Health economics is a branch of economics concerned with the formal comparison of costs and consequences of health care. A seminal paper was written by Neuhauser and Lweicki, who in 1975 applied a rule of diminishing returns to predict that the cost per cancer death prevented by the sixth in a series of six repeated fecal occult blood tests exceeded one million dollars.

Health economics uses mathematical models to synthesise data from biostatistics and epidemiology for support of medical decision making, both for individuals and for wider health policy.

In 1994, Oregon instituted "The Oregon Health Plan" for evaluating the cost/benefit ratio of medical procedures it would pay for. Their panel of experts reviewed a total of 696 diagnoses and procedures, then prioritized them in terms of cost to treat versus the likelihood of cure, and the quality and length of life gained by treatment. At the top of their list was pneumonia, which is relatively inexpensive to treat and highly curable. At the bottom is anencephaly (congenital lack of a brain), which is untreatable and terminal. Oregon announced it would pay for only the first 565 procedures on the list. The rest are either prohibitively expensive, experimental, cosmetic, or unlikely to significantly extend life expectancy.

See also Important publications in health economics