Braid MJ, Forbes KF; Academy for Health Services Research and Health Policy. Meeting.
Abstr Acad Health Serv Res Health Policy Meet. 2001; 18: 152.
The Moran Company, 9300 Lee Hwy, Fairfax, VA 22031, Phone: (703) 383-6823, Fax: (703) 383-6820, E-mail: mjbraid@TheMoranCompany.com
RESEARCH OBJECTIVE: The pharmaceutical industry is more research intensive than any other industry, with almost 20 percent of pharmaceutical sales spent on R&D (Pharma, 2000). Because of price regulations imposed by foreign governments, the prices of pharmaceutical drugs in several foreign countries are between 33 and 77 percent lower than the prices paid by U.S. consumers, according to one measure (Danzon, 1997). Since price is constrained below its market equilibrium level, there is reason to believe that these foreign regulations may have adverse impacts on both the expected returns from innovation as well as the financial resources required to innovate. The purpose of this research is to examine the impact of these price regulations on the level of R&D expenditures undertaken by the pharmaceutical drug companies. The research can be expected to yield insights on the likely impacts of possible future price regulations in the U.S. on the research intensiveness of the industry.STUDY DESIGN: This paper examines the determinants of pharmaceutical R&D expenditures using an econometric model of R&D. Following Grabowski and Vernon (2000), the model considers the effects of a firms cash flow and expected returns on its level of R&D spending. The model also considers how a firms cash flow and expected returns are affected by its sales in markets that are price regulated. Given this formulation, the model is capable of accounting for the impact of price regulation on the level of R&D expenditures.POPULATION STUDIED: The analysis will be based on a sample of 11 large pharmaceutical companies over the period 1990-1999.PRINCIPAL FINDINGS: It is hypothesized that firms with a higher proportion of foreign pharmaceutical sales, ceteris paribus, will have lower research and development expenditures. The data on which this hypothesis will be tested is still being collected as of 01/12/01.CONCLUSIONS: If the hypothesis is supported by the data, the effect of introducing substantial price regulation in the United States may have a damping effect on pharmaceutical investment in Research and Development.IMPLICATIONS FOR POLICY, DELIVERY, OR PRACTICE: As the current Congress debates a prescription drug benefit for Medicare, they will be faced with many policy options and difficult policy trade-offs. Medicare has evolved, in each of the other benefit areas it currently covers, a price regulated method of payment, DRGs for inpatient hospitals, RBRVS payment rates for physicians, etc. It is very likely that given the monopsony power of Medicare, that a Medicare drug benefit would result in a similar price regulation mechanism. Persons over 65 years old consume a disproportionately large share of pharmaceuticals. Although seniors constitute only 13 percent of the population, they account for 34 percent of all prescriptions dispensed and 42 cents of every dollar spent on prescription drugs (Families USA, 2000). In the last Congress, unable to agree upon a drug benefit design, the debate shifted to price regulation without a benefit, if only indirectly through allowing drug reimportation from price-regulated markets. If the hypothesis of this paper is supported by the data, then one side-effect of a Medicare drug benefit might be to dampen R&D expenditures, thus trading less expensive drugs now for fewer new drugs in the future.PRIMARY FUNDING SOURCE: The Moran Company and Catholic University
Publication Types:
Keywords:
- Commerce
- Drug Industry
- Forecasting
- Health Expenditures
- Internationality
- Medicare
- Pharmaceutical Preparations
- Prescriptions, Drug
- Public Policy
- Research
- United States
- economics
- hsrmtgs
Other ID:
UI: 102273460
From Meeting Abstracts