CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press NYT Says Doctors May Not Talk About Expensive Treatments, Doesn't Talk About Patent Monopolies That Make Them Expensive

NYT Says Doctors May Not Talk About Expensive Treatments, Doesn't Talk About Patent Monopolies That Make Them Expensive

Friday, 18 April 2014 05:03

Yet again the NYT has given us a piece talking about trade-offs between the cost and quality of health care. The piece reports that some doctors may not discuss certain treatments with patients because they consider these treatments too expensive. Unfortunately, the piece never discussed the role of patent monopolies in making these treatments expensive.

The point is simple but incredibly important. In some cases, for example open-heart surgery, a medical procedure may genuinely involve a substantial use of resources. In this case, it involves many hours of the time of highly-trained medical specialists. (The pay of these specialists is inflated by supply restrictions, but that is another question.) In such cases there can be an issue of whether some treatments are worth the economic cost. For example, should an otherwise healthy 90-year-old get open heart surgery when we know their life expectancy is just 2-3 years even assuming a successful operation.

However there is a very different story at issue in the cases discussed in this article. These cases all refer to the choice of drugs. The drugs that are very expensive do not necessarily involve a greater cost to the economy than the cheaper alternatives. They are expensive because the companies that sell them have patent monopolies or other protections that allow them to sell drugs at prices that are far above their free market price.

This distinction is important because if there are tough choices here it is only because government policy had created them. If all drugs were sold at their free market price, without patent protection, then the difference in costs would in almost all cases be trivial and doctors need not have any reservations about recommending the one they considered best based on their understanding of the evidence.

Of course patent monopolies serve a purpose in providing an incentive to drug companies to undertake research, but there are alternative mechanisms such as the $30 billion in annual direct public funding provided through the National Institutes of Health. Direct funding would not only eliminate the problems associated with figuring out how and whether to pay for expensive patent protected drugs, it would also likely lead to a much more efficient process and better medicine.


As it stands now, much of the research undertaken by drug companies is intended to garner some of the patent rents earned by competitors. For example, Sovaldi, a new and effective drug for treating Hepatitis C, can cost over $100,000 a year. The enormous rents received by its producer, Gilead Sciences, is leading other companies to try to develop their own drugs that will get around Gilead's patent. While it would be desirable to have more than one highly effective drug to treat Hepatitis C (some people will react poorly to Gilead's drug), the research spending to evade Gilead's patent is almost certainly not the best use of resources given that we already have a drug in this category. If there were no patent rents, this spending would be diverted to more productive areas.

Similarly, Gilead has an enormous incentive to misrepresent the effectiveness of its drug. It makes huge profits on every additional patient it gains. Simple economic theory would predict that it will therefore exaggerate the effectiveness of the drug and downplay or conceal evidence that its drug is ineffective or harmful. And, since there is a serious problem of asymmetric information (Gilead knows much more about its drug than patients and doctors), they are likely to get away with these misrepresentations. For this reason, we are likely to get better treatment if all drugs were sold in a free market without patent monopolies.

Finally, research is likely to advance much more quickly in a context where all findings are quickly put in the public domain where other researchers can benefit from the knowledge. As it stands now, Pfizer or Merck only make results available that advance their sales or are necessary to gain patent protection. However it could and should be a condition of getting public funding that all results are posted on the Internet as soon as practical. This would prevent scientists from needlessly pursuing dead ends. It would also allow the whole scientific community to quickly benefit from any important breakthroughs.

Anyhow, if we are going to start debating whether doctors should discuss medical treatments that are very expensive, we should first have a discussion on the patent laws that make these treatments expensive. We know why doctors might be reluctant to mention very expensive treatments with patients. Why is the NYT reluctant to discuss the patents that make them expensive?

Comments (6)Add Comment
Medical Industrial Complex Discovers Economic Scarcity and Prices In Time to Avoid Disaster
written by Last Mover, April 18, 2014 7:13

The NYT article is titled:

"Treatment Cost Could Influence Doctors' Advice to Patients"

Imagine that. Doctors just discovered scarcity. All this time medical care was a free good because there was so much of it, the price was so low it was effectively free as a non-scarce good.

Oh wait. The price was so high it didn't matter because the value of life was even higher. The good doctors were trained from day one to do no harm and that included never put a price on life - except an infinitely high price of course.

You know, prices so high and so hidden behind a wall of carefully designed obfuscation no one - not even the the doctors themselves - know what anything costs anymore.

Until after the fact of course. After the bill is issued. Even then it could be obscured from what insurance paid versus that paid by the patient. That could mean not even the total amount billed was known to anyone but a select few within the administrative department of the provider.

Oh well, never mind and just keep chanting the mantra of the economic predators who set it up this way:

Price is everything. Without it choices cannot be made. Without choice price becomes a mere tool of extraction in the form of legal evidence after the fact. You owe it because the seller decided you owe it in the same way the seller could look into your bank account and declare the total amount is what is owed and billed as well.

So there you have it America. The year 2014 will go down in history as the year the medical industrial complex discovered economic scarcity and the NYT was the first to break the news.

And not a day too late. Imagine the plundering and pillaging that would have gone on to no end for lack of itemized pricing. The relentless exploitation of shortages and surpluses gone wild for lack of prices to control them by buyers and sellers in a free market of health care.

Thank god it's over because now we actually know what we're paying for don't we America.
'Cost of Treatment May Influence Doctors' avoided fixes that improve outcomes
written by jaaaaayceeeee, April 18, 2014 9:37

Dean has already noted how bizarre it is for a business news article, on rising health care costs, to report that no one is doing anything much to include cost analyses in treatment recommendations, without explaining what we could, and should, be doing.

Dean Baker may be polite enough to say that specialist pay inflation through supply restriction is a different question, but instead of rationing for profit, we could be buying in bulk for Medicare (and single payer), and cutting costs by having government, not profit centers, do cost and best practices analyses.

Is it because they would have to explain government's and legislation's role? Taxpayers aren't getting the fruits of the $30 billion/year for NIH drug research when patent rents reduce innovation, and conflicts of interest at all points keep the necessary data rigged and incomplete, so we shouldn't be asking the defense lawyers (doctors) to help prosecute (ration), until we have at least done what other countries did to contain their costs while improving outcomes.

News too often reports how awfully unmitigated climate change will affect us, while hardly reporting at all on how the IPCC explains that we can have economic growth without ruining the planet, or our economies, if governments take action now. This article reminds me of how climate change mitigation is (often not at all) covered in the news.
Defensive medicine
written by BillB, April 18, 2014 4:04
From the article: "Some doctors see a potential conflict in trying to be both providers of patient care and financial overseers.

He said doctors risked losing the trust of patients if they told patients, “I’m not going to do what I think is best for you because I think it’s bad for the health care budget in Massachusetts.”"

It is interesting that doctors are suggesting that they should be insulated from financial considerations, but at the same time they do not hesitate to prescribe unnecessary medical procedures as defensive medicine to protect their own financial interests. So they are saying that their own finances are important but the patient's are not.
Solvadi cost
written by Mike B., April 19, 2014 7:56
I agree with your main point, but Solvadi evidently cures 90% of patients with hepatitis C in 12 weeks (96% at 24 weeks). The cost is about $1,000 a day, which, as you say, can be more than $100,000. But this should be a one-time cost, not a yearly one, if the drug actually cures the disease. This is evidently great news for people with hepatitis C, but Gilead is making sure they pay plenty for it.
The Hidden Danger
written by Larry Signor, April 19, 2014 9:08
The problems we are having with the entire US medical industry have led to a severe lack of confidence among consumers. Consuming less candy is O.K. Consuming less medical care leads to very negative outcomes. Medical patents, insurance inequality and high barriers of entrance (via the AMA) that lead to a dearth of providers, all drive unnecessary costs and the concurrent lack of confidence in the profession. First, do no harm??
Out of network, overpriced?
written by Dave, April 20, 2014 8:14
We recently had to buy a medical device. The insurance company said it was out of network, therefore not covered, and the price was $2500. We found it online for $600 brand new.

The US medical insurance companies are really nothing but rent seekers. They add absolutely nothing that couldn't be done better in a single-payer system with a robust system of risk assessment with redundant oversight.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.