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.

Having introduced the approach and concepts of medical economics, we now take a global perspective on the issue of health and social protection. In today's highly interconnected, migratory and mutually dependent world, national thinking remains hugely relevant but is not sufficient when discussing the roles and limits of health, healthcare and social protection. This chapter looks at global health, the basis for discussion about global justice. We then review global interventions and collaboration and link the changing demography of transition countries (from high fertility–high mortality via high fertility–low mortality to low fertility–low mortality) to social health protection. We describe the measurement of social health protection and introduce the application of behavioural economics in the field of healthcare – an important tool in developing worldwide social health protection.

Global health

Global health looks at the health of the population from a global perspective. In recent decades global health has become a more prominent issue as a result of the increasing inter-connectedness of people and societies as well as a moving towards a common understanding of “global social justice”. Such developments are necessary to deal with the common challenges to humankind, ranging from pollution, climate change and depleting resources to poverty, migration and conflict.

Global health is a population-based approach and can play an important role in reducing the burden of disease and promoting well-being in a globalized world. In addition to the classic “big issues” of global health threats (like, for example, the eradication of poliomyelitis or the Ebola and avian influenza outbreaks; for a more detailed discussion on this, see Chapter 18) that require joint monitoring and common action, there are also broader issues such as looking at poverty and inequality as disease risks, the need to address the conflict of economic interests and effective healthcare, the reduction of worldwide inequality and the analysis of institutional frameworks as a basis for effective interventions and cooperation (e.g. the role of WHO vis-à-vis bilateral cooperation or philanthropic initiatives and foundations).

Thus, global health combines a medical-epidemiological approach with equity and health diplomacy. Health economics can meaningfully contribute to all these areas and in this chapter some key aspects in each of these areas are discussed in more detail.

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.

The economic consequences of disease

Studies into the economic impact of disease started with the “cost-of-illness” idea in the mid-1960s, combining the “direct” costs of medical care, such as travel costs, with the “indirect” cost of lost production because of reduced working time. More recently, macroeconomic growth models have been used to better understand the dynamic and multifaceted influence of ill health on economic activity at the societal level. In addition, research has looked at the microeconomic consequences of ill-health, particularly at the household level in lower-income countries.

Estimating the burden of disease in populations is based on measuring morbidity and mortality. However, only focusing on morbidity and mortality effects provides an incomplete picture of the economic consequences of poor health on overall human welfare. “Shocks” created by poor health can lead to huge increases in health expenditure, reduced functional capacity and lost income or productivity and can thus be a primary risk factor for impoverishment.

It is well known that ill health may affect educational attainment (and thus levels of future income). Moreover, at a societal level, low levels of health lead to lower savings rates, lower levels of investment and, ultimately, lower rates of return on capital, contributing to impaired economic growth. Looking at the impact of health on macroeconomic growth from a different perspective, one wants to measure the contribution that health can make to economic growth. Such a positive association between health and wealth is part of today's financially driven culture and a major argument for greater investment in healthcare systems and services.

Relevant policy questions to consider are: What impact does ill health have on GDP? How much does society pay for medical and other expenses because of illness? What is the impact on social welfare in general? Are there any effects that transgress country boundaries? Chapter 18 provides a more detailed discussion on the role of health economics in responding to global health threats (such as Covid-19).

From the microeconomic perspective, we look at three players: households, firms and government, each of which poses different questions:

Households. What impact does ill health have on a household's income or consumption patterns? How much do households pay for medical or other expenses as a result of illness (for an episode, over a year or over a lifetime)?

This chapter deals with another important aspect of providing healthcare services: the benefit package. Taking the “WHO cube” (see Section 7.1) as the basis, the question is: which services should be made available to whom at what price? Price is meant here as the price to be paid by the patient at the point of service, which could be the full price reflecting cost or supply and demand, a subsidized or stipulated price, some form of co-payment or a user fee. After discussing scarcity and the need for rationing as well as different approaches to rationing, the chapter looks again at the cost per QALY approach, which emerged as a key tool of health economics in the rationing debate. After reflecting on essential health service packages, the question that emerges is how to define them.

Scarcity of resources and the need for rationing

Scarcity of resources in public healthcare systems is a well-recognized fact. Boundaries need to be set regarding prevention, diagnosis, treatment and rehabilitation. And this is not a new phenomenon. During the 1940s, a limited supply of iron lungs for polio victims forced physicians to ration these machines. Dialysis machines for patients in kidney failure were also rationed. Indeed, there is a fascinating story concerning the Seattle “God Committee” in the 1960s that was tasked with choosing who could use the life-saving dialysis machines (). Shortages of donated organs for transplantation has resulted in the rationing of hearts, livers, lungs and kidneys. Levine 2009

Rationing is the allocation of limited goods and services. It is also euphemistically known as priority setting, but it essentially boils down to withholding potentially useful care for certain people. According to economic understanding, rationing always takes place and, in general, is performed by the market mechanism: the price of a good and people's disposable income regulate individual allocation. Since the available funds are not unlimited in medicine, there is also a (deliberate) withholding of principally effective services. Clinicians have always rationed access to medical care via some means. At the level of individual decisions, most patients are still at an extreme informational disadvantage due to the highly technical issues involved in treatment decisions and the simple message that treatment will not be beneficial or is not necessary can be used to withhold or ration care.

In this book we have analysed, from an economic perspective, the major challenges involved in providing medical care, such as identifying demand for health and healthcare, comparing healthcare systems with regard to access, quality and financing, the relationship between macroeconomics and health, the economic evaluation of medical technologies, prioritizing services, paying providers appropriately, improving equity in financing healthcare, reducing catastrophic spending, reducing “unnecessary” care and looking at the profession of medicine from a business perspective.

Underlying most health economic analyses is the seemingly compelling narrative of scarcity and, hence, improving efficiency while preserving choice. Neoclassical thinking is the established economic theory that has invaded almost every human relationship from standard market exchanges to education, justice and, ultimately, dying. This can be enlightening and certainly provides a stimulating additional perspective. Economics, however, lacks any intrinsic values and norms; in fact, most economists would argue that this lack is a key advantage of their profession.

Human interaction requires norms. Norms are derived from a set of values. Economics, as a value-free and mathematics-based science, can make policy recommendations but requires a value framework to supplement it and make it normative. Economics alone is not sufficient to determine public policy. At best, “pure” economic reasoning assists in the development of focused reasoning and an understanding of the consequences of action; at worst, it creates a false scientific truth based on an unrealistic reduction of the complexity of human interaction and promotes solutions that are useless, misguided or downright harmful. As Evans et al. (1994: 359) wrote: “Competition and markets should be means to an end, but not ends in themselves. … If they are treated as ends, the objectives of efficiency, equity and cost containment will NOT be achieved” (emphasis in original).

The repeated call for “more competition” (although much more nuanced in recent years and acknowledging the specifics of the healthcare sector) is in most cases not matched by solid evidence that competition really does lead to greater efficiency. “More competition”, in fact, does not necessarily result from applying neoclassical thinking.

Why economic evaluation?

Healthcare systems are highly regulated, with a high degree of government involvement in funding, provision and ownership. The main reason for this is that in many countries access to healthcare is seen as a human right. No one should die or suffer from serious disease just because she cannot afford relevant health services. In most developed countries, social health insurance covers basically everything that is needed (with some exceptions in, e.g. the US – see below). In most other markets, one simply does not get the goods one wants but cannot afford. Price decides what you get and thus works as a rationing instrument. In medicine, such a form of rationing is widely rejected. Besides this societal decision to provide what is needed (not what the patient is able and willing to pay for), there are a number of reasons for market failure, such as a high level of asymmetric information, moral hazard, the uno actu principle (which means that a service is consumed at the same time it is produced). This makes it more difficult for consumers to estimate quality, in contrast to “normal” products for which a consumer has enough time to study their properties (see Section 10.2 for more details).

In essence, the healthcare market does not allocate resources based on market prices. Rather, public institutions need to decide on resource provision and allocation. Therefore, it is typically not the patient who decides which services she consumes at what cost. She will often not even know the costs of the treatment. There is no “market” where the patients can buy care. Rather, at least in most developed countries, they ask for help and get what they need.

But what does a patient “need”? For example, should society provide (and pay for) toothpaste, spas, a two-bed room (see Section 2.1 on this subject)? Public bodies must decide which services are covered by insurance and which are to be paid by the patient herself. One aspect of this is whether the patient is able to pay (as in toothpaste) or not (as in dialysis). Other aspects are the benefit of the treatment to the patient and the question of whether the treatment is worth it. If a drug that costs $50,000 prolongs life only by two weeks, should society pay?

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.

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).

In the first chapter we briefly talked about diseases, their prevalence and diagnosis. This chapter covers the path from diseases to provision of care. It is often believed that care is something “physical”; that there are specific “needs” and clearly defined treatments. But this relationship is much more complex. This chapter provides an overview of the system of care provision: what a healthcare system looks like and what issues pertain to the provision and quality of care at the system level.

Need and demand for healthcare

Both need and demand for healthcare are difficult to define. First, there are medical uncertainties: the “need” for some treatment may be diffuse. Do you “need” spectacles if your visual acuity is 95 per cent? Or 70 per cent? Similarly, is there a “need” for anti-cancer treatment that prolongs life for four weeks (on average) but destroys the patient's quality of life? Would your decision change if the patient is 2, 20, 40 or 80 years old? Decisions in these examples depend on patient preferences. Some patients may prefer to live longer even at the expense of quality of life; others may prefer a shorter but better life.

Also, “need” is often not a “yes-or-no” decision; rather, a continuum of potential interventions exists: how many pairs of spectacles do you need per year? Do you need the very latest drug or is the one that was the best therapy five years ago suitable? In essence, “need” for treatment is – as often in medicine – disease-specific; that is, “need” can be defined – if at all – only at the level of a specific disease (such as myopia). In some instances, it is possible – a broken leg or a serious infection; in some instances, it is debatable – a flat foot; and in others, it is seriously contested – physical deformities or performance improvement.

Little is known about patient behaviour. For example, Germans visit a doctor 18 times a year and Scandinavians 6 times. Science can only partially explain why this is the case. We do know that economics plays a role in patient behaviour in the sense that user-fees discourage utilization (RAND experiment; see Section 8.3) or the opportunity costs of utilization, such as travel time, can deter patients from seeking medical attention.

A major aspect of the economic analysis of health and healthcare is its finance. This chapter is concerned with describing the generation and use of money for healthcare.

Spending on healthcare

Healthcare spending is one of the key topics of health economics. Taking the UK as an example, total healthcare expenditure in 2017 was £197.4 billion, accounting for 9.6 per cent of GDP, a significant part of all economic activity.

Absolute spending on health (in US dollars) differs hugely around the world. First, because there are vast differences in GDP per capita in different countries and second, because the percentage of GDP spent on health ranges from about 2 per cent (Myanmar) to more than 17 per cent (US). This translates into a range of health spending per capita (in 2015) from nominally $17 (Central African Republic) to $9,800 (US) (WHO Global Health Expenditure Database n.d.). See Figure 5.1 for an overview. Given this huge spread, the question arises about how much a country should spend on health.

This can be treated as a positive or a normative question. Taking a positive point of view, one could envisage a systematic bottom-up cost calculation. Starting with demographics and medical needs, researchers could try to put together cost data for standardized treatment protocols in order to gauge the expenditures necessary to achieve some reasonable level of medical care for the whole of the population. Such a calculation would take a societal view, looking at the necessary healthcare costs that society would pay for. The calculation would not take into account any forms of discretionary private/ individual spending (on, say, better teeth or travel health insurance).

From a normative perspective, two important goals have been set for global health spending. The first is by WHO, which states that 5 per cent of GDP should be spent on health. The second is the so-called Abuja Declaration: A declaration of African heads of state signed in 2001 in the Nigerian city of Abuja, pledging that their governments would spend at least 15 per cent of total government expenditure on health. In a 2011 progress review, WHO reported that only one African country had reached that target, while 26 had increased health expenditures and 11 had reduced them. Nine other countries had neither a noticeable negative nor positive trend. In 2014, only four countries had reached that target.

This chapter looks at options for financing healthcare. International comparisons show significant variation in the shares of government-managed schemes, voluntary health insurance and OOP expenses in total health spending, even when removing countries in crisis (for example, because of internal unrest or war). See Chapter 5 for more details. Uncertainty in both the incidence of disease and the effectiveness of treatment as well as information asymmetry are salient features of healthcare. This uncertainty leads to different responses to facing potentially exorbitant healthcare costs. There are different non-insurance forms of paying for healthcare; however, the most widely used response to protection from financial uncertainty is health insurance. Health insurance can be set up in different forms, all of which involve pros and cons. Practical aspects of healthcare financing are covered in Chapter 17.

Uncertainty in health and healthcare

Uncertainty is a defining element of both health and healthcare. This uncertainty has several aspects: first, the underlying medical condition causing the patient's symptoms; second, the effectiveness of alternative treatments; and third, possible side-effects of treatment.

One of the problems associated with many types of healthcare is that an individual does not know with certainty when she is going to need them. For example, she does not know when she will need to visit the emergency department because she has broken her arm. Thus, her demand for emergency department care for a given time period cannot be predicted.

Generally, most people stay away from risky situations if they can or reduce their exposure to risk, if at all possible. This preference for less risky situations is known as risk aversion. Some individuals are risk loving (they gain utility from taking risks) and others are risk neutral (they have no preference either way).

To understand risk better, and in order to introduce a simple model of insurance, we need to discuss some basic theory. A probability is the likelihood that a given outcome will occur. Probability can be interpreted objectively (for example, assuming probabilities similar to those experienced in the past) or subjectively (such as feeling lucky), where the perception of risks associated with such a probability is based on the individual's experience or judgement.

This chapter looks at options for paying doctors, hospitals and other providers and the compensation mechanisms that might be suitable for enhancing the quest for quality and accessibility. It includes a reflection on performance-related pay, professionalism, innovative payment schemes and their effects on outcomes and cost.

The chapter reviews different forms of payment – income, fee-for-service, case-based diagnosis-related groups (DRGs) – and includes a discussion on paying at the point of service (co-payment, user fee) and how such payments support the different goals of accessibility, quality and patient orientation. There will also be a more detailed discussion on the pros and cons of pay-for-performance and target setting coupled with bonuses and what this might mean for the professional ethics of doctors. What could (and indeed) should be the role of the payer (be it a state-run system, a mandatory health fund or a private insurance scheme) in accrediting providers, controlling for quality and ensuring equitable access to care?

Strategic purchasing of healthcare

The role of health insurance organizations goes way beyond that of being financial intermediaries that collect contribution payments and reimburse claims. Health insurance companies need to develop contractual relations with health providers and become active purchasers of services.

When a health insurance company pays for medical services, both provider and consumer are acting independently of economic deliberations at the point of service: the consumer will not care about the different prices for different services and will therefore ask for the best service available, independent of its price. The provider will also only consider whether a service is covered by the insurance and will not necessarily differentiate between different services and their respective appropriateness in given situations. Therefore, in a healthcare market there is very limited probability that market mechanisms will produce optimal prices.

Health insurance companies tend to substitute these normal market mechanisms: they set incentives for the provider by offering a suitable volume of services at the appropriate level of quality for a fair price. All types of provider relationship will therefore have certain distorting effects on the price, volume or quality of healthcare services as well as on the behaviour of patients. It is obvious, then, that provider relations will need constant adap-tation to developments in the healthcare market.

Theories of justice

“Justice”, in the everyday sense, can be defined as a “fair balance of interests”. People or actions can be “just” or “unfair”, as can states, legal norms or game results. The economy deals with goods and therefore also with their distribution. Such distributions can be seen as fair or unfair. Therefore, the economy can also be considered from the point of view of justice.

The idea of fairness is of great relevance for health economics. Depending on what kind of theory of justice you prefer, and how far you are willing to go in supporting one view to the exclusion of others, you will end up with completely different solutions to the problem of allocating health services.

For example, if you strongly believe that everybody should be given free choice and every person should act on their own will without compulsion and be responsible for themselves, then you will opt for a private healthcare system in which everybody is free to purchase whatever kind of service or insurance they want and can afford at whatever price the market provides. Of course, you will have to accept that many people will suffer or even die because they cannot pay for the treatment they need.

If you think, however, that every person should be protected from illness and dealing with the threat of catastrophic medical bills is a collective social responsibility, you will opt for a healthcare system in which everybody is entitled to receive the treatment they need at a price they can afford.

And if you think that fairness in healthcare merely involves maximizing total gain from health spending, you will allocate resources to the people who gain the most health per unit of cost, which may imply denying effective care to people who gain the least health per unit of cost. The important point here is that there is no such thing as the best healthcare system. Rather, it depends on your idea of “justice”.

The debate over justice also suffers from the complexities of definition. Justice deals with the rights and wrongs of power.

In this chapter, we introduce economic thinking in healthcare, provide a (very) brief history of health economic theory and then introduce the idea of the political economy of healthcare systems. Finally, the role and limitations of mathematics in health economics are discussed.

Economic thinking in healthcare and the role of health economics

What does “economic thinking” mean? As a first approximation, it entails elements of rationality, efficiency and cost. These concepts are not particularly difficult to understand but involve two challenges: the first is internalizing this form of thinking and looking at the world with an economic preconception and the second is being able to translate such concepts into either a model for explaining a phenomenon and/ or using it for deriving a practical or policy solution. The internalization can often reveal fascinating insights into why certain phenomena occur.

For example, if we assume that you want to sell your house, which is estimated to be worth €300,000, you hire an agent to help you sell it. The agent will receive a 3 per cent commission on the sale price. After a week the agent suggests dropping the price to €290,000. This comes as a surprise to you because you had assumed he would push for the highest price possible to earn as much commission as possible. The mistake here is to only account for the potential commission, not the time invested by the agent. If the agent can sell the house in a week and receive a commission of €8,700, this is more profitable than selling it after six weeks of work for €9,600 – or €900 for an additional five weeks of work. One needs to take into consideration the personal interests of the agent and the cost–benefit of time spent versus money earned and how that time might be better spent.

One of the differentiating features of economics from social or political sciences or ethics is the use of simple conceptual and theoretical models to understand situations and decision-making, and, more importantly, to advise on the choices that involve trade-offs.

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.

In addition to the doctor, technology is an essential aspect of healthcare. In many parts of the world, a visit to the doctor does not feel complete without a prescription for a drug. Advanced laboratory and imaging technology is indispensable. Health technology needs to be managed in ways that improve patient access and health outcomes, while encouraging useful innovation. The development, early adoption and large-scale diffusion of technology are influenced by a wide range of stakeholders: private companies, doctors, patients and policy-makers. This chapter introduces the concept of health technology assessment (HTA) as a set of techniques for helping decision-makers make better decisions in terms of the impact on a nation's health. Thus, it goes beyond economic evaluation and also looks at issues like clinical management, need, the epidemiological situation, socioeconomic characteristics of a population, (distributional) ethics, as well as organizational and legal aspects. We provide a short introduction that defines HTA and go on to show how HTA is both a technical and political endeavour. We provide examples from different countries regarding how the concept and its application have evolved and identify fundamental differences in approach. Finally, we describe the key elements of any HTA system and describe the role of HTA for reimbursement purposes.

What is health technology assessment and where can it be applied?

The effect of health insurance on the development, adoption and diffusion of new technologies (Weisbrod 1991) is not a well-understood phenomenon. On the one hand, insurance coverage in principle provides a motivation for research and development in medical technologies. On the other, a strong, unified insurance scheme will influence provider reimbursement through a monopsony purchaser effect and related cost control measures and thus might have a negative effect on the speed of innovation.

Pharmaceutical development in the nineteenth and early twentieth centuries happened in largely unregulated environments. Medical microbiology set the stage for science-led breakthroughs and laboratory-based science – rather than empiricism – and took centre stage in the development of pharmaceuticals. Heroin was initially a drug developed by Bayer for treating whooping cough in children, Coca-Cola contained a significant amount of cocaine, aspirin was brought onto the market without any widespread clinical testing, to name but a few examples.

Comparative healthcare system analysis: economics, data, history and attitudes

Comparative political economy studies interactions between the state, markets and society, both national and international. It can be useful to look at other (comparable) countries when considering different options to moving towards universal health coverage (UHC; see Section 2.2) in a particular country. Such a comparative analysis includes two key activities: the selection of a relevant peer group and a condensed qualitative analysis of selected countries in this peer group.

Each country's experience is unique, and no system can simply be taken and implemented in another country. Evidence-based health policy research points to the fact that it is useful to assess carefully the processes in individual countries and to identify specific initiatives, patterns and mechanisms that have probably contributed to successful reforms and sustainable financing arrangements that support UHC (Jamieson 2013). Pooled funds can be used to extend coverage to those individuals who were previously not covered, to provide services that were previously not covered or to reduce the direct payments needed for each service. WHO developed the concept of the “health financing cube”, which reflects these three dimensions of population, services and direct costs.1William Savedoff et al. (2012)

identified key common features that support the move towards UHC: political processes that are driven by a variety of social forces to create public programmes or regulations that expand access to care, improve equity and pool financial risks; income growth and a concomitant rise in health spending, which buys more health services for more people; and increased pooled health spending as opposed to funds paid out-of-pocket by households. The authors point to pooled healthcare spending as a necessary condition, but as insufficient, for achieving universal health coverage. Beyond this macro-view, concrete country experiences might also be useful. Positive outcomes can be found if health reforms are:

Situated within a wider social justice framework (a package of pro-poor policy reforms extending beyond the health sector). Such a framework creates an enabling context for pro-poor health reform and can create lasting momentum for the process even when challenges occur.