2017 Volume 28 Issue 2 Pages 88-102
The Japanese public health insurance system covers virtually all approved pharmaceutical products under price regulation. However, a conflict exists between policies designed to secure financial sustainability and those designed to provide and maintain incentives for vendors to invest in research and development (R&D) for economic growth. In this paper, we examine how to best balance these two opposing goals. By referring to the discount rate concept, which is commonly used in corporate decision-making on R&D investment, we estimated the policy impact of a newly introduced public payers' drug-pricing system in Japan called "Drug Price Premiums for Promoting the Creation of New Drugs and Eliminating Off-label Drug Use".
Based on the assumption that there would be no net increase in the financial burden on public payers as a result of a system change (hereinafter referred to as "budget neutrality"), we tested which of two alternative policies, namely, price reductions after the launch of generic products or reduced price premiums, would be more effective in resolving conflicting policy goals, and how the estimated results are affected by discount rates, the economic properties of medicines and other policies.
Our numerical simulation showed that (1) under the former type of system reform, the rate of reduction in a firm's R&D incentives when the financial burden of public payers is decreased by 1 % is almost half of that under the latter type of system reform. (2) This tendency becomes even stronger when the discount rate is higher. The simulation results did not change with parameter values related to the major economic properties of medicines and other policies.
