In this paper, we analyze the benefits of a pharmaceutical firm from new NHI drug pricing system in Japan, called “NHI Drug Price Premiums for Promoting the Creation of New Drugs and the Elimination of Off-label Drug Use”. Specifically, (1) we calculate the size of the benefits from the new system from a firm's point of view and (2) decompose the benefits into sub-effects and discuss the contribution of each effect. Also, (3) we conduct sensitivity analysis to examine how the benefits from the new system change with a firm's discount rate or major economic characteristics of medicine. Moreover, (4) we consider a possible spillover effect on subsequent new drugs it may cause.
To this end, we construct several hypothetical new drugs from actual data and do numerical simulation. The results are summarized as follows. (1) A firm's benefits are calculated as a higher-than 7% increase in cumulative sales. Roughly, this is equivalent to the rate of price premium of 10% in the similar efficacy comparison method, and only a few drugs can actually win this level of price premium. (2) Factor decomposition shows that about two-thirds of the firm's benefits comes from a nominal increase in cumulative sales and the rest results from discounting future profits. (3) While the size (%) of the benefits is barely changed with the discount rate, the price elasticity of demand or the market size, it becomes larger, the sooner is the timing of the sales peaked-out, the slower is the launch of its generic products or the larger is the deviation rate from the actual market price (unless it is beyond a certain level). Since no new drug whose deviation rate is too large is eligible for premiums, firms may find some incentives for manipulating the deviation rate to try not to lose a large premium. (4)If the spillover effect is also taken into account, the benefits from the new system is greatly increased.
Given these results of the analysis, we discuss some policy implication for the new NHI drug pricing system.

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