Structure and Dynamics of NHI Drug Pricing in Japan, the U.S., and Europe: Reflections on Innovation
Sadao Nagaoka ( The Office of Pharmaceutical Industry Research Director, Professor, Tokyo Keizai University)
Junichi Nisihimura ( The Office of Pharmaceutical Industry Research Visiting Fellow, Professor, Faculty of Economics, Gakushuin University)
Ippei Sato ( The Office of Pharmaceutical Industry Research Senior Researcher)
(No. 74: Published October 2019)
The drug pricing system plays a central role in incentives for drug discovery innovation. This paper empirically analyzes how government involvement in price formation in Japan and Europe (Germany, the UK, and France) affects the relationship between drug innovation and drug prices, using the US as a benchmark. In particular, we empirically examine the importance of the regulatory threshold effect (the effect that relatively small innovativeness is not reflected in prices because addition is not allowed without a certain level of innovativeness) and its ceiling effect (the effect that large innovativeness is not fully reflected in prices because there is a ceiling on the regulated price). Using IQVIA's Pricing Insights, we collected quarterly data from 2011-2018 on the top-selling new drugs launched in Japan, the U.S., and five European countries, with drug formulation specifications (ingredients, dosage form, and strength) aligned for each country, and price information close to actual transaction prices. The main finding is that, regardless of the level of innovativeness, prices in Japan and Europe tend to be significantly lower than U.S. prices, but to a lesser extent in both Japan and Europe for drugs that are considered highly innovative. This suggests that the threshold effect of price regulation is relatively larger than its ceiling effect.