Health Economics

Healthcare Services

It is the branch of economics concerned with the application of economic theory to phenomena and problems associated with health and health care. Health economics is concerned with the formal analysis of costs, benefits, management, and consequences of health and health care.

Health economic studies provide information to decision makers for efficient use of available resources for maximizing health benefits. Economic evaluation is one part of health economics, and it is a tool for comparing costs and consequences of different interventions.

Objective of Health Economics

Health economics is used to promote healthy lifestyles and positive health outcomes through the study of health care providers, hospitals and clinics, managed care and public health promotion activities. By applying economic theories of consumer, producer and social choice, health economics aims to understand the behavior of individuals, health care providers, public and private organizations, and governments in decision-making. 

What Health Economists do?

Health economists are professionals who investigate how our resources are used in health care. They also focus on the distribution of resources and the maintenance of occupational health in the health care system. They may work in the public side of health care or they may be employed by privately owned companies. 

Development & Planning

The health economist will work closely with clinical development colleagues such as scientists, data managers, clinical research associates and statisticians to ensure that the appropriate data are gathered and analysed.


The role of the health economist is to ensure that trials collect economic and quality of life data that can be used to profile the value of the medicine. A health economist in an affiliate normally has a more local role, working from a local head office of a company to obtain appropriate access for patients to the medicine in that country.


 A health economist in an affiliate works closely with colleagues in sales and  marketing. A health economist will devise ways of measuring effectiveness and improvements to create data that demonstrate the value of the medicine to different audiences such as regulators, doctors and patients.

Principles of Health Economics

Markets, Demand and Supply

Economics is a social science, as is emphasised in the definition of economics that refers to how society decides. Although society does make collective decisions about what, how and for whom to produce, in most modern economies this is largely done through markets, by the interaction of those who wish to buy (buyers, or consumers) and those who wish to sell (sellers, or suppliers).

Efficiency and equity

Economic analysis usually judges the way in which resources are used according to two main criteria: efficiency and equity.  Efficiency refers to obtaining the greatest output for a given set of resources.  Equity refers to a fair distribution of that output amongst the population.

Production, resources, scarcity and opportunity cost

The definition of economics above includes the term to produce, emphasising that economics deals with both health and health care as a good or service that is manufactured, or produced. All production requires the use of resources such as raw materials and labour, and we can regard production as a process by which these resources are transformed into goods.

Why is health economics important?

The importance of the economic model is that it provides useful insights into how health care can be organised and financed and provides a framework to address a broad range of issues in an explicit and consistent manner. Organisational changes such as the development of the National Institute for Clinical Excellence and the devolution of decision making to primary care organisations have led to an increasing interest in the subject and its influence on health care organisation and decision making.

Frequently Asked Questions

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Public health economics helps physicians, ‘physician–administrators’, and health policy officials in decision making concerned with broader view point of resource allocations


The application of economic principles in health care helps physicians to make better choices for patients. 


Health economic studies provide information to decision makers for efficient use of available resources for maximizing health benefits. Economic evaluation is one part of health economics, and it is a tool for comparing costs and consequences of different interventions.


Health economic studies also describe the phenomena and behavior of the health care market, predict functioning of health systems, and provide policy prescriptions for public health practice.


Health economics is important in determining how to improve health outcomes and lifestyle patterns through interactions between individuals, healthcare providers and clinical settings.


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Difficult choices in health care are inevitable and there is an increasing emphasis on making decisions explicit and fair. Health economics suffers from a number of methodological limitations but it can offer us useful concepts and principles which help us think more clearly about the implications of resource decisions we make. An understanding of some basic economic principles is essential for all practitioners not only to understand the useful concepts the discipline can offer but to appreciate its limitations and shortcomings.