an applied interdisciplinary science that looks at evidence, considers complexity and implements what works

16Global health and social health protection

17Toward rational financing of healthcare

18Priority-setting and essential health service packages

Epilogue: moving beyond the commoditization of health and making better use of the dismal science

References

Index

PREFACE AND ACKNOWLEDGEMENTS

This book is primarily written for medical students, students of economics and health professionals who want a broad understanding of health economics, covering a wide range of different perspectives and topics. We believe there is a need for a textbook in health economics that goes beyond the traditional neoclassical framework for thinking about the economics of health and adopts a balanced and pragmatic approach that combines alternative perspectives from economics, epidemiology, medicine, psychology and other disciplines. Such a broad approach might be useful in understanding and tackling health policy challenges. Thus, our book is also for the (health) economist interested in taking a broad interdisciplinary perspective. Courses for which the book is intended include health economics for medical students; introducing health economic theory for economics students; and health economics (as part of a course in general economics).

In addition, the book is a useful reference for professionals wanting a broad overview of the field, such as health professionals and public health trainees; postgraduate students and scholars of ethics, economics, health and social policy, health technology assessment, public health, epidemiology, health services research; and healthcare and public health analysts in government agencies and the life sciences industry.

It is our great pleasure to thank those people who have helped to make our idea a reality: Alison Howson from Agenda Publishing convinced us to write down our thoughts and criticisms and turn them into a book. She provided unfailing advice and moral support for our endeavour. Richard Cookson proved to be an excellent intellectual sparring partner and took the pain of reading the whole final manuscript. Without him our line of reasoning and many of the arguments presented here would have been much weaker and less convincing. Any flaws in thinking and factual errors are, of course, solely ours.

We tremendously enjoyed writing this book and we hope you enjoy reading it. We would welcome suggestions and comments, positive or negative, for future editions.

Konrad Obermann [e-mail]

Christian Thielscher [e-mail]

Introduction: approaching health economics

Traditionally, the topics of health and economics have been placed under the heading health economics. Parts I and II of the book discuss the key concepts of this field. In Part III, however, we aim to take a broader approach and have coined the term medical economics to encompass this.

Health economics has burgeoned since its origins in the 1960s. (For an overview, see Google Books Ngram Viewer.) Although a relatively new sub-discipline of economics that gained a wider reputation and had an impact beyond academia only in the 1990s, it is now an important contributor to all areas of health policy including decision-making about reimbursing therapies, improving quality and efficiency, analysing medical and public health decision-making, and discussions about funding and prioritizing medical care. In 1980, there were few textbooks about health economics available (in Germany, for example, there was only one). Nowadays there is a huge variety of books (more than 20 German books on the subject). Another example is the growth of professional societies, including the International Health Economics Association (IHEA), founded in 1994, whose biennial meetings are attended by 1,500 to 1,800 people, and the International Society for Pharmacoeconomics and Outcomes Research (ISPOR), founded in 1995, which now has more than 20,000 members.

The late Alan Williams of the University of York once astutely remarked: They say that two things in life are certain: death and taxes. Health economics is the only academic discipline that deals with both of them. This quote puts together the two topics we need to deal with: health and economics. Most people have an intuitive understanding of what health means, but when it comes to concretely defining and measuring it, things become ambiguous, and a clear definition remains elusive. We strongly believe any scholar of health economics needs to look into the subject of health – after all, providing and financing health does differ from the market for cars or haircuts.

Economics is even more complicated. Depending on whom you ask, you will get very different answers about definitions, methods and aims of economics. Economics covers not only classical topics like money, income, unemployment and inflation but has also been applied to almost all walks of life from marriage to sport, music and crime. There are many schools of thought on and approaches to understanding the discipline (or way of thinking) of economics, and health economics consists of a dazzling array of subjects and techniques, including the mathematical analysis of economic models, econometric analysis of population health, measuring outcomes, management and decision-making in hospitals and physician practices, comparing healthcare systems, calculating the effect of better health on macroeconomic performance, reflecting on different forms of funding healthcare, evaluating novel medical technologies, health services research, and questions of justice, equity and the allocation of scarce goods, amongst others. But these highly sophisticated and very useful techniques do not have a theoretical core linking them together.

Some scholars believe that economics is about scarcity whereas others vehemently dispute this. What makes it even trickier is the fact that some of these schools contradict or even disregard each other. Actually, there are several approaches to health economics. We will try to give fair presentations of all of them so that the reader can draw their own conclusion. We believe that it is crucial to be clear about one’s ethical assumptions and potential consequences of economic thinking.

As if this were not complicated enough already, there are challenges for health economics that stem from related sciences such as public health, health sciences, social medicine, medical economics and the sociology of medicine (amongst others). For example, making the best use of scarce resources for better health is a topic in all these fields of enquiry. There is a great deal of overlap between health economics and public health: both look at the health of populations and try to identify optimal public health programmes, taking into account the current health situation in different populations, available resources and expected results.

Finally, medicine is fundamentally different to economics. Medicine as a clinical practice focuses on the one-to-one relationship between a physician and a patient. Health economics (and its related disciplines) usually takes a more statistical approach, looking at the effects on more than one physician and/or one patient. Medical doctors, by their very socialization, usually dislike generalizing across patients, to step back and look at things from an abstract and systematic perspective. Economists often forget that medicine is about the absolute prerogative of the patient sitting before the doctor – if that were not the case, medicine would lose its soul.

Most health economists will attribute the great success of their science in the last 50 years to the fact that resources in medicine have become scarcer (due to an aging society, medical progress and other factors) and economists, as experts in analysing and understanding scarcity, help the healthcare system to survive. Rising healthcare costs, unclear quality of care and outcomes, the obfuscation of true costs and moral hazard behaviour through comprehensive insurance coverage, economic incentives for doctors to provide superfluous care, regional differences in care that cannot be explained by medical differences alone and examples of blatant overuse and misuse of healthcare services have all contributed to today’s criticism of the medical profession and the health service industry. It is usually not the case that the individual doctor or nurse is accused of irresponsible behaviour; rather, it is the system that has led to such ineffective and inefficient care.

Another prevalent narrative for the rise in the discipline is that, because of the global triumph of neoclassical economics since the 1980s, ideas of the market have permeated through all social systems throughout the world. From this neoclassical perspective, which is based on rational choice theory and in which market forces are deemed to hold the key to efficient running of all aspects of society, economics can explain just about everything (Nobel prize winner Gary Becker argued that many different aspects of human behaviour can be seen as rational and utility maximizing, thus are economic in nature). Healthcare provision is just one social system that has been turned over to the market. The rise of health economics is a symptom of this development. Neoclassical, however, should not be mixed with neoliberal. Whereas neoclassical thinking can be left wing and pro-poor in the sense of favouring low unemployment, high taxes, high public spending, strong regulation and so on, neoliberal usually denotes right wing, pro-rich economic thinking (e.g. favouring low inflation, low taxes, low public spending, deregulation, etc.).

John Maynard Keynes wrote: The political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty (Liberalism and Labour, 1926). These are also the key challenges for health professionals, policy-makers and managers in the health sector. Healthcare is a visible and tangible expression of a society’s concern for the welfare and well-being of all its citizens. If the healthcare system is to work for the people and is also to attract the best people to work in it, then there is a need to reconcile those three things. Health economics addresses efficiency and justice while promoting the market as the preferred mode of allocating goods and services, thereby apparently preserving individual liberty. It is clear why this is appealing.

The field of health economics is, however, skewed in various ways. First, the subject as it is mostly taught is essentially utilitarian-based and Anglo-American (about 97 per cent of the key contributions to the field are from authors affiliated to either a US- or UK-based university (Culyer & Mansurova 2007). Second, economists dominate the field of health economics and medical experts are only of minor relevance (for example, only 3 per cent of the members of the German Society of Health Economics are medically qualified). Third, and finally, the economic theory underlying health economics is to a large extent built on the neoclassical school of thought and many academics and practitioners in the field often do not even consider alternative economic paradigms that are available for analysing the healthcare system in a country or providing advice.

Our approach and structure of the book

There are a number of excellent introductory texts to health economics.¹ Our aim is to complement these texts by (1) combining economic and medical thinking and linking theoretical health economics to practical, real-life problems; (2) moving away from the dominant neoclassical economic theory; and (3) providing alternative (heterodox) economic proposals, which might in some instances be useful for the understanding and improvement of healthcare systems, and looking at experiences and developments outside the US and UK.

This book is intended as a broad introduction to health economics. We want to provide a path through the health economics jungle by presenting the major conceptual frameworks and instruments used, by looking at the underlying values that are usually (and often implicitly) employed, and by linking theoretical analysis to practical application. Culyer and Mansurova (2007) have produced a wonderful compilation of key papers that have shaped the discipline of health economics. It would be presumptuous to declare that we have been able to include all the key ideas and concepts that have so far stood the test of time, but we hope that we have at least covered all relevant fields in the profession.

The economic principles and analytical frameworks will be illustrated with real-world examples from a range of different high-, middle- and low-income countries. We summarize and bring together a diverse body of knowledge from different strands of economics, with references to more in-depth, technical treatments where appropriate. Such an encompassing approach will necessarily lead to shortcomings and the expert can rightly accuse us of merely dabbling in the different fields of research. We are all too aware of this (and sometimes painfully so), but we believe there is value in providing a structured and critical introduction to the field, outlining core knowledge, yet remaining open to different theories and approaches.

The book introduces the basic mathematics of key economic concepts (such as supply and demand curves and the law of diminishing marginal return) but does not delve into the details of modelling the utility-maximizing logic of the individual or advanced econometrics. This intentionally allows both medical students and the general reader to access this sometimes overcomplicated topic with a moderate amount of effort. It will assume no familiarity with economic terminology but it is expected that the reader has an understanding of basic mathematics and statistical terminology to the level that enables the reading of graphs and tables.

If economics contributes to a more rational, thoughtful and ultimately humane way of dealing with the many challenges of providing decent healthcare for everyone, then it surely deserves attention, and we hope this will place the reader on the path to further study and research.

Health economics is a practical science. It should help policy-makers and practitioners to identify appropriate concepts and the best available data as the basis for informed and enlightened discussion. We put a lot of effort into finding a suitable, encompassing and yet logical structure for the book, but, as the physicist Carlo Novelli writes, [S]‌omething … always escapes from the order of our discourses, since we know that, in the end every attempt to impose order leaves something outside the frame (Novelli 2018: 181).

The starting point (the independent variable) is health. Economics (as the dependent variable) should serve health, not the other way round. Health economics should make healthcare better and improve health whilst preserving individual liberty as much as possible. If it does not do this, it is mostly a pointless exercise (apart from those rare theoretical essays that help to advance thinking about health and healthcare). Thus, we start with the topic of health economics: health.

Part I (Health, healthcare and healthcare systems) provides the anatomy and physiology of the topic. We strive to describe and analyse health and disease, the causes and consequences of ill health both for patients and society, the demand and need for healthcare, how caring for patients is also a business, the way healthcare is financed and approaches to understanding healthcare systems.

Part II (Health economic theory) looks at the role and aims of scientific inquiry in health economics, introduces standard neoclassical economics and the key concepts in economics, and discusses uncertainty, limitations of the market and options for financing healthcare and health insurance. The ideas of welfarism, extra-welfarism and concepts of economic evaluation and health technology assessment are discussed in detail.

Part III (From theory to practice: Using health economics to improve global health) introduces medical economics, that is, the application of evidence-based health policy and the fundamentally interdisciplinary nature of health economics. We reflect on the interplay between global health and social protection, the need for rational financing of healthcare, and the options for setting priorities in healthcare as well as developing a suitable benefit package for a population. The role of governance is highlighted areas where health economics might serve in dealing with scarcity, complexity and supporting health reform with data and evidence. Finally, we look at the role of medical economics in dealing with global health threats highlighted by the emergence of Covid-19. An Epilogue discusses how the dismal science of economics can be more than just the commoditization of health and could actually help to improve the health of all individuals in a society. Figure 0.1 illustrates how the different parts of the book are connected.

Figure 0.1 The main topics of health economics covered in the five parts of the book

1. See, for example, the iHEA health economics teaching materials repository at www.healtheconomics.org/page/RepLP ; see also Olson ( 2009 ), Bhattacharya, Hyde & Tu ( 2013 ) and Rice & Unruh ( 2015 ).

Part I

Health, healthcare and healthcare systems

1

Understanding health in health economics

Any economics of … first requires an understanding of the topic in question. This first chapter deals with the nature of health and disease, and the complex medical institutions and systems that modern societies have put in place to prevent, diagnose and treat illness. We give a short, introductory overview of health and disease and equity of healthcare. This chapter (as well as Chapters 2 and 5) are primarily descriptive. They do not provide theory (e.g. how to improve efficiency); this will be covered in later parts of the book.

1.1 Definitions and models of health and disease

Health is a constitutive human experience. It is not by chance that since antiquity (and historical records began) every society has had health experts (as opposed to economists). Medicine was one of the founding faculties of the oldest European universities – in addition to theology, philosophy and law. At first glance, health appears both easy to define as well as being an issue of pure natural science; after all, diseases (and health) are about biology. However, on closer examination, things are much more complicated. Health interacts with physiology but also affects psychology, sociology, politics and ethics, amongst others, and vice versa: for example, the concept of pain is not just an issue of pure biology since in some societies patients are entitled to complain about it whereas in others they are expected to be brave. The health of a population also heavily influences its economic power (the Covid-19 pandemic is a case in point).

This is one of the reasons why it is notoriously difficult to succinctly define health and illness. The key challenges are:

• Is health a state/stock (of being healthy) or a process/flow (of producing health)? Is health something that individuals and society experience or constantly create by, for example, fighting pathogens?

• Is health something to be felt (feeling ill) or something that enables people to perform (being able to work)?

• Who decides whether a patient is ill – the patient or society? The decision can be based on individual perception or societal definition ( declaring someone ill, for example, to allow them to access sick pay).

• Is health, as well as disease, a medical fact and/or a psychological and social issue? For example, women’s life expectancy is three years longer than that of men in Sweden but 11 years longer in Russia. It is unlikely that this difference is due only to biological (e.g. genetic) reasons.

Take the following example. Roger, a civil servant at a property registry office, has broken his left elbow. He is on sick leave for four weeks. Sitting at home is boring, so he visits his colleagues daily. However, they are already irked by this situation; they think that Roger could do some work, for example talk to visitors, not least because they have a hard time taking on his job in addition to their own duties. Roger does not understand this attitude; his doctor told him that he should nurse his arm. Is Roger healthy, or not?

Might it be possible to evade the problem of definition of health by focusing on the definition of disease? Health and disease do mirror each other. Without disease, there is no health and vice versa. A famous definition of health opens the preamble of the constitution of the 1946 World Health Organization: Health is a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity. Note that, in this case, health is a state (and not a process). There are plenty of other definitions. Sociologist Talcott Parsons, for example, stressed the point that ill health impairs our ability to perform our roles in society. In this understanding, society (not the patient herself) is key in defining health. It is not possible to reconcile the differences between the different types of definition. Health and disease are both medical facts and, at the same time, psychologically and socially mediated. This is important to understand since it explains why social organizations contribute to our understanding of sickness: if medicine was pure natural science, there is no reason why an association of employers, the church or a union should be involved in deciding rules for defining sick leave or specific treatment pathways, for example.

Finally, this means that medicine is not the only science involved with health and disease. Sociology may detect important insights into the way medicine is practised. Economics yields insights into financing or decision making. History provides information about earlier institutions related to treatment, for example.

In addition to definitions of disease, there are also models of disease. There are many different models of health as well as models of disease in many different disciplines, such as public health, nursing and health economics.

The biomedical model is often cited in non-medical literature. Its focus is on the physical processes of disease (for example, its pathology, biochemistry and physiology) and it does not take psychosocial issues into account. Some scholars consider this to be the leading model in western medicine. A more encompassing approach is taken with the biopsychosocial model, which looks at the mutual relationship between biology, psychology and socio-environmental factors and examines how these aspects play a role in health and disease models.

Many models use an illustration to describe health. Figure 1.1 shows the Mandala of Health (named after the appearance of the model, which looks like a mandala, the figurative and geometric picture in the Hindu and Buddhist religions), mapping out factors influencing health such as culture, environment, the family and so on.

Figure 1.1 The Mandala of Health

Source: https://bsahely.com/2018/11/03/the-mandala-of-health-a-model-of-the-human-ecosystem-prof-trevor-hancock-1985/

Another highly influential model is Anton Antonovsky’s concept of salutogenesis. The basic question addressed by Antonovksy, a medical sociologist, concerned how some people manage to cope with extreme stress (such as concentration camp survivors). He basically inverted the question What makes you sick? and asked What makes you healthy? This approach has contributed to current research in resilience. It is sometimes posited as a counter-model to medicine and its idea of pathology. In our view, it is a complementary approach because the key point is that resilience is disease-specific. We will come back to this issue after discussing specific diseases (rather than disease as such).

1.2 Pathology and the definition of specific diseases

Medicine engages little in the discussion of definitions of health and disease. Doctors are trained to deal with specific diseases (e.g. tuberculosis); disease does not mean much to them. The same holds true for patients: they want their specific disease to be cured – not to have a debate about health.

Note that many problems of the discussion of health disappear when talking about specific diseases. For example, it is relatively easy to examine social factors in lung cancer (such as smoking habits) or in Type II diabetes (nutrition, physical activity, etc.). When discussing disease in general, the relationship between social factors and disease is somewhat unspecific.

Since it is so important to study specific diseases, we need to ask: What is a single disease? Once aetiology (cause) and pathogenesis (course) are investigated, a disease is defined. For example, tuberculosis is caused by tubercle bacteria, which create inflammation at several locations, generating functional loss. As noted earlier, social psychology and economics greatly modify pathogenesis. In the case of lung cancer, its aetiology is not yet fully known but its pathogenesis is.

The ability to diagnose specific diseases marks the difference between modern and earlier medicine. Note that it is difficult to achieve scientific progress if different things are constantly intermingled (e.g. by focusing on a symptom rather than a disease). For example, there is little insight to be gained from studying red skin spots because this may be acne, neurodermitis, some inflammation and so on. Therefore, patients with red spots will behave quite differently, creating an irresolvable puzzle for the scientist. It does make sense to study tuberculosis. That is, once you manage to study the right thing (a specific disease rather than a mixture of diseases) you will learn more about it more quickly.

This is why diagnosis is the core concept of modern medicine: medicine thinks in diagnoses. Note that this is an important point for understanding the miscommunication between doctors and economists: medics think in diagnoses, economists (often) in input/output. For example, when discussing the need for a new MRI scanner, physicians will think about which patients and what diseases they can better diagnose; hospital managers, in contrast, will be more concerned with costs, financing and potential additional reimbursement.

Diseases can be described as a matrix, as shown in Table 1.1. In order to specifically describe how social psychology influences the course of a disease, we need to study a specific disease. For example, dry and warm housing kills tubercle bacteria (but does not impact smoking). Recommendations that are aimed at preventing disease in general will remain at the level of eat more fruit. While this is correct, we also want specific knowledge for specific diseases. The same is true for salutogenesis: resilience is a rather vague concept. Resilience in the case of tuberculosis is much clearer. Thus, for salutogenesis to be meaningful, it needs to be disease-specific.

Table 1.1 What influences the course of a disease?

Surprisingly to non-medics, nobody actually knows how many diseases exist. Given that the same combination of symptoms may be caused by several agents, the numbers can vary. For example, with immunological tests it is possible to differentiate dozens of different viruses causing the common cold; do you count one disease per virus type? The International Classification of Diseases (ICD) codes comprise two to three digits; for example, E10.5 is Type I diabetes with angiological complications. Currently, there are roughly 20,000–30,000 different codes.

As mentioned, medicine thinks in diagnoses. As a theory, medicine uses a model based on layers:

• The basis is natural science, that is, the structure and function of the healthy human body.

• The next layer is pathology and pathophysiology, that is, the analysis of pathogens and their effects on the body.

• When it comes to theory of illness, psychosocial effects come into play. For example, many diseases are socially mediated (e.g. so that poor people are sicker).

• Treatment of real patients is not just science; it is also empathy, even touching on the sense of life – think of a doctor talking about cancer with her patient.

To sum up, health has medical, economic, social, legal and ethical aspects and it can be seen from the perspective of a patient, care providers and society. Thus, in order to define health, we need to ask the question: from whose perspective and for what purpose?

1.3 Factors influencing health and disease

Individual health is influenced by many factors, ranging from genetic dispositions, the physical environment, social interaction, culture, specific risks and needs during lifecycle phases (e.g. youth, childbearing age, old age) to lifestyle (including diet) and healthcare consumed. These factors interact: disease makes people poor and poverty makes people sick. For example, cancer survivors often lose their job; if they can no longer support their families they may become depressive, which, in turn, hampers their resilience against cancer.

Hygiene, food, epidemiology, the development of water and sewage systems, vaccination campaigns, food control and surveillance of communicable diseases were the initial aspects and focus of public health in the recent past. Such measures have been extended to all walks of life that affect individual health and well-being, from traffic, physical activity, violence, bullying, drugs, prostitution and child abuse to managing the global climate and planetary health.

Such a broad and encompassing approach is useful in understanding the mutual interdependencies and interactions between factors; however, it needs to be broken down into smaller entities to allow a meaningful analysis of cause and effect and, ultimately, economic analysis.

The eminent economist and early health economist, Kenneth Arrow (1963: 941), reflected on the social determinants of health: It should be noted that the subject is the medical-care industry, not health. The causal factors in health are many, and the provision of medical care is only one. Particularly at low levels of income, other commodities such as nutrition, shelter, clothing, and sanitation may be much more significant. He picked up on a long-standing critical reflection on the relationship between health, healthcare and socioeconomic conditions. Leaving aside the Hippocratic writings and medieval tracts on diets (understood in the original sense of lifestyle), one of the first influential modern analyses stems from the famous German pathologist and politician Rudolf Virchow. His Report on the Typhus Epidemic in Upper Silesia (1848) links dismal living and working conditions to the outbreak of Typhus in Silesia. Virchow fought for democracy on the 1848 barricades in Berlin and went on to become a professor, first in Würzburg and then in Berlin. He wrote: Medicine is a social science, and politics is nothing else but medicine on a large scale (Virchow 1848: 3).

At about the same time, in Britain the debate on health conditions and inequality began. National registration of births and deaths came into force in England in 1837, and an amendment to the Registration Act required the recording of the cause of death as well as the deceased’s occupation and age at death. William Farr, appointed as the first Compiler of Abstracts at the General Register Office in 1839, wrote annual reports for 40 years pointing out the relationship between unhealthy conditions and health status. In 1842, the English social reformer (and disciple of the utilitarian philosopher, Jeremy Bentham) Edwin Chadwick wrote a report on the sanitary conditions of the British working class. Chadwick’s report led to the Public Health Act 1848, which was the first instance of the British government taking responsibility for the health of its citizens.

Other examples of scholars looking into the sociology of medicine are French sociologist Michel Foucault (1976), and Illich’s (1976) and McKeown’s (1980) books on the many shortcomings of a healthcare system. More up-to-date data and concepts are offered by the authoritative book edited by Richard Wilkinson and Michael Marmot entitled The Social Determinants of Health (2003).

Figure 1.2 shows the relationship between social inequality and the mutual interdependence of the various factors leading from social inequality to health inequality, as well as the amplifying effect health inequality has on social inequality. Of particular importance is the concept of relative deprivation, meaning that people compare themselves with (and are compared by) those around them and, even if in absolute terms, material well-being is secured (for example, absence of hunger, sufficient clothing and secure shelter), the relative poverty of people will affect their standing in a society and ultimately their agency (their ability to influence and exercise power and control over their own lives). The Whitehall study, conducted in the UK between 1967 and 1988, investigated social determinants of health, specifically of cardiovascular disease prevalence and mortality rates among male British civil servants. The study found that lower employment grades, and thus status, were clearly associated with a higher prevalence of significant risk factors such as smoking, obesity and lack of physical exercise.

Figure 1.2 Relationship between social and health inequality

Source: Modified version of Elkeles and Mielck (1997)

box 1.1 Small area variations

John Wennberg and colleagues worked on the question of small area variations: the fact that neighbouring areas with similar populations and comparable levels of socioeconomic development have highly variable numbers of people undergoing certain medical procedures (the classic example being the incidence of cholecystectomy – gallbladder removal). The Dartmouth Atlas of Health Care (n.d.) documents the findings. In a nutshell, they found that medical decisions are influenced by beliefs: for example, in cases of gynaecological surgery in an older patient, is it better to remove the uterus by default in order to avoid future cancer? Should a patient with borderline blood glucose levels use insulin (which improves life expectancy but may bother him)? Is it better to do tonsillotomy or tonsillectomy (tonsillotomy is much less painful and less risky but may result in relapse requiring second surgery)? Some physicians believe that one is better than the other. Medicine does have grey areas in which decisions are difficult to make. Wennberg et al.’s findings have challenged conventional medical wisdom as to how medical care is delivered and have led to what has been called research-driven policy, as the study results have changed how people perceive the results of health care. The development of accountable care organization in the US can in part be traced back to the discussion of small area variations.

1.4 Data, data sources and data analysis

Health economics might play a useful role in obtaining solid information about a disease in all its aspects. Asking simple questions, triangulating data from different sources, matching figures and turning data into a coherent story is an important element in fostering open debate. Data may be obtained from a wide range of sources, such as routine government information, documentation centres (UN, WHO, other organizations), warning and control systems, evaluation reports, demographic and health surveys, specialized studies, private information, media reports, social media or trade journals.

Data are vital in gaining understanding and creating a basis for decisions. They need to be related to the health problem at hand, and it is usually much easier (and cheaper) to collect existing information than to generate new information. Triangulation involves the merging and matching of information from different sources and creating meaningful overall statements. Data need to be timely, reliable, valid (related to the object of investigation), relevant (to decision-making), accurate and obtainable at low cost. Common errors include incomplete reports, calculation errors, bias, different denominators, inappropriate aggregation of data, data accumulation without a clear target, obsolete data, misinterpretation, overestimation of quantitative data and elegant evaluations with poor data (garbage in, garbage out).

For many countries, a multitude of statistics are available on diseases. A typical example is mortality charts. Ideally, every single death, including its cause, should be registered and, thus, death statistics