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

Dean Baker Dean.Baker1 at verizon.net
Fri Aug 10 08:23:02 PDT 2012

Hi Erik,

we (the U.S.) have had compulsory licenses on many non drug items (Jamie
has made a point of noting many), but they are still relatively rare 
to the total number of patents issued, so i doubt that it would be possible
to identify a category of inventions where the actors would be dissuaded
by the risk that their patents would be subject to compulsory licenses.

someone else on the list may have an example of a category of products
where this could be the case.

On 8/10/2012 10:32 AM, Erik Josefsson wrote:
> 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!
> //Erik
> 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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Dean Baker (baker at cepr.net)
Center for Economic and Policy Research 1611 Connecticut Ave., NW
Washington, DC 20009
202-293-5380 (ext 114)
202-332-5218 (H)

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