I find this issue that so far as I've seen, only you're pushing; very intriguing. That said, I think you need to flesh this out a bit.

Our current system certainly ignores the substantial public investment, impedes collaboration and arguably requires our military to maintain a global reach to enforce and sustain.

I know I ask this every time you raise the issue with respect to medical devices but can you offer some evidence (and maybe numbers) instead of just assertions? I get how this works with drugs but I don't see it with machines.

Can you tell us about some widely used medical device that has no competitors (due to patents) and therefore charges monopoly prices? Can you give us a number as to how much this actually adds to healthcare costs each year?

It's hard to know, at least from where I'm sitting, exactly what medical devices are patented. It's also hard to know, at least to me, what percentage their profits are based on pharmaceuticals and what percentage is based on medical devices. But suffice it to say that a 30-second Google News search of "patented medical devices" reveals quite a few links about the enormous sums that individual firms are spending on lobbying to extend patents.

Why would they be spending that money if the amount they were fighting over was so small? It's probably because it's not small, but very large.

Nobody, including Dean, is arguing that innovation is meaningless in medical technology. People like him seem to be arguing that there are more efficient ways to spur innovation, based on prizes and public domain purchases and so forth, and that the only things threatened by this are pharmaceutical company profits.

WE constantly want better technology, which is why WE are prepared to pay high prices for new devices.

Really? This sort of reasoning makes it sound as though WE are somehow in the decision making loop. I was a marketing manager for a large medical instrumentation company and attended many purchase related meetings in hospitals and other medical centers around the country and around the world. I never saw a patient at one of these meetings, not once. Unless WE are engaged in some sort of mind throwing sorcery we have no say in the purchase or setting the price. None at all.

Another thing to keep in mind is that many of these medical device companies that seem like independent entities are actually divisions of a relatively few pharmaceutical corporations. The drug companies make such huge profits, obscene really, and have so much money that they had no place to put it within their own industry and started buying up medical device companies left and right about twenty years ago. The pharmaceutical companies are used to a certain return on investment and intend to get it when they buy a medical device company.

it might be the patents alone doe not provide protection from competition but patents plus fda pre-approval might

Class III: General Controls and Premarket Approval

A Class III device is one for which insufficient information exists to assure safety and effectiveness solely through the general or special controls sufficient for Class I or Class II devices. Such a device needs premarket approval, a scientific review to ensure the device's safety and effectiveness, in addition to the general controls of Class I. Class III devices are described as those for which "insufficient information exists to determine that general controls are sufficient to provide reasonable assurance of its safety and effectiveness or that application of special controls ... would provide such assurance and if, in addition, the device is life-supporting or life-sustaining, or for a use which is of substantial importance in preventing impairment of human health, or if the device presents a potential unreasonable risk of illness or injury."[3]

Examples of Class III devices which require a premarket approval include replacement heart valves, silicone gel-filled breast implants, implanted cerebral stimulators, implantable pacemaker pulse generators and endosseous (intra-bone) implants (with the exception of root-form endosseous dental implants which were recently reclassified as Class II).

Speaking of patents, the Justice Department recently approved spending billions more to enforce patent protection on everything from designer purses to music and video. What is the source of funding for this? It is one thing if the money for enforcement is from fees on patents, quite another if from taxes on low-wage workers, who actually benefit from lower-priced conterfeit products.

Scott wrote, That said, I think you need to flesh this out a bit.

For the more general case, google "rent-seeking".

Jane Smiley SKEWERS PK in Huffington Post! Wow, GREAT JOB. I think this is a MUST read for ALL.
http://www.huffingtonpost.com/jane-smiley/other-economists-in-the-r_b_277065.html?view=print

One example is MRI scans, which follows the usual pattern of high fixed, low incremental cost, where price never falls to reflect incremental cost, the efficient price-cost combination.

The usual bogus claim is that prices charged for MRI scans is necessary, both to induce its invention and production, as well as recover its cost.

Not true. At the margin, MRI scans are grossly overpriced and oversold at the high prices, largely because demand is controlled by device makers and health care providers, including conflicts of interest, in the absence of competition.

For example, if true competition could break through the market failures that cause this problem, there could be twice as many MRI scans at half the unit price, a revenue neutral outcome for provider-owners of MRI scanners that still covers the total cost of the scanner paid to device makers, absent negligible increases in variable cost of more scans.

The reason this doesn't happen is because the only demand curve faced by providers is an inelastic one derived from the patient, for which the profit-max point is a very high price combined with zero substitution effects and an income budget constraint which is intentionally exceeded.

Thanks, Dean. Yeah, NPR has some serious issues, they do this all the time! Like the one morning they had on this PHRMA guy and he claimed that the piddly amount they kinda-pledged to "reduce the growth," of costs (yeah, not exactly a savings here) by was equal to twice their "market share," (annual? quarterly? who knows?) and the interviewer did not even ask about the makie-believe numbers. Something strange is going on with NPR, not good. Half the time they have Heritage Foundation on there, oviously not objective, it's like asking a whale its objective opinion on plankton.

Frankly, they've done a series of stupid "balance" stories on health care, including the unforgivable analogy of insurance to an "all you can eat" restaurant.

There's no right-wing answer on health care, but they keep trying to pretend there is one.

deception on Diane Rhem

I've long enjoyed the weekend roundup though it's always irked me the way, today Tony Blankley, Chris Hayes or some right wing propagandist would spew mistruths, obfuscations and red herrings.

Then I realized, we had David Corn, a journalist with Mother Jones with an admitted liberal bent. Some female journalist with some paper and then the token Right wing columnist.

Three reporters right? NO! If we asked them the liberal and the woman would call themselves journalists, though the conservative guest often wouldn't describe himself as such. Two reporters and someone who is ostensibly a reporter, but who often has ties to Heritage, or some other think tank.

Dr Baker, you need to weigh in on this for the audience, and perhaps should make a thread on this--look at it from the professional/agency angle. A journalist is a member of a pretty watered down profession when we consider the fiduciary duties. A journalist's principal is the reader and the truth. But, a commentator has no such duty. If they are in the employ of a think tank, presumably their principal is the think tank and/or it's donors.

So the conservative is an advocate for his client on the show while the journalist are self limited. The conservative's duty is to present the most salable, plausible SOUNDING case for his clients.

The problem is these guests are presented as all equals, though they don't see themselves as such. A couple of days ago the question was asked, how did we get in this financial mess. I would suggest it was precisely that we had propagandist and pitchmen widely presented on news shows as journalist, or fair minded academics. But, many of these are/were serving somebody, as seldom is this made clear.

To be fair, any "news" show should name the top 5 contributors to the Brooking Inst., Heritage Found., and the like. I don't really mean to limit this to conservative groups and foundations. It just particularly struck me on Diane Rhem's show.

I am actually perhaps more interested in disclosing the contributors to "liberal" think tanks as these guys often betray their constituencies by advocating for their war contractor donors, high financiers and the like. I rather expect the Right to do what it does and come from where it does. It's the lack of any real opposition or opposition party that troubles me.

Patent attorneys in the drug industry know every trick in the book on how to stretch the duration of a patent. I'm sure medical equipment patent attorneys are no dummies either.
The mind set of using the most expensive equipment is something our country's medical industry is known for. Over treatment as well.The enticement of doctors by medical equipment companies probably also resembles the pharmaceutical industry as well.

Baily,

how exactly does Jane Smiley skewer PK in that article you linked? She claims to have read every word of PK's piece and then she immediately goes on to say "English majors understand human nature better than economists do. If, as Krugman said, "homo economicus" is perfectly rational....." Krugman doesn't say this! In fact, Krugman says the probem is that a major faction in the economics profession(the Chicago school) still belives it. She also has some incoherent thoughts on externalities. Otherwise, it is a pretty good piece. But it in no way "skewers" PK...in fact, she reiterates much of what PK was trying to get across in his article about the failure of economists...i.e. they slavishly beleive that man is a rational decision maker and that economists don't give enough attention to externalities.

It's disturbing that because of the high price of MRI, Mayo Clinic is working with a new technique (patented) using injected radiation, Tc-99m,to detect tumors in dense breasts. It gives results almost as good as an MRI, they explain, but is considerably cheaper. So it may well be that if MRI did not have a patent-inflated price, Mayo wouldn't have to bother with the extra radiation.

What is going on with public radio and TV is not so strange - conservatives and big-money interests have been pushing to privatize them for a long time. That is they want to cut down on government support and make them more dependent on private donations. The influence of big donors on PBS is evidently enough to get some pretty long "mini" commercials added to programs - there is no reason to suppose that content would not be influenced as well.

At first I really enjoyed Planet Money. Gradually though they were telling me things that I already knew. Then they seemed to be less balanced. After that dust up with Elizabeth Warren I knew it was time to move on.

I agree with Clodene. The BBC World Service is much better than NPR. Seems like NPR started going down when they got Joan Kroc's dough, about the time they fired Bob Edwards.

Japan has a patent system like every other country, so why does, according to one source, an MRI in Japan costs $95 compared to $1400 in the U.S.?

How long does it take to amortize a $100,000 or even a $500,000 machine when sessions which presumably can be done 4 or 5 times a day each costs $1400? 365x4=1460 sessions per year x $1500 = $2.2 million dollars. With a assumed 10 year life, that $100K or $500 K machine has generated some $22 MM. A lot of those sessions it would seem -- maybe most of them -- are effectively freebies except for electricity, salaries, space cost, etc.

Let's hear some healthcare economist explain all this?

Max, PK is NOT a financial analyst, he's a Nobel winning Economist. He was SILENT when AG rammed through the Boskin Commission findings (Dean addressed the hearins), he was SILENT when AG strongly supported the total repeal of Glass-Steagal without a murmur about the obvious need for updating regulatory controls over the leviathan he was creating (Dean addressed the hearings), he was silent until 2006 about the housing horror (dean was all over it in 2004), AND he's said NOTHING about the absurdity of the measurements the FED relies upon to set policy. What's so hard about asking for measurements that correlate to a population sampling?
I have no problem with PK slamming Chauncy Bush or Obama for their bonehead actions. What Jane Smiley said loudly and simply was: "et tu PK"?