New NHI Drug-pricing System in Japan: Incentives for R&amp;D and Budget Neutrality

Wakutsu, Naohiko; Nakamura, Hiroshi

doi:10.1007/bf03405759

Cited by 3 publications

(4 citation statements)

References 9 publications

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“…2. A similar price pattern is considered in Wakutsu and Nakamura [22]. Although the current formula is somewhat different from the one in 2012, the analysis presented in this paper is still applicable.…”

Section: Methodsmentioning

confidence: 89%

“…While the height of peak drug sales depends on the values of x and a , its timing is determined by the value of y . Here the values are determined by an ordinary-least-square regression and set to x = 0.006 , y = 0.32 , and a = 12, 500 as in Wakutsu and Nakamura [22]. 1 An advantage of the RRA measure is that it is a unit-free measure.…”

Section: Methodsmentioning

confidence: 99%

“…In the previous literature, only a few studies examine how (that is, via what policy) to best balance reducing the financial burdens on the NHI system and patients while increasing pharmaceutical firms' R&D incentives. In a simulation study on the new NHI drug-pricing system in Japan, Wakutsu and Nakamura [22], emphasizing the explicit use of a discount rate in balancing the two opposing tasks, analyze how different price patterns over the product life cycle differently affect a firm's R&D incentives and the public payers' financial burden. To the best of our knowledge, no study in the literature focuses on pharmaceutical firms' reimbursement price risks or analyzes how increased predictability via reduced price risk contributes to lowering the financial burdens on the NHI system and patients and strengthening those firms' R&D incentives.…”

Section: Introductionmentioning

confidence: 99%

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Reducing pharmaceutical reimbursement price risk to lower national health expenditures without lowering R&D incentives

Nakamura

Wakutsu

2018

IJEPS

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In Japan, higher reimbursement drug prices give pharmaceutical firms stronger R&D incentives, but they also increase the financial burden on national health insurance and patients. Considering the severe financial situation that the government faces, analyzing how to achieve lower national health expenditures without lowering pharmaceutical firms' existing R&D incentives is important. In this research, we investigate the effect of reducing the reimbursement price risk that pharmaceutical firms face on their R&D incentives. Theoretically, the presence of output price risks reduces risk-averse firms' R&D incentives. Therefore, to the extent that pharmaceutical firms exhibit risk aversion, if creating guidelines, accelerating information disclosure and/or enabling public-private dialogue can reduce reimbursement price risks, then maintaining or even increasing R&D incentives is possible, even if the level of reimbursement drug prices is reduced. Specifically, we address (1) by how much a given level of reimbursement price risk reduces pharmaceutical firms' R&D incentives; (2) by how much reimbursement drug prices can be reduced, keeping pharmaceutical firms' R&D incentives constant, if one can successfully remove the risk; and (3) how the magnitude of the impact changes with the degree of price risk that firms face and with the level of their risk aversion. To this end, a hypothetical new branded drug is constructed from actual data on the Japanese drug market. Assuming that a pharmaceutical firm is an expected-utility maximizer, that the firm's instantaneous utility function is in the form of the constant-relative-riskaversion utility function and that its R&D incentives are quantified by the standard discounted cash flow valuation, we use simulations to compute the certainty equivalent and risk premium associated with various degrees of price risk and risk aversion. Referring to the empirical literature on risk preference, we set the parameter value for the level of relative risk aversion of a pharmaceutical firm to 3.0 and that for the discount rate to 0.08. The following results emerged. (1) In the presence of a 20% price risk regarding a reimbursement price of 100 (i.e., ranging from 80 to 120), a pharmaceutical firm's certainty equivalent is 96.0. Hence, in the presence of a 20% price risk, a risky reimbursement drug price of 100 is equivalent to a sure Extended author information available on the last page of the article reimbursement drug price of 96.0. (2) In the presence of a 20% price risk regarding a reimbursement price of 100, the price premium is 4.0. Therefore, by increasing the predictability of future prices, the reimbursement price may decrease by 4.0, while the firm's R&D incentives remain unchanged. (3) The magnitude of the impact increases at an increasing rate with the degree of price risk and increases at a decreasing rate with the level of risk aversion.

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Section: Methodsmentioning

confidence: 89%

Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Reducing pharmaceutical reimbursement price risk to lower national health expenditures without lowering R&D incentives

Nakamura

Wakutsu

2018

IJEPS

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“…A nonlinear relationship between sales and R&D intensity was reported based on an analysis of European companies [18]. In this context, the price maintenance premium in Japan was reported to be an effective way to promote R&D, with the premium rates of this system being approximately 10 percent of those under a comparative method [116], as described in Section 1.2, and accelerating the development of new drugs that can meet high medical needs, such as oncologic and neurological agents [116,94,95,117].…”

Section: Effects Of Price Control Strategies On Pharmaceuticalmentioning

confidence: 99%

Japanese Pharmaceutical Industry: Recent Perspectives and Areas for Further Research

Shibata

Ozaki

Suzuki

2020

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The Japanese pharmaceutical market is one of the largest in the world. The Japanese government has increasingly been trying to control rising health care costs, and as a result, pharmaceutical companies are expecting that fewer opportunities will be available to command a higher price based on higher levels of innovation; this will likely lead to decreased interest in research and development (R&D) activities. With this background, the purpose of this article is to review current perspectives for R&D by the Japanese pharmaceutical industry, and to discuss the limitations and challenges for further research from the regulatory science and management perspectives. Given the substantial amount of evidence of regulatory science and management perspectives from the pharmaceutical industry outside of Japan and the limited amount of evidence from inside of Japan, it is important to review perspectives focusing on the Japanese pharmaceutical industry in comparison with those from other countries to understand the complexities of the Japanese pharmaceutical market, as well as the limitations and challenges associated with increasing productivity. https://doi.org/10.21423/jrs-v08shoyo

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Reducing Reimbursement Drug Price Risk to Enhance R&D Incentives without Raising Drug Prices/Expenditures: Implications of Simulations Based on Questionnaire Survey of Pharmaceutical Companies in Japan

Nakamura

Wakutsu

2020

Health Policy

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New NHI Drug-pricing System in Japan: Incentives for R&D and Budget Neutrality

Cited by 3 publications

References 9 publications

Reducing pharmaceutical reimbursement price risk to lower national health expenditures without lowering R&D incentives

Reducing pharmaceutical reimbursement price risk to lower national health expenditures without lowering R&D incentives

Japanese Pharmaceutical Industry: Recent Perspectives and Areas for Further Research

Reducing Reimbursement Drug Price Risk to Enhance R&D Incentives without Raising Drug Prices/Expenditures: Implications of Simulations Based on Questionnaire Survey of Pharmaceutical Companies in Japan

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