A Patent Solution to Rising Medical Costs

By Timothy Timothy | Posted at 15:36

With the number of uninsured Americans and the costs of providing medical care to an aging country increasing, the issue of medical reform is settling in as a long-term key issue in the country’s national political dialogue. What does not seem to arise, unfortunately, is a serious attempt to take the free market sentiment of many Americans and put that to good use to drive down health care costs. Creating a massive government regulation system to force costs down is not the only way – or even a good way – to insure a future that allows all people affordable access to medical services.

As members of a society that has an economy driven by so-called intellectual property rather than physical goods, it is time to take a different tact at looking at problems. Ideas such as malpractice tort reform and drug re-importation may help the situation, but neither of these popular ideas have been shown to provide a roadmap to substantially lower costs by themselves over the long term. Moreover, both have controversial aspects that seem difficult to resolve.

In the information economy, the pharmaceutical and medical equipment industries derive much of their power from the ability to establish legal monopolies on technological breakthroughs through U.S. patent law. Hence, it seems natural that the purpose of patents ought to be part of our consideration of medical costs.

Thomas Jefferson, in his letter to Isaac McPherson in August 1813 remarked that patents should be given out not due to a “natural right” of anyone to exclusive use of an idea, but “for the benefit of society.” The phrase “benefit of society” can be interpreted in different ways. Arguably, a portion of society would benefit quite a bit if patents insured an unending exclusive right to an idea. Pharmaceutical companies would surely be giddy just over the thought of this possibility. Society as a whole, conversely, only benefits from patents to the extent that they provide enough incentive to the inventor to invent. We would hardly expect the average company to spend millions of dollars and years worth of time if there was no monetary benefit to doing so. Clearly, then, patents are useful for encouraging many industries, including medical-related ones, into creating technology beneficial to society.

Nevertheless, there is a certain point that will arrive sooner or later when the benefit to society provided by a patent is less than the benefit to the one holding the exclusive right to the idea. At some point, quite likely long before the expiration of a given patent, the owner will have already received the level of incentive necessary to make the effort of development worthwhile. This is the point where a company or person would have pursued the creation of the new technology even if they were already aware it would never generate more than that amount of revenue. Roughly speaking, this should be somewhere well above the actual cost of materials and wages in the case of a corporate developer and beyond materials and earnings sacrificed to develop the idea instead of doing something else when dealing with an individual.

In our present time, when this point is reached is irrelevant in patent law. This is an issue that needs to change and can be changed in a way that should appease both sides of the political spectrum. A person or company who has a technology that is a candidate for a patent should have three simple choices. First, the innovator could file for a patent of a definite length of time with a cap of how much profit can be derived from an individual unit of the patented item. If a drug costs a certain amount of dollars to research and develop and a certain amount to actually market, it should be possible to estimate a ballpark figure of the most an individual unit must cost to earn back those costs and make the initial risk worthwhile. The second choice could be a flexible time patent that does not cap the individual unit cost, but caps the total profit possible prior to the termination of the patent. This would be a more conservative arrangement that would not depend on a hypothetical amount of a drug or machine to be sold to earn the necessary money, but would provide less benefits to a company who hits on a major success since the patent would expire after a shorter period time in the case of a success. The third option, of course, is to avoid bringing the government into the picture at all by simply forgoing a patent altogether.

Increasing the level of government involvement may make some conservatives uneasy at first. Those with this concern should remember that patents are nothing more than some entity requesting government interference in a free market to begin with, therefore the existence of the third option – realistic or unrealistic as it may be in an individual case – insures that only those who ask for government assistance must deal with government regulation. By pushing patented ideas back into the free market as soon as possible, and insuring reasonable regulations when the products are benefiting from the legal monopoly granted by a patent, the prices of medical technologies would be forced to return to realistic levels rather than wherever the whims of the developers take them.

A patent system following these basic principles could be a bi-partisan effort, since it takes the health care issue – long a pet concern of the Left especially – and applies a right-wing free market method to solve it. The only ones who would be left out of this great collaboration would be the lobbyists. Of course, they could always go patent something.

Timothy R. Butler is editor-in-chief of Open for Business.

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