Theoretical Study On Price-level Regulation For New Drug

With China’s1development of overall economy as well as pharmaceutical industry,more and more attention has been focused on the problems of drug prices, especiallyof creative drug (named as "new drug") prices. It is deserved to mention the twoexisting special phomena:(a) the generic drug price is unreasonable or virtually high,which become a main promoter for expensive treatment and receive broadly socialcriticism;(b) high prices do not give rise to increasing R&D expenditure and topromoting innovation ablily, and on the contrary the pharmaceutical industry’s R&Dexpenditure, compared with other developed countries in the world, is generallylower. These two kinds of phenomena have to be associated with the problem thatthe present domestic new-drug pricing or price-level regulation is unreasonable.Therefore, how to establish the scientific method for new-drug’s pricing orprice-level regulation is to be an important task for the regulator and healtheconomics circles to study.In order to study scientific methods for the new-drug price-level regulation, thisdissertation takes the perspective of government regulation and proposes compoundprice-level regulation model (CPR model). And the CPR model was studied by foursteps, which are following:(1) Study on the theoretical foundation of CPR model. On the ground that there is acertain correlation between new drug price-level and R&D expenditure level, thisdissertation will firstly analysize the equilibrium of R&D expenditure under theregulated price-level by R&D cooperation game model of a manufacturer and adistributor, and the outcome and method of R&D cooperation game model lay afoundation for further study of CPR model.(2) Build or derive CPR model. This dissertation will not only from the perspectiveof new drug’s consumers, considering the market demand and the new drug’s utility,and from the perspective of new drug’s suplier, taking the unit variable cost, theuncertain risks of R&D and R&D expenditure into account, then derive the CPR model. Because the regulation is a leader who sets the price level and thepharmaceutical enterprise is a follower who determine the level of R&D expenditure,the process of deriving CPR model is a two-stage game: in the first stage, theregulator decides to set new drug price-level strategy; in the second stage, thepharmaceutical company determines the R&D expending strategy according to theprice level regulated. According to the regulator differentiation or policy tendency,the CPR models can be derived from utility maximization and from the socialwelfare maximization.(3) Implement the parameter estimation and numerical simulation for CPR model.The parameters of the CPR model can be estimated by the Delphi method, GaborGranger method and maximum likelihood estimation method, and then according tothe conditions of CPR model and employing the mathematic7.0software, the CPRmodel’s equilibrium solutions can be computed.(4) Design the supporting mechanism of CPR model. The CPR model involves the"input variable"(the unit variable cost, UVC) and the "output variable"(price level),and then the CPR model is reliable only in the condition that the pharmaceuticalcompany declare cost honestly and new drug price level in wholesale market can beeffectively controlled. The dissertation aimes to reduce the price-level’s fluctuatingrange of new drug by establishing a one-time pricing-sealed-bid auction mechanismand a double auction mechanism respectively as to the new drug with substitutesand the new drug with no substitutes. As to how to prevent from declaring virtuallyhigh UVC, it discusses three kinds of punishment mechanism like check-correct,check-fine-stop production and check-fine-correct and suggests that the check-fine-correctmechanism can be compatible with the situation of CPR model.Through studying new price level regulation and CPR model, some conclusions canbe attained as follows:(1) CPR Model which has traits including generality, soundness, maneuverabilityand reliability, can be imployed to supply theoreticl guidance on price levelregulation for new drugs.(2) Not only does small-manufacturer-and-big-distributor’s coop R&D model lay a foundation on deriving CPR model, but also it is helpful for a small pharmaceuticalmanufacturer choose a suitable distributor to form full-coop R&D supply chains,which contributes to changing the small manufactruer’s adverse situation, toincreasing its profit level and to promoting its R&D expenditure level in spite of newdrug price level regulation.(3) Application of social-welfare-maximization CPR model which takes into accountthe interests of the pharmaceutical firm and patients, can determine a reasonableprice level, ensure the reasonable R&D expenditure level and inhibit artificial drugsdisrupting the market. Furthermore, if taking measures to limit and even reducingthe prices of new drugs it will help to raise pharmaceutical R&D expenditure leveland increase social welfare as to China’s current pharmaceutical market with lowerinnovation degree and higher price elasticity.(4) Supporting mechanisms of CPR model can also provide guidance for other genricdrug prices management. Firstly, a one-time pricing-sealed-bid auction mechanismand a double auction mechanism are still suited in the wholesale market of genericdrugs respectively as to with-substitutes and no-substitutes, and can reduce negativeimpacts of copy drugs and artificial-new-drugs. Secondly, check-fine-correct mechanismcan help control copy drugs manufacturer’ declaring-virtually-high-cost behavior,and check-fine-stop production mechanism can help limit artificial-new-drugsmanufacturer’ same behavior.