Medical Costs and Patents

The whole American medical care system has become a major bureaucratic mess.  It ends up costing lives and a lot of money.

But unlike a lot of people, I don’t wish for the American medical system to be like other countries, which are typically even more socialist.  I believe we need a return to the free market in every area.

There was an article on the Mises Institute’s website that discussed the nature of insurance and how medical insurance today barely resembles what actual insurance is supposed to be.

I am not going to talk about all of the aspects of government-paid healthcare, the FDA, licensing laws, health insurance mandates (state and federal), the tax code, and the many other factors that make our medical care system more expensive and less effective.  Instead, I am just going to focus on one aspect.

My wife just had sinus surgery.  It was balloon sinuplasty.  They basically take a balloon, insert it into your sinus cavity, and blow it up.  It is less invasive than removing tissue and fully packing the nose, as was commonly done in the past.

The total cost of the surgery may run as high as $8,000.  I don’t know what insurance will allow yet, but that is the approximate estimation. She had it done to four areas – below the eyes and above the eyes, on both sides.

Between us and our insurer, the doctor will be paid approximately $8,000.  This is horrendous.  I understand that we voluntarily agreed to this, but it doesn’t mean I can’t complain.  For a while there, I was thinking I should have become an ear, nose, throat (ENT) doctor.  You can do one surgery per day, five days a week, and make $2 million per year before expenses.  The surgery itself, after the numbing is done, typically takes less than a half an hour and there was no anesthesia.

The problem is, my figure of $2 million is before expenses.  The doctor said that the balloon device, which can only be used on one patient, costs $3,000.  I really have no idea if this is accurate, but I don’t have any reason to doubt it.

These devices are sold by Johnson and Johnson.  Immediately a major red flag goes up.  How can a device cost so much money?

The answer has to be our patent laws.  There is no other explanation.  Otherwise, other companies would join the market and eventually drive the price down.

I am not necessarily blaming Johnson and Johnson for this, as they are participating in the system that is there.  But this suggests that patent laws drive up medical costs far more than we may expect.  I know this is a big factor in drug costs, but I hadn’t really considered the expense of medical equipment.

Patents are a debated topic in libertarian circles.  I have been convinced that we would be better off without patent laws, or less strict patent laws.

Some libertarians view patents as property rights.  The problem is that it is not legitimate to assign property rights to an idea or a thought.  It is not a scarce resource like a piece of land or a piece of furniture.

I know all of the objections and I won’t go through them here.  The main objection for this is that Johnson and Johnson never would have developed the product if a patent weren’t available.

I don’t think this is the case though.  The internet has proved this idea wrong, where many people put their ideas out there for free.  And there is still profitability in creating something new just from the fact that you get to be the first to market it and sell it.

If you are interested in this topic, I certainly encourage you to explore the libertarian literature that has been written about this.  It is an issue that has really only developed recently within the broad libertarian community.

In conclusion, don’t underestimate just how much patents drive up costs, particularly in the medical care sector.

2 thoughts on “Medical Costs and Patents”

  1. I’m a Libertarian and I think patents are necessary. You touched on the main reason why in your post – that Johnson and Johnson wouldn’t have developed the balloon technology without the financial incentive to do so. I think your example of others putting out ideas on the internet for free as proof that this isn’t true, is misplaced. Developing an idea or writing a short story and putting them on the internet for free isn’t the same as spending millions of dollars (of your shareholders money) in research and development and then putting your product, or service, out for free. Who does that? Nobody. To do so is to simply privatize costs and socialize profits. The ultimate incentive destroyer.

    If people are serious about bringing down the price of health care, then they must protect property rights and subject providers to market forces. If this happens, prices will come down.

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