What Happens to Pharmaceutical Prices When Trade Practices are Improved: A Simulation Study

Abstract

　In the Japanese pharmaceutical distribution market, various trade practices exist such as"rebates and allowances"paid by pharmaceutical companies to wholesalers, and"lump-sum bulk purchase and delivery before closing price agreements (LPDP)"between wholesalers and medical institutions (including pharmacies). Ministry of Health, Labour and Welfare has been trying to improve (diminish or eliminate) these trade practices.

　In this paper, we quantitatively examine the long-term impact of improving the LPDP on the reimbursement-prices and profit structure of the market. To this end, we developed a simple distribution market model including the above trade practices, and conducted a simulation by controlling the LPDP elimination rate at 25%, 50%, 75%, and 100%.

　The results are as follows. Eliminating the LPDP leads to the higher delivery prices and thus the higher reimbursement-prices. In the case of elimination rate at 100%, the drug price is higher than the standard price by 181% at most. Further, in the cumulative amount of the estimates in 23 years, the profit margins of the pharmaceutical companies and wholesalers are increased by 69% and 277% respectively. Conversely, the drug-price margins of medical institutions decrease by 41%. At the end of this paper, we discuss some policy implications.