"The reason that medical equipment and drugs are expensive is that they have government granted patent monopolies. In the absence of such monopolies medical equipment and drugs would be cheap in nearly all cases."

True as far as it goes but also needed is for the federal government to break the economic link between doctors and the drug companies AND any of the medical supplies/equipment companies. The cozy legal bribery deals need to stop.

Dean,

I agree with the points you make. However, those pieces do not complete the puzzle.

I believe that you need to go further and look at cross-linked ownership and economic interests. The inventor and manufactured of an advanced piece of medical equipment do indeed reap exorbitant rents from their patent monopoly. However, I suspect that more of the cost problem is related to the fact that entity that owns the advanced piece of medical equipment is very likely owned and controlled by the entity that provides medical services to the patient. There is no incentive to bargain or to reduce the costs of owning and operating the advanced equipment unless the owner of the equipment and the medical services provider compete for the patient dollar.

One concrete example of this is MRI equipment. Very often the hospital either owns (or perhaps leases) the MRI equipment or controls either directly or indirectly. The hospital also limits and controls the physicians who are permitted to treat patients at the hospital. There is every incentive for the physicians to refer patients for MRI scans in those situation where an MRI may be an appropriate test but not a necessary one. I hear from friends and relatives that physicians often remark to patients that the MRI image is below par. But,I have never heard a patient remark that the physician has recommended that the patient's insurer refuse to pay or that the physician sent the patient back to the MRI for another scan at no charge. The common interest of the myriad entities involved in treating a patient is such that there is probably no such thing as a bargained transaction between the service providers. Even the insurance companies benefit from the steadily inflating cost of medical services.

Similar to what Ron Alley wrote, while I agree with Dean's claim that there are huge rents being collected in medicine, an even larger problem---one which the "market" cannot solve, AFAICT---is that incentives are wrong.

The incentive in a "rational" health care system ought to be maximizing long-term health outcomes, subject to a budget constraint. The incentive in our health care system is to "treat," regardless of whether treatment is useful.

This has been empirically validated by e.g. the folks in that Dartmouth group who show that outcomes are pretty uniform even though spending patterns vary tremendously by region.

Problem is of course that the the last thing that "public insurance" advocates want to admit is that it's bizarre to think that treatment decisions should be left to the patient and the doctor, and no one else, as if either the patient or the doctor are going to concern themselves with issues of cost effectiveness (or, commonly, plain-jane effectiveness, for that matter).

Even if we do nothing else, let's stop granting patents to private companies for discoveries made at public expense.

Worrying about pie-in-the-sky schemes to eradicate patent monopolies or over-prescribing by doctors is a complete waste of time at this stage of long-term reform. First we must get everyone insured -- absolutely everyone -- against financial disaster, so the providers and insurers will have to stop building cushions of various kinds into their rates. Certainty that they will be paid and by whom when any patient is first accepted will wring out enormous unproductive waste from this irrational system. That should be the first focus. One person's "rents" is another's legitimate charge for services or products rendered -- a ever-ending battle.