Health economists are concerned with the organization of the market for health services and the net yield of investment in people for health. The "optimum" use of resources for the care of the sick and the pro- motion of health defines the special field of inquiry. Toward a Definition of Health Eeonomies SELMA J. MUSHKIN, Ph.D. T WO RECENT dev-elopments, each trace- services ancd altered metlhods of paying for able to scientific advances in medicine, have hiealtlh care. They comprise one set of eco- focused attention onilealtlh economics. nomic issues. First, new therapeutic products lhave pro- A second set of issues arises from another vided specifics for maany infectious diseases thlat, development in medical science: the possibility less than 20 yeairs ago, were importanit causes of of iniereasing life expectancy. Average life ex- death in the United States anid other industrial pectancy at birth in many of the nations of Asia nlatioIns. These changes in medical teclhniques, ancd Africa-nations which include almost wlichl lhave in-creased the plhysiciani's capacity to two-tlhirds of the world populationiwas until deal effectively with (liseases, lhave altered pat- recently about 30 years. This imay be coni- ternis ii the organi%zationi of lhealtlh services. tralsted witlh almost T0 years of life expectanicy Concomito'antly, probleimis associated witlh the aclhieved in the United States. The potential costs of medical care have been intensified an(d increase in life expectancy shlarply focuses lhave stimulated prepayment arrangements for problems of balance between population meetinig these costs. anid resources, between work forces and out- These chaniges lhave also giveni rise to mnany put, in the industrially underdeveloped but questionis about thle natuire of the "miiarket" for denisely populated nations of the world. Scien- lhealth services; about the relation of planit "ca- tific advances inl medicine anid public healtlh can pacity' (hospital facilities, for example) .to be applied quickly and witlh nminimulm expenidi- use of health services; and about variationis in tures to reduce death and morbidity rates in "demiand" attributable to prepayment. Espe- these nations. Spraying witlh DDT, immuniza- cially urgent are questions about slhifts in "de- tion-witlh BCG, and treatment with penicillin mand" due to third party payments for limited have yielded dramatic results in ireduced mor- types of medical care anud about effects o- alter- tality from nmalaria, tuberculosis, syplhilis, and native methods of paynmeiit and comipeflsatioln yaws. oln the "price" of healtlh servic'es. These ques- Reduced deatlh rate lhas intensified a searchl tionls are illustrative of the many raised by for answers to specific economic questions so altered patterns in the organization of health that the achievements in lhealth will not be dis- sipated by the pressures of increased popula- Dr. Mushkin is an economist in the Division of Public tion on low food supplies, wvith the consequent Health Methods, Public Health Service, and research intensification of poverty. Some of these ques- associate, Johns Hopkins University School of Hy- tions are related to the mean-s by wlhich the net giene and Public Health. yield of investmenit in peol)le for health may Vol. 73, No. 9, September 1958 785 be measured, the relative amounts of comple- riodical in 1944 published news items on gov- mentary and supporting capital investment and ernmental health programs, views of the health capital growth required, and the effects of professions on the organization and financing changes in health status on productivity. At of health services, medical education, hospital the same time, the changing monetary value of organization and services, dental health needs man, in his productive capacities, effects an and services, voluntary health insurance plans, impact on economic growth. and public health education. In the foreword These two sets of issues in common require, to the first issues, Dr. Sinai stated, ". this among other things, an analysis of the optimum publication is a tangible tribute to . con- use of resources for maintaining and improv- tributions toward the development of a new ing the people's health and the quality of the and vital blending of the medical and the so- population. Both sets of issues have been cial sciences. The blend is public health pressed by the requirements for policy formula- economics." tion-public for health issues facing less de- Thus "health economics" has been both veloped nations, and largely private for health broadly conceived to encompass the range of issues arising out of the medical market, at social sciences, including public administration, least within the United States. and narrowly conceived to deal with business methods of organization and of payment. Administrative Definition What then is health economics? Generally, Economic Propositions "health economics" has been used by health ad- What has the professional economist had to ministrators to refer to any investigation that say about health economics? Until fairly re- deals with money in its relationship to health. cently, economists have given little thought to The two medical journals with economics in the market organization of health services or their titles perhaps give a clue to what those to the net economic yield of investment in the in the health professions consider to be encom- health of people. This lack of attention to the passed within the scope of a health economics medical market may be traced to the special inquiry. One of these journals, Medical Eco- characteristics of medicine that mark it as an nomics, is essentially a business journal for exception to economic propositions that explain physicians, and regularly features articles on the mechanisms of the market generally. physicians' office methods and finances. Special There are several important characteristics feature articles in 1957, for example, deal with of the medical market that differentiate it from the physicians' income, hours of practice, spe- the market of classical economics. First, the cialties, fee determination, voluntary health in- profit motive is not adequate as an explanation surance developments as they bear on the phy- of the activity in the medical "market." Hos- sicians' practice and finances, cost of practice pitAl care throughout the centuries has been including malpractice insurance, taxation prob- either primarily public or under the auspices of lems such as definitions of business expense, and nonprofit institutions. While services of physi- problems of estate planning. cians in the United States are organized on as The second periodical, Public Health Eco- individualistic basis as any profession or enter- nomics, published by the Bureau of Public prise (and it is fair to say, even more so), physi- Health Economics of the University of Michi- cians have accepted their social role in the gan's School of Public Health, abridges arti- community and have often cared for the sick cles and news items. Materials abridged are and promoted health without remuneration for classified currently in the following manner: their time and skill. Also, professional motiva- legislation, governmental programs in opera- tion in pursuing the medically interesting case tion (Federal and State), prepayment plans, often causes the medical practitioner to evaluate health personnel, hospital and other health fa- his leisure, income, and work differently from, cilities, receipt of care, and developments in say, skilled operatives in industry. other countries. The first issues of this pe- Second, in medicine, price is not the sole 786 Public Health Reports means by which demand and supply of medical ices are for the,cure and diagnosis of disease and health services may be equated. As a so- (2). Moreover, data on expenditures and on cial responsibility, private associations, non- the relation of expenditure to income suggest profit in form, and private practitioners have that the familial patterns of consumption are provided necessary services for those unable to distorted when illness strikes. pay. And fees for services have been graded Efficient organization of economic resources in accord with rough evaluations of ability to for health, guided by the consumer's prefer- pay. In the economy generally, however, the ence, depends upon the consumer's knowledge price system is the instrument for the alloca- and the extent of his education. Despite per- tion of goods among consumers and their com- sistent efforts to educate consumers they re- peting demands. Government traditionally veal considerable absence of accurate knowl- has been looked upon as an instrument to cor- edge about the quantity and quality of health rect the market mechanism where it fails mark- services required. The nature of the medical edly to satisfy the wants of individuals. In service itself and its intangible character rein- the sphere of medical care, however, individual force the- consumer's- lack of knowledge about needs have been met historically, at least in his purcshase s,eand impede a rational choice part, by nonprofit organizations and by the that could guide the allocation of resources. practitioner guided by the code of Hippocrates. Furthermore, in an individual's purchase of Moreover, a competitive price has been gen- many medical services, there is a social utility. erally absent from the medical market, at least Purchase of health services for the prevention until recently. In part, this is attributable to of contagious and infectious diseases, such as the absence of a homogeneous commodity. Skill smallpox, poliomyelitis, and whooping cough, and capacity vary with the individual abilities provides a utility, or a benefit, for the com- of health personnel, and needs of patients dif- munity as a whole. Even curative health serv- fer, too. ices, such as those for the treatment of tubercu- Third, medical services are personal services; losis or syphilis, help to prevent the spread of money cannot veil the transaction. The cold the diseases; thus an individual's purchase of impersonality of money, so much a part of all services for his own cure benefits his neighbor.