[Ip-health] Dean Baker on MRIs and inefficiency of patents

Erik Josefsson erik.hjalmar.josefsson at gmail.com
Fri Aug 10 07:32:46 PDT 2012

Thanks Dean,

Yes, that kind of makes sense.

Has this ever happened? In the EU or elsewhere?

It would be very helpful to understand the theory through a concrete
example (or many!) of a government buying patent(s).

Thanks again!


On 08/02/2012 11:34 PM, Dean Baker wrote:
> Hi Erik,
> the motive for buying a patent would be to ensure that there was
> sufficient incentive to develop the product. If all governments just
> forced patent owners to market their product under a compulsory
> license with a 5-10 percent mark-up, it probably would not provide
> sufficient incentive for major R&D expenditure.
> This is not my preferred route, I would just have direct public
> funding for R&D, but there is a logic to it.
> regards,
> Dean
> On 8/2/2012 1:42 PM, Erik Josefsson wrote:
>> Thanks for this. May I ask a stupid question?
>> Why would a government buy a patent if it can issue a compulsory
>> licence?
>> Further, I'd be very interested in any research in
>> program/method/software claims in patents on medical devices?
>> Thanks again.
>> //Erik
>> On 08/02/2012 05:23 PM, Peter Maybarduk wrote:
>>> http://www.businessinsider.com/robert-samuelson-shows-us-how-patents-monopolies-impose-enormous-costs-with-medical-technology-2012-8
>>> Robert Samuelson Shows Us How Patent Monopolies Impose Enormous
>>> Costs With Medical Technology
>>> Dean Baker is the co-director of the Center for Economic and Policy
>>> Research
>>> Patent monopolies raise the price of drugs from free market prices
>>> of $5-$10 per prescription to hundreds or even thousands of dollars
>>> per prescription. They have the same effect with medical devices.
>>> The actual cost of using even the most advanced medical equipment is
>>> usually very low. After all, the machinery is already there, the
>>> only cost is a bit of electricity, the technicians' time and
>>> possibly the time of a highly paid medical specialist. Even if we
>>> averaged the cost of manufacturing the machine over the number of
>>> uses, the cost is still likely to be relatively low. The big cost
>>> involved with medical equipment, as with prescription drugs, is the
>>> cost of the research that went into its development.
>>> Using patent protection as a mechanism to recover these costs is
>>> incredibly inefficient, as Robert Samuelson inadvertently shows us
>>> in his column today. The piece is devoted to the results of a study
>>> that found that effective monitoring of the use of MRIs and greater
>>> cost-sharing with patients has led to a substantial reduction in the
>>> growth of their usage. As Samuelson reports, the study suggests that
>>> the main cost of this reduction in usage to patients may have been
>>> somewhat slower treatment of various aches and pains. It doesn't
>>> have data on whether it might have had more serious effects in
>>> delaying the treatment of life-threatening conditions.
>>> While it is certainly desirable to limit the unnecessary use of
>>> medical technology, it is worth noting that this problem comes about
>>> largely because of the patent monopoly provided for medical
>>> equipment. The article cited by Samuelson focuses on the fees paid
>>> to radiologists, one of the most highly paid medical specialities.
>>> However, even with their bloated pay of more than $500,000 a year,
>>> radiologists account for a small portion of the costs of an MRI.
>>> (Freeing up trade in radiological services could probably knock down
>>> this cost by 60-80 percent.)
>>> With a typical radiologist able to perform more than 5000 MRIs a
>>> year, their fee would only account for around $100 of the cost of a
>>> scan. This means that most of the cost is going to pay for the
>>> overhead associated with buying the equipment, not the use of highly
>>> paid labor in the scan itself. Since this is a sunk cost (the
>>> machinery is already sitting there), we should want people to get
>>> scans anytime the expected benefit exceeds the $100 we have to pay
>>> the radiologist (until we get free trade), plus the pay to the other
>>> technicians and medical staff involved in providing the procedure.
>>> Under this standard, we would probably want many of the people with
>>> aches and pains to be able to have access to the equipment. By
>>> contrast, devising and enforcing an effective system of controls
>>> like the one described in this column involves a considerable amount
>>> of time, much of it from highly paid professionals.
>>> The alternative is to devise a mechanism for paying for research up
>>> front and letting the equipment be sold at its marginal cost of
>>> production. This would make MRI scans and the use of most other
>>> medical equipment cheap. It would also remove the incentive for
>>> providers to use this equipment in situations where it is not
>>> appropriate, since they would not be making the super-profits that
>>> patent monopolies allow.
>>> There are alternatives to the current patent system. As Nobel
>>> winning economist Joe Stiglitz suggested with prescription drugs, we
>>> could have a patent buy-out system, where the government buys up
>>> useful patents and puts them in the public domain. Alternatively,
>>> the government could simply pay for research up front, perhaps
>>> doubling or tripling the $30 billion a year it now spends on
>>> research through the National Institutes of Health.
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