In the first part of the book, we described health, healthcare and the healthcare system. In the second part, we introduced health economic theory, which is usually based on neoclassical economic theory, and discussed whether this is the appropriate theoretical framework for thinking about health. In this chapter, we introduce the concept of medical economics. We move from mainstream health economics, with its overwhelming focus on economic thinking and methods, to the integrated approach of medical economics, which marries different thoughts, concepts and theories from both the medical and the economic perspective.

In essence, the dominant neoclassical school of economics builds on a collection of self-interested individuals in a world devoid of history, politics, institutions or power, apart from the market power of monopolies and the coercive power of governments. All analysis begins with the assumption that economic decisions reflect individual preferences and free choice. Competitive markets are seen as the natural form of economic organization and one to which all societies should aspire, independent of their socioeconomic structure and history. In such competitive markets, free individuals can work or reject work, buy or decline to buy and, by definition, exploitation is impossible. Taking up a low-paid job is an individual's decision; indeed, she may choose a better-paying job or no job at all. “Consumer behaviour” is analysed without mention of advertising pressures and all companies are merely firms, irrespective of their size and corporate power.

The vast majority of health economics textbooks are written by economists (only a handful include a medically qualified person as (co-)author, e.g. Bhattacharya et al. 2013) and usually start with the core assumptions of individualism and free choice, do not address issues of structural power and the impact of socioeconomic class and pre-existing medical conditions, and separate economic questions from social and political ones – reflected in the terminological move from “political economy” to “economics”.

In this chapter we propose a specific way of applying economic thinking, which we call medical economics because it imitates (to an extent) the way medicine analyses its subjects. Medical economics is an interdisciplinary and integrated approach in which medicine and health sciences, political science, philosophy, quantitative and qualitative analytical tools of the social sciences and economic thinking intertwine and provide inputs from different specialties and forms of inquiry.