In this paper the institutional biases inherent in Japanese pharmaceutical industry is analysed from the aspect of industrial economics. Three points are worthy of focus. Firstly, R&D investment is often biased towards seemingly innovative drugs because it is more profitable under the reviewing system of price control. Secondly, inefficiency may be built in the distribution system by the existence of price margins paid to doctors. Manufacturers and wholesalers devote much effort to capture doctors or hospitals for the purpose of marketing drugs as“reputation goods”.
Thirdly there may exist biases towards quality than price because doctors need not pay attention to drug prices under the National Health Insurance System. As a result seemingly innovate drugs might have been introduced more often than not and they may have invited wastes of resources.

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We compared profit rates of drug industry with other innovative industries making use of our estimation of knowledge capital stock. Accounting profit rates are usually employed to discuss efficiency loss caused by the lack of competition. But R&D intensive industries have often invested more for the accumulation of knowledge capital than for physical capital assets. As a result those firms accumulate intangible as well as tangible assets for production. In order to measure profitability, we must take into account the intangible assets or knowledge capital which is not considered or evaluated by current accounting rules.
In this paper we selected three industries: electrical machines, precision instruments and petrochemicals for comparison purposes. Accounting profit rates and economic profit rates are compared among these industries during the period from 1980 to 1993. Economic profit rate is measured by the ratio of net income to the sum of physical capital stock and knowledge capital stock.
We found that the behavior and the level of economic profit rates of these selected industries do not differ from that of the pharmaceutical industry has been higher than others.

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This paper investigates the extent technological assets contribute to the value of the firm in the Japanese pharmaceutical industry following Cockburn-Griliches's model. Technological assets consist of the level of R&D expenditure and R&D performance. Although previous studies evaluated R&D performance by the number of patents, we evaluate it both by the number of patents and the number of new drugs. Since R&D strategies are not indentical among firms, we allow the weights between patents and drugs to be variable across firms and determine them by DEA (Data Envelopment Analysis). We then estimate the relationship between the value of the firm and the R&D performance with a sample of nine Japanese pharmaceutical firms during 1981-1991. The result indicates that the firms with more efficient R&D performance tend to be evaluated more highly in the stock market.

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This article examines the current state of the Japanese pharmaceutical industry's development capabilities of innovative products and provides an overall review of the industry's potential to acquire international competitiveness. Regarding the industry's international competitiveness, the following points have been noted:
I. Current State of Research & Development
A. The number of new drugs developed by Japanese pharmaceutical companies is the second largest after the United States. Most of these drugs, however, are only being sold in the domestic market. Except for a few products, their innovativeness is limited and they lack a competitive edge in international markets.
B. R&D expenditures per newly developed product by Japanese pharmaceutical companies are less than half the amount expended by their American counterparts.
C. Compared with Japanese companies, U. S. pharmaceutical companies enjoy higher profit rates and lower financial risks accompanying R&D efforts.
II. Drug Industry Executives' Awareness of Business Environment and Measures
Planned to Manage the Situation (Results from Survey Questionnaire)
A. The international competitiveness of Japanese pharmaceutical companies is weak. It is expected that Japanese companies will become polarized into those which can acquire competitiveness and those which cannot.
B. It is recognized that the poor innovativeness of Japanese medical drugs is mostly attributable to the NHI drug price system.
C. Many Japanese companies intend to reinforce their efforts to develop innovative drugs. However, less than half of the respondents who said they intend to strengthen such efforts are actually planning to increase expenditures on basic research. This suggests that their recognition and attitude toward the development of innovative drugs still remains superficial.
III. Impact of the NHI Drug Price on Research and Development of Drugs
A. The addition approach adopted in the standard price system, which allows price setting favoring late-comer products that provide medicinal effects similar to existing products, and large sales of those late-comer products effectively lowers the value of innovative products and reduces the expected profits from their development.
B. Intentional lowering of the price for the improved type product designed to enhance motivation for developing innovative products may result instead, through the income effect, in the enhancement of motivation for developing improved type new products. IV. Possibilities of Acquiring Development Competitiveness
A. These possibilities are largely influenced by the government's policy stance on measures to curb expenditures on medicinal drugs and government support of R&D efforts.
B. Also, these policies have significant impact on efforts at corporate management levels to renovate R&D portfolios and to secure scale economies via M&A or other means.

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In this paper, I investigate the R&D objectives of Japanese pharmaceutical firms from a game theoretical perspective and examine the impact of NHI Drug Price Revisions on corporate R&D incentives.
This analyses differs from previous analysis in that I introduce a game theoretical framework which is utilized for all subsequent analyses.
The principal results of my analyses are as follows. First, subsidies to the innovative firms raise its R&D motives. Second, reducing the“R-zone”also reduces the R&D incentives of the innovative firm. Third, reducing the reimbursement price of innovative products reduces the R&D incentives of the innovative firm. In contrast, reducing the price of the me-too product increases the R&D incentives of the innovative firm. However, these results also depend on properties of the pharmaceutical demand function.

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There is no deflator for the health care sector in Japan, therefore the long-run deflator for health care expenditures (1954-1993) was estimated by using the data from MHW's SHAKAI IRYOU CHOUSA (The Social Medicine Survey) according to Fisher's method, utilizing Laspeyres index and Paasche index. The estimated price index was regressed to the GDP deflator to make sure if it was valid, and the subsequent results were favorable. Inflation existed in the health care sector, and both demand-pull and cost-push factors were detected. Although much research has been completed utilizing the current price base, the true structure of health care expenditures will be clarified by using constant prices. For example, the movement of the ratio of health care expenditures to GDP is totally different in nominal and real terms.
Real health care expenditures per capita were used as the demand for health care. After the problem of identification was examined, the demand function was estimated by traditional consumers' theory. The income elasticity was 0.55 and the price elasticity was 0.32. These figures are very similar to many estimates in the U. S. Furthermore, the effect of physicians induced demand and aging were estimated.

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In the US health care system, managed care has rapidly penetrated the public and particularly the private sector, reaching 24% and 67% respectively in 1995. This penetration is thought to be at least partly responsible for the recent decline in growth of the US national health care expenditures.
Managed care organizations (MCOs) come in different organization types, depending on the structure of the contract with providers. In this paper we describe each organization type from the view points of controls as well as incentives. Managed care entails financial incentives that direct patients to efficient providers who are responsible for both the cost and quality of health care delivered.
Furthermore, MCOs improve cost effectiveness through a v ariety of innovations including administrative, disease management, and pharmaceutical benefits management techniques. These innovations have now entered the traditional form of indemnity insurance as well. In the final section, we discussed the potential of managed care technologies to improve the cost effectiveness of health care in Japan.

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The discount rate, that is the rate at which future costs and benefits should be discounted to reflect their present value, is a central feature in the economic evaluation of health care. For many years the predominant argument has been to set the discount rate for benefits equal to those for costs, which have in turn often been tied to those found in financial markets.
However, over recent years many researchers have begun to elicit the time preference rate, a potential proxy for the discount rate, from experimental ch oice contexts. Attempts have been made to examine how the social or personal factors of subjects influence their time preference rate. Some effort has also been made to look at mortality versus morbidity influences and the effect of different time frames. However, until now, a direct comparison across nations has not been undertaken.
This study applies a methodology developed and tested in Norway, toa Japanese sample. The results are tentative and more empirical analysis and interest in this most important area are called for. Howerver, the results derived from the Japanese sample do suggest that a methodology can be successfully applied acreoss countries, offering some hope that appropriate standardized discount rates may be obtainable. Such a development would be a major contribution to the expanding science of health economics.

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We examined doctors' nurses' and patients' recognition of health care services by using a qualitative method.
First, with regard to the roles of nurses, we confirmed that nurses should establish a role for counter-medicines in comparison to biomedicine.
Second, we examined the patients' view of doctors a nd nurses. We clarified that the patients' trust in the doctor is established through the doctors' alleviation of the patient's pain and anxiety by visiting the patients often and explaining the disease condition to the patients.
Third, we examined how the patient's assess the nurses. For example“the nurses are gentle”and“the nurses are very kind”are expressions that demonstrate the nurses' care and understanding of the patient.
Finally, we find a new variable in that the level of suffering greatly influences patient satisfaction.
Recently, the discussions concerning patient satisfaction have become more important. We consider that the examinations should begin from discovering the differentiation between the patients' recognition about health care and the doctors'and nurses' recognition. For a true perception of patient satisfaction, we should use not only quantitative methods, but a qualitative one should also be employed.

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