Contested Histories of an Applied Field: The Case of Health Economics

The more applied and practical a field of economics is, the less relevant history seems. Analysts who deal with a constantly shifting institutional environment, seeking solutions to problems that were not even conceivable twenty years ago, find it difficult to imagine that someone writing in a different milieu many years ago would have anything of relevance to contribute. What, exactly, could Mill have to say about the economics of stem cell research, or the efficiency of HMOs?

This essay makes two points. The first is that because health economics is less historically self-conscious than most fields of economics, it provides a case study for historians of economics. We can watch the construction of history by people who are often unaware that they are constructing it. We can distinguish between the practitioner's history and the history that is an unconscious search for an intellectual pedigree. And we can identify the implications of the kinds of histories that are being constructed. My second point is addressed to health economists. Without a historical consciousness, practitioners are held captive by the historical path that they and their teachers actually trod. The perspective that they can bring to their work, and the nature of the critique that they can imagine, is constrained by the debates of which they are aware. A historical perspective, which includes not only what actually happened but also what should have happened, what almost happened, and what most emphatically did not happen, opens all kinds of new possibilities for theoretical innovation. In particular, it makes practitioners aware of parallel developments in other fields and applications, and creates the possibility that solutions emerging elsewhere may be borrowed and applied in this field.

Health economics is, for the most part, applied microeconomics. It borrows and adapts tools used elsewhere by other economists. There is, however, one area of health economics that is fundamentally unique. It develops tools used nowhere else in the discipline, to do something that most of us learned in graduate school was unnecessary and probably impossible. It measures the cardinal utility of various health states in order to construct an entity known as a "quality-adjusted life year," or QALY. QALYs allow economists to balance morbidity and mortality, or length of life and quality of life, on a single scale. They allow the construction of league tables, so that we can measure the cost per QALY generated by liver surgery, and compare that to the cost per QALY generated by Viagra or breast-screening programs. In short, they allow economists to add up and divide utilities across interventions and people, and to engage in the kind of welfare analysis—limited to the health care sector—that most economists thought impossible.

First, I shall focus on the construction of QALYs—the measurement of the social values attributed to particular health states. The first part of this essay examines four different methods for measuring utility—various kinds of rating scales; time tradeoff techniques; standard gamble techniques borrowed from John von Neumann and Oskar Morgenstern; and multi-attribute utility systems, or survey-based techniques. The second part of my article considers three different kinds of history of health economics—the practitioner's history, what I've called the family history or the search for a pedigree, and a broader kind of contextualized intellectual history.

Before I begin, though, I want to distinguish between a history and a past. In some ways, health economics is a very young field. The major journals began to appear only in the late 1970s, and much of the literature is from the last twenty-five years. At the same time, we can find examples from the seventeenth century of individuals doing what looks very like a cost-benefit analysis of health interventions. Sir William Petty (1691), for example, considered the costs and benefits of a public health intervention to offset the plague:

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