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

Hiroshi Nakamura and Naohiko Wakutsu

Health Policy, 2020, vol. 124, issue 7, 714-720

Abstract: Due to severe financial conditions and unmet medical needs, the Japanese government must prioritize both R&D incentives and drug prices/expenditures. However, increasing reimbursement drug prices to strengthen R&D incentives also increases the financial burden on patients and the National Health Insurance, wherein virtually all prescription drugs are reimbursed, with prices determined and controlled by the government. Hence, it is important to find ways to achieve higher R&D incentives without raising drug prices/expenditures. To seek such policies, we focus on the reimbursement drug price risk of pharmaceutical firms. An original questionnaire survey is used to collect data on the price-risk attitudes of R&D-oriented pharmaceutical firms in Japan. With this data, we conduct numerical simulations to quantify the effect of reducing the reimbursement drug price risk on firms’ R&D incentives. Then, we check the robustness of our results. We find that many R&D-oriented pharmaceutical firms in Japan are risk averse. Thus, to enhance R&D incentives, reducing price risk is effective. The simulated impact of removing a ±10% price risk is equivalent to winning a 5% premium, which is substantial. These results are robust to changes in utility form, price/sales patterns and market size, while increased price risk enhances the simulated impact.

Keywords: Risk; Risk aversion; Drug price; R&D incentive; Simulation (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:hepoli:v:124:y:2020:i:7:p:714-720

DOI: 10.1016/j.healthpol.2020.03.010

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