PHARMACEUTICAL PRICE REGULATION

by Patricia Munch Danzon

Overview

The high cost of R&D makes pharmaceuticals particularly vulnerable to aggressive price regulation. Yet even stringent price regulatory systems have failed to control drug expenditures. The challenge for public policy, the author states, is securing a balance between controlling health care spending today and preserving incentives for innovative R&D for the health of future generations.

Increasing global regulation of drug prices and expenditures already affects the efficiency of pharmaceutical R&D and of health care delivery, with important implications for patient care now and in the future. The author examines the effect of existing foreign regulation -- price controls, rate-of-return regulations, and industrial policies -- on U.S. and other multinational producers of innovative drugs. She explores the growing threat to global revenues from the regulatory use of international price comparisons and the increasing threat from parallel trade.

Product Details

ISBN-13:	9780844739830
Publisher:	American Enterprise Institute for Public Policy Research
Publication date:	09/01/1998
Edition description:	Revised ed.
Pages:	107
Product dimensions:	5.55(w) x 8.54(h) x 0.39(d)

Table of Contents

1	Introduction	1
2	The Economics of Pharmaceutical Costs and Pricing	5
	The Cost Structure of Innovative Pharmaceuticals	5
	The Economics and Politics of Drug Price Regulation	9
	Optimal Pricing to Share Joint Costs	11
	Summary	13
3	Regulation of Pharmaceutical Prices and Expenditures	15
	The Objectives of Price Regulation	15
	Forms of Price Regulation	16
4	Effects of Regulation on Drug Prices and Expenditures	30
	Price Indexes	30
	Growth in Drug Expenditures	37
	Volume per Capita	39
	Mix of Drugs	41
	Conclusion	45
5	Effects of Regulation on Innovation	46
	Innovation Strategies of the Pharmaceutical Firm	47
	Revenue Effects of Regulation	49
	Effects of Regulation on the Cost of Capital	56
	Effects on Domestic and Foreign Firms	56
	Empirical Evidence	58
	Conclusions	63
6	Effects of Regulation on Productivity	65
	Incentive Effects of Biased Regulation	66
	Data and Empirical Methods	68
	Empirical Results	69
	Conclusions	80
7	Cross-national Multiplier Effects of Regulation	84
	Welfare Implications of Parallel Trade	85
	Policy Options	89
8	Conclusions	92
	References	99
	Index	103
	About the Author
	Tables
2-1	The Cost Structure of Pharmaceuticals: Discounted Present Value at Launch	6
4-1	Price Indexes in Selected Countries, Relative to the United States, 1992	31
4-2	Growth in Real per Capita Expenditures on Pharmaceuticals in Selected Countries, 1970-1990	38
4-3	Drug Volume per Capita in Selected Countries, 1981-1990	40
4-4	Markets for Single-Molecule Cardiovascular Products (Outpatient Pharmacy) in Selected Countries, 1992	43
5-1	R&D Share of Sales in Selected Countries, Relative to the United States, 1981-1991	61
6-1	Growth in Number of Employees in Selected Countries, 1975-1990	70
6-2	Value Added per Employee in Selected Countries, Relative to the United States, 1970-1990	72
6-3	Value Added per Employee in Selected Countries, Relative to the United States, 1981-1990	73
6-4	Growth in Gross Fixed Capital Formation in Selected Countries, 1975-1990	74
6-5	Growth in Gross Fixed Capital Formation per Employee in Selected Countries, 1975-1990	75
6-6	Labor Compensation per Employee in Selected Countries, Relative to the United States, 1970-1990	77
6-7	Hypothetical Ex Post Return to Physical Capital, Assuming No Intangible Capital, 1976-1990	79
	Figures
4-1	Price per Standard Unit in Selected Countries, Relative to the United States	35
5-1	Growth in Real R&D Expenditures in Selected Countries, 1981-1991	59