Directed Innovation in the Artificial Limb Industry

A. A. Marks advertising card, showing a customer holding and wearing his artificial legs, late 1800s Courtesy Warshaw Collection, Archives Center, National Museum of American History.

Innovation responds to both demand and supply. New scientific discoveries can arise exogenously and lower the cost of some types of innovation. Innovation, however, also responds to demand. The patenting of new energy devices increases as the price of oil increases. Similarly, new pharmaceuticals to treat diseases of old age increase as the number of elderly increase.

Similarly, the Civil War and World War I created a boom in the demand for artificial limbs and that in turn created a boom in innovation that led to better artificial limbs. The demand for new prosthetics was in some cases personal, as MacRae writes:

…the person who launched the era of modern prosthetics was also the first documented amputee of the Civil War–Confederate soldier James Edward Hanger. Hanger, who lost his leg above the knee to a cannon ball, was first fitted with a wooden peg leg by Yankee surgeons. Unhappy with the cumbersome appendage, Hanger eventually designed and built a new, lightweight leg from whittled barrel staves. Hanger’s innovative leg had hinges at the knee and foot, which helped him to sit more comfortably and to walk with a more natural gait. Hangar won the contract to make limbs for Confederate veterans. The company he founded–Hanger, Inc.–remains a key player in prosthetics and orthotics today.

In a highly original paper, Jeffrey Clemens and Parker Rogers document the increase in patents during the war eras but they also show that the type of innovation not just the quantity also responded to economic incentives.

In the Civil War era, the quantity of limbs demanded increased but the government was quite stingy in paying for artificial limbs. As a result, innovators focused on process innovations that enabled the production of more limbs at lower cost. In contrast, WWI payments were more generous and the government emphasized reintegrated soldiers into society which made appearance a more dominant feature in limb patenting.

More generally, Clemens and Rogers show how the type of procurement contracts directs not just the quantity but the form of innovation. The lessons are relevant for modern health care costs. Many people, for example, have wondered why innovation tends to lower costs in most fields but raise costs in health care. Clemens and Rogers point to the nature of procurement contracts as a possible important influence.


Finally! A mention of patents, a true source for 'creative destruction'.

Hurrah! Hurrah! Clap your hands shout for joy! Hurrah! Hurrah! Lincoln has freed the slaves!”

Creative destruction of actual innovation as noted by the Bloomberg article below, at least when looking at the pharma industry.

Bloomberg is a bunch of know-nothing journalists. If they don't like patents, then they won't mind nobody subscribing to their news journalism either, nor anybody renting their much vaunted terminals. But they do mind (something like 80% of their revenue or more comes from their terminals I once read, and guess what, you cannot easily reverse engineer them).

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Patents are not a particularly reliable measure of innovation, especially in an age of patent trolls and 'evergreening' pharmaceutical patents.

From Bloomberg. "The U.S. patent system was designed to protect new innovations, but drugmakers are more often than not using it to protect old ones.

At least 74 percent of drugs associated with new patents were medicines already on the market, according to research by Robin Feldman, director of the Institute for Innovation Law at the University of California Hastings College of the Law. The percentage reached 80 percent in three of the years studied in the 2005-2015 period."

The article includes examples of increasing patents reflecting not innovation, but market protection - "The world’s top-selling drug, rheumatoid arthritis treatment Humira, is protected by more than 100 patents, which has made it difficult for rivals to enter the market. While the main patent expired last year, AbbVie Inc., its manufacturer, has secured new ones in recent years. Last week, the drugmaker raised its 2021 sales forecast for Humira to $21 billion, almost $3 billion more than it had previously expected.

Companies have gotten more aggressive in adding protections. In 2005, 37 drugs got three or more new patents, according to Feldman. By 2015, the number had risen to 76 drugs."

As for wondering why pharma prices remain high in the U.S., the innovation in using patents to keep prices high is undeniable, regardless of the type of procurement contract. Which is the conclusion of that article. “The data suggest that the current state of affairs is harming innovation in tangible ways. Rather than creating new medicines -- sallying forth into new frontiers for the benefit of society -- drug companies are focusing their time and effort extending the patent life of old products,” Feldman wrote. “This, of course, is not the innovation one would hope for.”

Abbvie has agreed to begin licensing of Humira in the US in 2023.

But will they continue to make 3 billion more a year than previously expected until then?

And wikipedia provides some nice context, such as Adalimumab was approved for medical use in the United States in 2002. Along with this - 'While the patent expired in the United States in 2016, it may take a number of years before generic versions become available there.'

Meaning just 7 years after patent expiration. And the wiki article covers that too, actually - 'Adalimumab biosimilars became available in Europe in late 2018, allowing the National Health Service to make record-breaking cost-savings, as this is the single most expensive drug used in NHS hospitals, costing more than £400 million a year for about 46,000 patients. It may not become available in the United States until 2023.'

In other words, you're moving the goalposts because you were shown to be wrong about "100 patents" being an insuperable obstacle and wrong about whether other companies are developing competing drugs. Same old lying prior.

Why even bother providing information that will be ignored?

In Europe, a generic was available two years after patent expiration. In the U.S., AbbVie Inc appears to be graciously allowing a generic in 2023.

Seven years after patent expiration. Somebody is indeed moving the goalposts.

@Evergreening who makes two points, (1) patents are not a proxy for "true" innovation today due to (i) trolls (incremental improvement 'trivial' patents assumed not bogus patents, since truly bogus patents are a tiny minority of issued patents these days) and (ii) pharma patents improperly extended, and, (2) pharma patent terms are extended for too long.

First, you may indeed be right about (1)(i) since back in the day, patents were only granted for truly 'fundamental' advances more so than 'incremental improvements' (aka 'troll' patents for purposes of this discussion, otherwise you'd be completely wrong, see above). Stanford U has famous patents on their engineering hall wall, and most of them are fundamental patents, not incremental improvement patents. But consumers today prefer incremental advances, that's where the money is, and that's what companies patent, because in practice "blocking patents" don't work that well. Today "troll" type patents (small improvement patent is probably what you are thinking of, not bogus patents) is what's patented, and thus seemingly there's no innovation. I don't have time to explain but here is a stylized example: you invent clunky cell phone that looks like a brick with a primitive touch screen, you patent it--it's the base patent. Along comes Huawei and takes that brick, makes it slick and small, and slaps a more responsive Gorilla glass (made by Corning, and cross-licensed from Corning) touchscreen on it. Huawei will win market share and "in theory" will have to cross-license your base patent and you'll make money from Huawei sales (with a cut to Corning as well). In practice, you don't to any of the above (possibly not even taking a license from Corning but just buying and using their Gorilla glass), since it's much easier, profitable (with expected litigation factored in and accounted for) and better for you to patent the tiny incremental improvement rather than work with Huawei. This is common knowledge in the IP industry and a reason why everybody patents everything; the system is broke when it comes time to determine who did what, one reason I propose we go to non-examined patent applications (aka 'laid open patents' like copyright applications are today) and litigate in a taxpayer subsidized court as to who owes what to whom.

You second point goes to the Hatch-Waxman Act. Lots can be said about this law but the main impetus was, at least originally, the same reason our host AlexT complains about the FDA: the FDA was dragging their feet due to bureaucratic delay, and by the time the FDA approved of a patented drug for sale, the 17 year (back then, 20 years now) term of the patent had expired. Hence the drive to 'tack on' extra time for pharma inventions, to get around this FDA delay. This is not the place to discuss this complicated act but suffice to say that in a way, pharma patents need an even longer term than ordinary patents. I've advocated that various technologies have different patent terms: a 'trivial' patent gets five years protection, a 'pioneer' patent gets 50 years, and so on.

You have it backwards, Ray. The incremental patents are being developed by the large, integrated companies that do the manufacturing and marketing well, but have no original ideas anymore and are risk averse. It is the individual inventor, start-up, and university researcher who invents the "pioneer" patents that lead to new markets and displacement. This is why the big, entrenched companies outside pharma and biotech were all in favor of the recent patent reform laws and the new Patent Board that weakened patents and made it easier to invalidate existing patents. The tech giants - Google, Amazon, Facebook, Microsoft, etc - are all in favor of a weak patent system or, worse, no patents at all. They hate strong patents. Strong patents are a threat to their market dominance.

At one end of a spectrum, US Pharma abuses patents to a degree that can only be described as extortionate. At the other end of that spectrum, Argentina has no effective patent law/enforcement and oncologists are very happy when a cancer patient's hair falls out because it means the chemo drugs they're administering are actually doing something more than a saline drip. It'd be nice if we in the USA could find a balance, like the Canadians seem to have done.

Great, Argentina like most of the world is free-riding off US Pharma. And without effective patent or law enforcement, you increase the risk of counterfeit and contaminated drugs. I'm guessing Argentina (like other free-riders) lacks the accompanying supply chains, quality control, and infrastructure you find in countries with stronger patent enforcement.

Drug patents on the active ingredient or chemical entity has an effective life of only about 10-15 years thanks to long delays in clinical testing mandated by the FDA. The patent is filed early, but the drug isn't approved until many years later, resulting in a short patent term.

The other so-called "100 patents" many involve compounds, methods of manufacturing, and processes invented after the original patent was filed. Each of those patents have to meet the requirements for a patent, including novelty and non-obviousness, and many of them expire when the original drug patent expires.

The price is expensive because it costs billions of dollars to gain marketing approval by the FDA, assuming the drug passes each clinical stage, where there is a high failure rate. You only mention the "success" stories, never the failures and billions lost.

Patents in these areas tend to be strong, which is why there is a lot of competition and no dominant pharmaceutical company, unlike in high-tech where patents are weak and dominant companies become entrenched - no fear of a strong patent overtaking market share.

You should be in favor of strong patents if you want more drugs.

The simplest explanation for why healthcare costs increase is that keeping the patient alive allows for patients to either live longer (and incur new bills that would not have happened before) or to live less healthily (and incur new bills that would not have happened before).

You can structure the payments however you want, but at the end of the day any success in healthcare is going to result in new expenses coming due. The cheap option in healthcare is always to let the patient die.

This should not surprise us. We figured out how to beat HIV/AIDS, but we saw both more people with HIV living to get more expensive elderly treatment and a rise in risky sexual behavior (particularly in the MSM population). We have figured out how to treat Hepatitis C, and it is cheaper to use the drugs than to pay for Hep C hospitalizations … it does however mean a lot of people will not die as soon and have plenty of time to develop cancer or Alzheimer's.

Innovation in healthcare will increase human flourishing, but I would be shocked if anything bends to cost curve except people dying. Frankly, if you want to decrease the healthcare cost we need less innovation - pretty much all the innovations in our social mores have been decidedly on the side of increasing healthcare costs (e.g. lower/later marriage rates, later/less childbearing, fewer social inhibitions regarding drinking, lack of community connection, lack of religious praxis, lack of exercise, increasing BMIs).

There's no incentive for cost-reducing innovations in health care seems to be the point; indeed, there's lots of incentive for innovations (e.g., new, expensive medical equipment) that increase total costs that will be covered by third party payers. It's projected that Medicare will run short of funds beginning in 2026 if revenues (i.e., taxes or deficits) are not increased. If taxes (or deficits) are not increased, then the choice would be rationing, which would provide an incentive for innovations that reduce costs - same level of services, less cost. That would be the economists' solution, but not the politicians' solution.

"We figured out how to beat HIV/AIDS"

While HIV caused deaths are way down from the peak of 42,000 in 1995, with 14,000 Americans a year still dying from AIDS, I wouldn't say it has been beat.

I took out several patent applications but never went so far as to take a patent. That's because the professional advice I received each time was that the chances of prospering were much less than the chances of getting involved in expensive, time-consuming litigation.

The alternatives I tried were (i) using copyright law, (ii) keeping schtum, (iii) publishing the work openly but abandoning the project thereafter, (iv) selling the product to a company and leaving patenting decisions to it.

prior's take on it is probably a little too *cynical* but certainly I think this may be measuring "incentive to patent" rather than underlying innovation, or innovation as realized on markets.

a lot of this is probably patenting of ideas that were developed previously, but had no incentive to patent, or ideas that are not very solid but seem "worth a shot" at the money following a shock.

this is not a problem, if we're aware of what the measure is targeting and use it appropriately, but I think there should be caution about walking away into the wild fields of "Exogenous shocks can easily increase the rate of idea and concept generation itself", rather than attempts to capitalize on innovation (which is what patents actually measure, and which may or may not actually increase idea and concept generation itself).

patents had been a money in the way problem in the latter half of the 19th century. By the 20th century, medicine had created such a riff, with the advent of penicillin, copy right was more important than any engineering patent. Copy right is essentially rent seeking by inventors not patent protection by corporations. THe artificial limb ad is important because it shows that when corporations act as inventors they can focus only on research, insurance and groupthink as opposed to legal fees, perennials, and xenophobia.

The true puzzle that has been talked about informally in the history world is why some cultures or countries manage to innovate under pressure and others have little or no innovation and just rely on substituting out of the area or finding non-innovative alternatives. The 18th-20th centuries were especially fruitful for Western European and American innovation. The same has not been true for most parts of the world or even for most countries in Europe.

To follow up on my own comment, what I'd like to see is studies of similar economically motivated incentives in two different countries, one where innovation responded and another where the innovative response was nil.

Seems to me that government health care spending via Medicare/-caid would in fact creates incentives to reduce costs of delivery, since those program reimburse on a fixed published schedule. The rewards go to the providers who can reduce their costs in delivering the same service.

The same incentive should apply to providers getting reimbursed by private insurance. The amount of revenue is (more or less) fixed in advance. The game is in reducing costs.

This has led infamously to assembly-line medical care and box-checking intake.

Haven't read the entire paper, but any analysis comparing patents and the different procurement structures during the Civil War period vs WWI should, at the very least, consider the strength or weakness of the patent system around those times. My guess is that the patent system wasn't as robust during the Civil War, but was quite strong (pro-patent) during WWI - before the Progressives weakened patents starting in around the 1930s. Did the authors consider, say, number of patent applications filed, patent grant rates, litigation outcomes around the Civil War and WWI years?

Also, based on the excerpted text in Alex's post, it sounds like the government was purchasing artificial limbs "off the shelf", more or less, during the Civil War, while the WWI prosthetics were more the result of government funding of industry, with the design conceived by industry achieving contract specifications.

Prosthetics are being revolutionized right now - by 3D printing. The old way of making prosthetics involves having to mold the patient's stump using traditional mold-making techniques, followed by having the prosthetic manufactured by hand. So a simple prosthetic would cost thousands of dollars.

Now, you can take a 3D scan of the stump, incorporate it into a 3D model, and print the prosthetic out. The cost? An hour of labor and some plastic filament.

There is an open-source artificial hand project that is building 3D printed artificial hands for people in poor countries. You can buy a $5 Arduino chip and a few servos and a muscle sensor, and create a prosthetic hand with muscle-controlled fingers for less than $100.

Of course, you can't get one of these from your doctor as medical devices are highly regulated and controlled, So I'm afraid you'll still need to get one made the archaic way. But for 3rd world people, it's a godsend.

Those regulations would be the best place to start if you are trying to figure out how to lower the cost of medicine.

BTW, I printed out one of those hands on my homebuilt $150 3D printer. It cost me about a dollar in plastic filament. It works great.

Dentistry, audiology and other industries that use custom molds for appliances are also moving to 3d printing.

Note that 3D printing came out of a completely different industry, and was not funded as medical technology. So did Arduino and 3D scanning. If we had to rely on government funding or direction for innovation in medicine, we wouldn't have any of it.

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