Prior to the First World War, the operations of the British financial sector primarily fell under the jurisdiction of a banking aristocracy. The Old Guard, comprising prominent bankers and industrialists based in the City of London, oversaw a system of indirect regulation, characterized by the lack of direct government intervention and the self-sustaining operations of the classical gold standard. Yet the outbreak of the war fundamentally upended the traditional balance between the state and the economy. With the abandonment of the gold standard and the closure of the London Stock Exchange in 1914, the nation faced a series of unprecedented crises that threatened Britain’s hegemonic position in the global order. By war’s end, the Bank of England had begun to reconsider its position in the City, throughout Europe, and across the empire.

Following the abandonment of the gold standard in 1931, the Bank of England searched for a policies that would stabilize the international financial system. Its officials turned to the empire as a potential solution to pervasive economic problems. Over the course of the 1930s, they sought to create new independent central banks that promoted intra-imperial trade and the use of sterling as a reserve currency. Neither upholding a particular set of “gentlemanly values” nor seeking to exert complete imperial dominance, the Bank envisioned a network of Empire Central Banks would appease rising nationalism and facilitated imperial monetary cooperation. It worked with foreign governments and economists who provided additional legitimacy to these reforms. With the establishment of the Reserve Bank of India and the Bank of Canada, the Bank was able to secure British financial interests abroad amidst the fracturing of the global economy.

During and after the Second World War, the influence of the Bank of England in shaping economic governance remained ambiguous. It did not play a significant role in the formative negotiations at the 1944 Bretton Woods Conference, nor was sterling viewed as the definitive international reserve currency in the decades thereafter. Yet with the repeated threats to the British economy, from two devaluations to the devastating IMF loan, the central bank again turned to experts who could offer new perspectives on monetary policy. Over the course of the twentieth century, the Bank began to employ economists who brought novel macroeconomic models into policy discussions. Although the initial postwar years saw its power remain in a state of uncertainty, the Bank was able to reestablish its reputation as a leading monetary authority from the 1980s onward.

This chapter provides insights from economic theory and empirical methods to determine if production of medical services in a firm is efficient. The concepts of a production function can indicate whether production is technically efficient and estimate the marginal contribution to revenue of each input (labor of different types, capital, etc.). With data on the prices or wages of these inputs, the manager can determine the profit-maximizing rate of use. A cost function can indicate whether there are economies of scale in quantity (somehow defined) and economies or diseconomies in scope. Examples from classic health economics literature are used to show that there was underuse of physician aides and other substitutes in office-based physician practices, that there are constant returns in scale in the production of hospital admissions, and that there are increased returns in emergency rooms. Caution in interpretation of variation in cost per unit output (of the type provided for Medicare in the Dartmouth Atlas) is offered.

This chapter provides economic explanations of the level of total national health expenditures in the US and of population health outcomes. It helps managers explain the role of wage differences with other countries and the impact of income inequality and racism on spending and outcomes. Wages of healthcare workers are much higher in the US than abroad. The healthcare GDP share has stabilized after growing for many years, but beneficial yet costly new technology still matters for cost and health growth. Metrics of relative health spending are distorted by exchange rate mismeasurement. Evidence on the fraction of total spending that is wasteful is very uncertain because no managerial or policy actions as yet have been proven to reduce waste in ways that do more good than harm. Changes in insurance and pricing policy have the highest promise for improvement.

Primary care physicians are supposed to play a central role in care coordination. This chapter finds no strong evidence that they have been able to improve care, a possible reason for relative low incomes for this specialty and small numbers. Evidence does show a need for care coordination, but health system managerial strategies to make gains by use of financial incentives (pay for performance) or organizational changes (patient-centered medical homes) have so far not been demonstrated. Prospects for the use of other sources of coordination (advanced practice providers and hospitalists) are discussed and opportunities outlined. Bundled payment or capitation might help support coordinated services, and competition among health systems to offer different models may eventually lead to success.

This chapter discusses health insurance, including its sources (public and private) in the US and the unique quirks introduced by employer-sponsored insurance. Employer purchasing of health insurance on behalf of employees likely induces a decrease in monetary wages, so employees are paying for much of this out of their own pockets. This is due to the federal tax exclusion of fringe benefits, such that it is cheaper for employers to compensate their employees in health insurance than in monetary salary. The chapter also discusses selection, risk pooling, and coverage options in large group health insurance, as individuals will likely choose jobs with health packages that maximize their own utility, which can lead to adverse selection of which managers should be aware. The chapter concludes by addressing Medicaid and Medicare as the other two arms of insurance in the US, with a final word of caution that our private-centric system may be unstable to future political pressures.

This chapter clarifies the difference between changes in levels of cost versus growth of cost and focuses on the latter. This is because increases in spending may be good if we are getting something for that growth; it all depends whether it is going toward “waste” or if we are obtaining value for that spending in the form of health outcomes – a return on investment. Four targets of cost containment are outlined: administrative costs, competition, state-based spending targets, and value-based payment. It is acknowledged that administrative costs are high in the US in part because consumers have choice over plans, benefits, providers, and networks (as opposed to once centralized system); with this choice comes coordination, information, and standardization costs. Excessive market power due to consolidation may also lead to the extraction of high prices from consumers beyond what would be possible with improved market-level competition. The chapter concludes by addressing the recent flattening in medical spending growth and what might happen in the future.

This concluding chapter summarizes the most pertinent insights from health economics that have been developed in the book. In addition, it includes a section on “debunking” in which economic theory and evidence contradict or heavily qualify views commonly held by experts in health management and policy. The pervasiveness of actionable inefficiency, the emphasis on medical spending rather than health benefits, the value of cost-sharing for nonpoor insureds, and the functioning and tax treatment of employment-based health insurance are all considered.

This chapter addresses the factors outside of medical care that are responsible for health outcomes: social and structural determinants of health (SDOH). It outlines economic stability, education, health access, neighborhood, built environment, and community context (including income inequality and racism) as some of the upstream drivers of the health-income gradient. These SDOH are framed in economic terms as a local public bad. Managers therefore must take SDOH into account if they are aiming to optimize health outcomes and costs for their population, especially if they are in a population-based or capitated payment system. The evidence about what actions to take is still developing, but some interventions are reviewed including Medicare’s direct contracting model, Medicaid’s section 1115 waivers, community health workers, meal delivery programs, and screening and referring to community organizations. Larger actions such as disparate impact monitoring and changing payment incentives and risk adjustment will need to be taken in the future.