What is Drug Pricing? How it Works Explained

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What are "drug prices, drug price discounts, and cost-effectiveness analysis"? A comprehensive guide for beginners

Hello everyone! I'm John, a veteran blog writer. Health and medicine are important topics for everyone in our daily lives. I'm sure many of you are particularly interested in the "price of medicines." Today, I'd like to talk about a topic that has become popular recently, but may seem a bit technical and difficult to understand."Drug Prices, Drug Price Discounts, and Cost-Effectiveness Analysis"I would like to explain this topic in an easy-to-understand way so that even beginners can understand it. This is not just a technical term, but it could be said to be a new "lifestyle of knowledge" that is related to our medical expenses and healthy living choices. Let's learn together!

Basic information: Let’s start with this!

Some people may wonder what "drug prices, drug price discounts, and cost-effectiveness analysis" mean. But don't worry! If you look at each one individually, it's not a difficult topic.

A quick refresher

Drug Prices: This is literally the price of medicine. However, before this price is decided, it includes huge research and development costs to create a new drug, manufacturing costs, pharmaceutical company profits, distribution costs, etc. In some countries, the government may be heavily involved in price determination.
Drug Price DiscountsWhile there is a "list price" for a drug, the actual price paid may be lower. This is called a drug price discount. Drug companies, wholesalers, insurance companies, large hospital and pharmacy chains, etc. negotiate discounts in various forms, such as rebates and volume discounts. This affects the amount of out-of-pocket expenses for patients and the impact on insurance finances.
Cost Effectiveness Analyses (CEA): This is an analytical method that compares the "cost" of a certain medicine or treatment with the "effect" that can be obtained from it (for example, curing an illness, improving symptoms, extending healthy life expectancy, etc.). It is a similar concept to the term "cost performance." This analysis is useful for using limited medical resources (money and human resources) in the most efficient and effective way.

The problem it solves

These concepts are gaining attention for solving some of the major problems facing modern medicine.

The problem of rising medical costs: With the emergence of new technologies and expensive drugs, healthcare costs are on the rise worldwide. Understanding drug pricing and discount mechanisms and analyzing cost-effectiveness can help optimize healthcare costs and maintain a sustainable healthcare system.
Supporting optimal treatment selection: With many treatment options available, we provide information to help patients and medical professionals choose the most appropriate treatment, taking into account not only effectiveness but also economic aspects.
Efficient allocation of medical resources: It helps to make objective data-based decisions about which treatments and drugs should be prioritized for limited healthcare budgets.

Unique Features

Work in this area has some unique features:

Pursuing TransparencyIt has been pointed out that the drug price determination process and the reality of discounts have many unclear aspects. There is a movement to make these transparent and aim for fairer price setting.
Patient-centric perspective: Rather than simply curing the disease, the emphasis is on how much we can improve the patient's quality of life (QOL).
Data-driven decision making: It is characterized by its willingness to make important medical decisions based not only on emotion and rule of thumb, but also on scientific data and economic analysis.

Supply details: How are drug prices determined and why do they fluctuate?

Let's look at the term "supply" in terms of how drugs are priced and how they fluctuate in the market. This is different from the "supply" of stocks or cryptocurrencies, but we can agree on the factors that affect prices.

How drug prices are determined and factors that affect their price fluctuations

The price of a drug depends on many factors.

Drug Price Standards System (Japan)In Japan, the government (the Ministry of Health, Labor and Welfare's Central Social Insurance Medical Council, commonly known as Chuikyo) sets the official drug prices. This is to ensure that medical services can be received at the same price for the same medicine anywhere in the country under the universal health insurance system.
New drug development costsDeveloping a new drug takes more than 10 years and costs a huge amount of money, estimated at tens to hundreds of billions of yen. This cost is reflected in the drug price, so groundbreaking new drugs in particular tend to be expensive.
Patent Term and Exclusivity: A new drug is granted a patent for a certain period of time to the pharmaceutical company that developed it, during which it can be exclusively manufactured and sold (this is called the "Loss of Exclusivity (LOE)" period). During this period, price competition is unlikely to occur, so drug prices tend to be kept relatively high.
The emergence of generic drugs: When the patent period for a new drug expires, other pharmaceutical companies are able to manufacture and sell drugs with the same active ingredients. These are generic drugs, and because development costs are kept to a minimum, they are offered at prices significantly lower than original drugs. The spread of generic drugs contributes to reducing medical costs.
Market Prices and Drug Price Revisions: There may be a difference between the price set by the drug price standard and the price that medical institutions and pharmacies actually purchase from wholesalers (actual market price). In order to adjust for this difference, drug prices are revised in Japan, usually every two years, and drug prices may be reduced.
Drug Price Discounts and Rebates: As mentioned above, various discounts (including rebates) exist in actual transactions. The discount situation also affects the accuracy of cost-effectiveness analysis. In fact, academic papers also point out that "Cost-effectiveness analysis typically assumes that prices remain constant from the approval of a drug to the expiration of exclusivity. However, it is unclear how valid this assumption is, especially when discounts and rebates on drug prices are taken into account" (Suggested by Lin et al., 2024 paper using data from SSR Health), and the reality of price fluctuations is complex.

Why does it matter for price?

These factors all interact in a complex way to determine the price we ultimately pay for a drug and the out-of-pocket costs we pay through health insurance, especially when conducting cost-effectiveness analyses.Drug prices are not consistentIt is important to take into account these realities. For example, the National Pharmaceutical Council (NPC) points out that "if cost-effectiveness models exclude dynamic pricing (the possibility of price changes over time), they are likely to underestimate the relative benefits and costs of treatment to society." In other words, ignoring discounts and price fluctuations can lead to misinterpretation of the true value of a drug.

Technical mechanisms: How to conduct a cost-benefit analysis?

"Technical mechanisms" may sound difficult, but here we will mainly look at how "cost-effectiveness analysis (CEA)" is based, what methods are used, and how drug price discounts affect it.

How cost-effectiveness analysis works

Cost-effectiveness analysis is an economic method for assessing the value of a drug, treatment or medical intervention.

Basic Ideology: Let's say there is a certain treatment A and a treatment B (such as an existing standard treatment or doing nothing) that is compared to it. In this case, we calculate how much additional cost will be incurred by choosing A compared to B, and how much additional effect (benefit) will be obtained.

For example, information such as "New anti-cancer drug X costs 10 yen more per month than conventional treatment Y, but is effective in extending healthy life expectancy by six months on average" can be quantified and compared.
ICER (Incremental Cost-Effectiveness Ratio): This is an important indicator that is often used in cost-effectiveness analysis. It indicates "how much additional cost is required to obtain one unit of benefit from a new treatment (e.g., one year longer life expectancy, a certain amount of improvement in QOL)."

Formula: ICER = (cost of new treatment – cost of conventional treatment) / (effectiveness of new treatment – effectiveness of conventional treatment)
QALY (Quality-Adjusted Life Year): QALY is an indicator often used internationally to measure effectiveness. It is the "years of life" multiplied by the weight of "quality of life (QOL)," with surviving one year in perfect health being considered "1 QALY." For example, if a treatment extends life by two years, but the QOL during that time is half the normal level (1), it is evaluated as 2 QALY (0.5 years x 1). This allows us to incorporate "living better" into the evaluation, rather than simply living longer.

Special Techniques and Considerations

Data Analysis TechnologyCost-effectiveness analysis requires huge amounts of information, such as data from clinical trials, real-world data from actual medical treatment, medical cost data, survey data on patients' quality of life, etc. Advanced techniques are used to statistically process and analyze this data.
Economic model: Mathematical models (simulation-like) such as Markov models and decision tree analysis are used to forecast future costs and benefits, allowing for evaluation over the long term.
Considering Dynamic PricingAs mentioned above, drug prices can fluctuate after launch, especially as generic versions come off patent and as discounts are negotiated. As NPC Now points out, including these "dynamic inputs" in a cost-effectiveness analysis allows for a more realistic assessment. This is an important development, as traditional analyses often assume prices are constant.

Drug price discount mechanisms and their impact

Drug price discounts mainly come in the following forms:

Rebates: This is a type of cashback that pharmaceutical companies pay to insurers (such as health insurance associations) and PBMs (Pharmacy Benefit Managers, drug cost management organizations mainly found in the United States) based on sales volume, etc.
Discounts and negotiations based on contractsLarge buyers (hospital groups, insurance companies, governments, etc.) may negotiate prices with pharmaceutical companies to purchase drugs at lower than usual prices.

These discounts lower the actual cost of a drug and therefore have a significant impact on the results of a cost-effectiveness analysis. Understanding the actual discounted price (net price), not just the nominal drug price, is essential for an accurate analysis.

Team and community: Who is involved?

The field of "drug prices, drug price discounts, and cost-effectiveness analysis" is not a specific company or development team, but rather a large ecosystem involving many organizations and experts. Let's take a look at their reliability and activities.

Key players in reliability

public agency :
- Ministry of Health, Labor and Welfare (Japan): It plays a central role in formulating drug price standards and introducing and operating a cost-effectiveness evaluation system. In particular, the Chuikyo (Central Social Insurance Medical Council) is responsible for specific deliberations.
- National Institute of Health Sciences (NIHS, Japan)We conduct research and evaluation of the quality, safety, and effectiveness of pharmaceuticals, and are also involved in cost-effectiveness evaluations.
- Similar institutions overseasFor example, the UK's National Institute for Health and Care Excellence (NICE) is known worldwide for recommending the use of medicines based on cost-effectiveness evaluations. In the US, the Institute for Clinical and Economic Review (ICER) issues independent drug value evaluation reports.
Research institutes and academic organizations :
- Universities and specialized research institutesCost-effectiveness analysis methods are being developed and specific evaluation studies are being conducted in fields such as health economics, pharmacoeconomics, and public health.
- 学会Specialist academic societies such as the Japan Society of Health Economics are actively involved in the presentation of research results, the exchange of information, and policy proposals.
Pharmaceutical industryWith the development of new drugs, there is now a requirement to submit data (evidence) that shows the value of the drug from a cost-effectiveness perspective.
Medical Professionals and Patient Organizations: Opinions from actual medical settings and the perspective of true value for patients are also very important in these discussions.

Activity levels and international trends

This field is very active and constantly evolving.

Active research and debateNew analytical methods are constantly being developed, ethical aspects are being examined, and comparative studies of systems in various countries are being conducted, resulting in the publication of many academic papers and reports.
Reflection in policy: In many countries, the results of cost-effectiveness analyses are used officially (or informally) in determining whether or not to reimburse drugs and how much they will cost. As Leerink.com points out, "Many countries outside the U.S. use cost-effectiveness analyses explicitly or implicitly in determining drug prices and reimbursement."
international collaborationThere are international networks (e.g., HTAi) related to HTA (Health Technology Assessment, which also includes cost-effectiveness analysis), and efforts are being made to exchange information and standardize methodologies.

In this way, the involvement of many experts and organizations and the movement to improve the quality and efficiency of medical care based on scientific evidence and transparency are the driving forces behind the credibility and activity in this field.

Use cases and future prospects: How is it actually used and what will happen in the future?

In what specific situations will "drug prices, drug price discounts, and cost-effectiveness analysis" be used, and what impact will they have on our medical care in the future?

Current main use cases

Drug pricing and insurance reimbursement decisions for new drugs :
In many countries, when a new drug is developed, cost-effectiveness analysis is used as one of the important criteria to decide whether the drug should be covered by public health insurance and how much it should cost (drug price). In particular, for expensive drugs, it evaluates whether the drug is worth the price. In Japan, it was introduced on a trial basis from fiscal year 2019 and is being discussed at the Central Social Insurance Medical Council.
Creating clinical guidelines :
When creating "clinical practice guidelines" that indicate the standard treatment for a particular disease, not only efficacy and safety but also cost-effectiveness may be taken into consideration, allowing effective and economically efficient treatments to be recommended.
Drug selection in hospitals :
Cost-effectiveness is also sometimes taken into consideration when selecting drugs to be used within a hospital (such as formulary formulation). When there are multiple drugs that are expected to have similar effects, choosing the most cost-effective drug can lead to more efficient hospital management and the optimization of medical expenses.
Public health policy development :
Cost-effectiveness analysis is also used in formulating public health policies to protect the health of entire populations, such as vaccination programs and health checks, to help determine strategies for maximizing health benefits with limited budgets.

Future prospects

This field has the potential to continue to develop and improve our healthcare.

Application to personalized medicine (precision medicine) :
"Personalized medicine" is becoming more common, where the most appropriate treatment is chosen based on each patient's genetic information, lifestyle, and medical condition. In the future, it may become possible to predict the cost-effectiveness of treatments for individual patients and support more personalized medical decisions.
Utilizing AI (Artificial Intelligence) :
It is expected that the use of AI technology will enable new knowledge to be discovered from vast amounts of medical data and more accurate cost-effectiveness prediction models to be built, which will lead to faster analysis and improved quality.
Expanded use of real-world data (RWD) :
It is becoming increasingly important to utilize data collected in actual clinical settings (real-world data). By analyzing the effects and costs of drugs in the real world, rather than in the limited environment of clinical trials, it becomes possible to perform more realistic cost-effectiveness evaluations.
A deeper reflection of patient values :
There will likely be a growing trend to incorporate a wider range of "patient value" into evaluations, such as the satisfaction patients feel from treatment, improvements in their overall quality of life, and the ease of returning to work, rather than just indicators such as QALYs.
Improving drug price transparency and international comparison :
It is expected that by increasing the transparency of the drug price determination process and by promoting international drug price comparisons and information sharing, discussions on more fair drug price formation will deepen. New business models such as Mark Cuban Cost Plus Drugs, which aim to make drug prices more transparent and lower, have also emerged, and future developments will be closely watched.

In this way, cost-effectiveness analysis and related concepts are expected to play an increasingly important role as a key tool for ensuring the sustainability of the system while maintaining and improving the quality of medical care.

Competitive comparison: Is cost-benefit analysis a panacea? How does it differ from other approaches?

Cost-effectiveness analysis (CEA) is a powerful tool for assessing the value of drugs and discussing prices, but it is not the only method, and it is important to understand its strengths and limitations compared to other drug pricing approaches and evaluation methods.

The strengths of cost-effectiveness analysis (CEA)

Objectivity and TransparencyCEAs are (ideally) based on clear calculation methodologies and publicly available data, which reduces the room for subjectivity and political judgment and aims for an objective, transparent assessment.
Efficient allocation of medical resources: It helps prioritize which treatments will have the greatest health benefits for society as a whole and are best spent within limited healthcare budgets.
Valuing innovation: Even if a new drug or treatment is more expensive than an existing one, if it provides a corresponding improvement in efficacy (e.g., an increase in QALYs), its value can be justified. This gives pharmaceutical companies an incentive to pursue truly valuable innovation.
Explicit criteria: It becomes clear what factors were considered and what criteria were used to determine value, making it easier for stakeholders to discuss and reach a consensus.

Comparison with other pricing approaches

Besides CEA, there are various other approaches to determining and controlling drug prices.

Reference Pricing :
- Message: This is a method in which a specific price (reference price, such as the price of the cheapest drug in the group or the average price) is set for a group of drugs that are considered to be equally effective and safe, and any amount exceeding that price is borne by the patient. This is mainly applied to drugs that have generic versions or groups of drugs with similar pharmacological effects.
- Differences from CEAWhile the CEA conducts a detailed analysis of both "cost" and "effectiveness," the reference pricing system focuses primarily on "price," and tends to recommend the cheaper drug if the drugs have similar effects.
Tendering/Bidding System :
- Message: This is a method in which multiple pharmaceutical companies submit bids for a particular drug, and the drug is purchased from the company that offers the lowest price. This is particularly used for generic drugs and long-listed drugs whose patents have expired.
- Differences from CEA: It is a measure to directly promote price competition and does not focus on detailed comparisons of effects like the CEA.
Manufacturing cost accumulation method :
- Message: This is a method of calculating drug prices by adding up the manufacturing cost of the drug, research and development costs, operating profits, etc. This approach is also partially adopted in Japan's drug price calculations.
- Differences from CEA: While prices are determined based on cost, CEA focuses on the benefits and value gained.
International Reference Pricing (IRP) :
- Message: This is a method in which drug prices in one country are set based on (or directly linked to) drug prices in other countries. It is adopted by many countries.
- Differences from CEA: The results are dependent on pricing decisions in other countries and may not necessarily reflect the medical situation and values of one's own country.

CEA Challenges and Limitations

Although CEA is a useful tool, it is not an all-purpose tool. The following issues and limitations have been pointed out:

Limitations of the evaluation axisQALY is a widely used indicator, but it does not fully quantify the value of human life or health. There are some values that are difficult to measure with QALY alone, such as drugs for rare diseases and drugs that have a small effect on extending life but dramatically improve quality of life.
Ethical issuesThis always raises ethical questions, such as: should we put a price on life? Does this lead to discrimination against certain patient groups?
Analysis Complexity and Cost: High-quality CEA requires a lot of data, expertise, time, and money, especially with new techniques and complex models to predict long-term outcomes.
Data availability and qualityIf the data required for analysis is lacking or the quality of the data is inconsistent, the reliability of the analysis results will be reduced.
Diversity of valuesWhat constitutes an "effective" product and what is considered an "acceptable" cost may differ depending on society, culture, and individual values.

As Leerink.com points out, while CEA is used in many countries to determine drug prices, there is still debate about how to apply it and interpret the results. CEA is merely one piece of information to aid in decision-making, and it is important to consider it in conjunction with other factors for a comprehensive judgment.

Risks and Cautions: What you need to know

"Drug prices, drug price discounts, and cost-effectiveness analysis" are important concepts for improving medical care, but you must also be aware of some risks and points to note. To use the information wisely, keep the following points in mind.

Price and valuation volatility

Fluctuations in drug prices themselvesDrug prices are not fixed. They fluctuate due to a variety of factors, including the emergence of new technologies, the entry of generic drugs due to patent expiry, government price revisions, competition between pharmaceutical companies, and even changes in international drug pricing policies (for example, as thinkglobalhealth.org points out, "US executive orders to lower drug prices could have a negative impact on the poorest countries").
Variability in the results of cost-effectiveness analyses: The results of CEA are also not absolute. If new clinical trial results (evidence) emerge, the evaluation of the drug's effectiveness may change. In addition, if the methods and assumptions used in the analysis (for example, discount rates and QALY evaluation methods) change, the results may also fluctuate. As Jason Shafrin asks on LinkedIn, "How will drug prices change before the expiration of exclusivity?" How to incorporate actual price fluctuations into the model is always a challenge that affects the accuracy of the analysis.

Risk of misunderstanding, excessive expectations, and abuse

Beware of simplistic interpretations of results: Drugs that are deemed "low cost-effective" as a result of CEA are not necessarily "bad drugs" or "drugs that should not be used." They may be the only option for certain patients, or they may have important value that cannot be measured by QALY (for example, a drug for treating rare diseases or avoiding certain side effects). CEA is merely an index that shows efficiency from the perspective of society as a whole.
The misconception that "cheap is good": CEA does not simply recommend cheap drugs. Even if a drug is expensive, it is evaluated as "cost-effective" if it has a significant effect that is worth the cost. The balance between cost and effect is important.
Bias due to data selection and analytical methods: There is a non-zero risk that the person conducting the analysis and their intentions may select convenient data or use analytical methods that lead to a specific conclusion. Therefore, it is important to confirm the transparency of who conducted the analysis and how.

Regulatory and ethical aspects

Differences in systems between countries: The status of CEA implementation, legal status, and specific implementation methods vary greatly from country to country. A drug that is considered cost-effective in one country may not be considered so in another.
Data privacy: To perform high-quality CEA, detailed medical data of patients may be required. How to protect this personal information and use it appropriately is a very important issue.
Ethical dilemmas: In the pursuit of cost-effectiveness, it is essential to always consider ethical aspects so as not to undermine equality of treatment opportunities or put people with certain diseases at a disadvantage. Setting a threshold for "how much should society pay to gain 1 QALY" involves very difficult ethical questions.

How to deal with people as individuals

Consulting with a doctor is a priority: When considering your own illness and treatment options, it is most important to first have a thorough discussion with your doctor. CEA information is intended solely for the purposes of medical policy and the efficiency of the entire medical system, and does not directly bind individual treatment choices.
Improving information literacy: Medical information is complex and varied. To be a wise patient, it is important to obtain balanced information from various sources and develop the ability to critically examine it (information literacy).

Understanding these risks and points of caution and learning about the concept of cost-benefit analysis will surely be helpful when we consider how we approach medical care.

Expert opinion and analysis: What do the experts think?

This is an area of active research and debate among experts. Here are some reliable sources and expert perspectives:

The reality of drug price fluctuations and their impact on CEA (e.g., Lin et al., 2024 study) :
As mentioned at the beginning, as cited by Jason Shafrin on LinkedIn, Lin et al.'s study (using SSR Health drug price data from 2007 to 2023) found that:The traditional assumption of the CEA is that prices remain constant between drug approval and expiration of exclusivity (LOE).This raises questions about the validity of this assumption. In particular, the validity of this assumption is questionable when drug price discounts and rebates are taken into account. Actual drug prices are more dynamic, and how to incorporate this variability into the CEA is key to a more accurate assessment.
The Importance of Dynamic Inputs (National Pharmaceutical Council – NPC) :
NPC Now emphasizes the need for "Dynamic Inputs in CEA."If cost-effectiveness models do not account for dynamic pricing (price changes over time and conditions), they may underestimate the benefits of a treatment to society and overestimate its costs.This is a very important perspective for making a more realistic assessment.
International Use of CEA (Leerink.com Analysis) :
According to a report from Leerink.com, in many countries outside the United States,Cost-effectiveness analysis is explicitly or implicitly used in drug pricing and reimbursement decisionsThis means that CEA is recognized internationally as one of the standard tools for medical policy making.
The Role of Independent Value Assessors (ICER – Institute for Clinical and Economic Review) :
ICER in the US issues independent evaluation reports on the value of medicines and medical technologies. These reports are an important source of information for many stakeholders, including payers, pharmaceutical companies, and patient groups.Facilitating discussions on fair pricing and accessICER's work demonstrates the importance of transparent valuation.
The importance of information disclosure to reduce drug prices (from an article in Fierce Healthcare) :
In Fierce Healthcare's "Industry Voices" column,In order to reduce drug costs, it is important to provide drug cost information (to patients and physicians)The idea is that increased transparency will lead to smarter drug choices and increased cost awareness.
A new approach to drug price transparency (Mark Cuban Cost Plus Drugs) :
As reported by DrugTopics.com, the Mark Cuban Cost Plus Drug Company offers generic drugs and other products at transparent pricing that simply adds a certain profit and commission to the cost of production.Cases where significant drug cost reductions have been achievedAlthough this is not directly related to the CEA, it is a new approach to drug pricing that is disrupting the existing drug price mechanism.
High drug prices in the United States (from Wikipedia) :
The Wikipedia entry for "Prescription drug prices in the United States" states, based on a comprehensive literature review in 2021,Prescription drug prices in the US are 32% higher than the average of 256 countries comparedThis shows how differences in drug pricing systems in each country can lead to large differences in actual drug prices.

These expert opinions and analyses demonstrate how drug pricing, discounting, and cost-effectiveness analysis are complex and important topics that require constant attention to the latest research trends and diverse perspectives.

Latest News and Roadmap Highlights: What's Next?

In the field of "drug pricing, drug price discounts, and cost-effectiveness analysis," new developments and changes are constantly occurring. Here, we will look at the main recent trends and future directions (roadmap).

Recent major trends (in Japan and internationally)

Full-scale implementation and expansion of the cost-effectiveness evaluation system in Japan :
In Japan, cost-effectiveness assessments have been implemented on a trial basis for some pharmaceuticals and medical devices since fiscal 2019, and the results are being used by the Central Social Insurance Medical Council (Chuikyo) to adjust drug prices. Discussions are underway to fully implement the system, including expanding the range of products covered and refining the evaluation methodology.
Promoting the use of real world data (RWD) :
There is a growing trend worldwide to use RWD, a huge amount of data obtained from daily clinical practice, to evaluate the efficacy and safety of pharmaceuticals and to analyze cost-effectiveness. RWD has the potential to reflect long-term effects and the actual situation of diverse patient backgrounds that cannot be captured in clinical trials.
Focus on patient-reported outcomes (PROs) :
When evaluating the effectiveness of treatment, there is a growing trend to place emphasis not only on the doctor's objective evaluation, but also on "Patient-Reported Outcomes" such as changes in symptoms, QOL, and satisfaction reported by the patient themselves. This will better reflect the perspective of what treatment is truly valuable to patients.
Searching for solutions to the problem of high drug prices :
Gene therapy drugs and some anticancer drugs are groundbreaking but extremely expensive, and there are concerns about their impact on healthcare finances. How can we evaluate the value of these drugs and deliver them to patients in a sustainable manner? Various measures (such as performance-based payments and contracts with cost caps) are being discussed and tried.
Move to increase drug price transparency :
There are efforts to increase transparency regarding the drug price determination process and the actual state of discounts, such as the aforementioned Mark Cuban Cost Plus Drug Company and the publication of the results of drug price negotiations in some countries. This is expected to lead to fairer price formation.
International pressures and policies to lower drug prices :
As seen in the policies of former U.S. President Trump and President Biden, lowering drug prices is a major political issue. For example, the move to apply the "Most Favored Nation" clause to drug prices (as reported by CNBC and PBS NewsHour) could affect international drug prices.

Future Directions (Roadmap Highlights)

Full-scale implementation of AI (artificial intelligence) and machine learning :
In the field of CEA, research will continue to advance using AI and machine learning to recognize patterns in more complex data sets, improve the accuracy of predictive models, and streamline the analytical process.
Strengthening harmonization and cooperation of international HTA (Health Technology Assessment) methods :
Although each country has different evaluation methods and criteria for HTA (of which cost-effectiveness analysis is a part), efforts will continue to be made to deepen international cooperation, improve the quality of evaluations, and reduce duplication of work.
Accelerating the shift to value-based healthcare :
It is expected that the global trend will be to move to a system in which medical services are evaluated and remunerated based on "value (outcome ÷ cost)" for patients, rather than simply the volume of medical procedures. In this context, cost-effectiveness analysis will play an increasingly important role.
Introducing more dynamic pricing and payment models :
More flexible and innovative pricing and payment models, such as "performance-based contracts," which adjust prices if a drug's effectiveness is not as expected, and "caps," which set a limit on the total cost of use over a certain period of time, are likely to become more widespread.

These trends will affect our access to medical care, medical costs, and the overall quality of medical care, so we need to continue to pay close attention to them.

FAQ section: answers to frequently asked questions

If you have read this far, you may still have some questions. Here we have compiled some common questions that beginners often have and their answers.

Q1: Does cost-effectiveness analysis ultimately mean that "cheap drugs are better"?: A1: No, not necessarily. Cost-effectiveness analysis is not just about whether a drug or treatment is cheap, but also about the benefits it provides.Balance with "effects" (e.g. cure rate, extension of survival time, degree of improvement in quality of life, etc.)We evaluate the cost-effectiveness of a drug comprehensively. Even if the drug is expensive, it may be judged to be "cost-effective" if it is expected to have an effect that is equal to or even greater than the cost. What is important is to determine the "cost performance" that will allow us to use limited medical resources (money, people, time, etc.) most wisely and effectively.
Q2: Why do drug price discounts exist? Why not just offer them to everyone at a low price from the start?: A2: There are several reasons why drug price discounts exist. First,Price negotiations and sales strategies between pharmaceutical companies, pharmaceutical wholesalers, insurance companies, large hospital groups, etc.For example, if a pharmaceutical company wants to sell a lot of a particular drug, they may offer discounts to those who buy in bulk (such as hospitals and pharmacy chains) or pay kickbacks (like a bonus) if they meet sales targets. Competition in the market also plays a role. When there are multiple similar drugs, price competition is likely to occur.

It is true that the discount system is complicated and has been criticized for being difficult for general patients to understand. There is active discussion about the need for greater transparency.
Q3: Should I care about the results of cost-effectiveness analyses when choosing my treatment?: A3: Information from cost-effectiveness analyses is often used for large-scale decision-making at the national or regional healthcare policy level (which drugs should be covered by insurance, how much they should cost, etc.) and for hospitals to decide which drugs to adopt.

When choosing your own treatment method, the most important thing is for you to first consult with your doctor and make a decision based on a comprehensive consideration of your medical condition, the expected therapeutic effect, the risk of side effects, and your ability to financially bear the costs.The results of cost-effectiveness analysis can be one reference for such decisions, but they are not everything. In particular, because the circumstances and values of individual patients are diverse, uniform analysis results may not apply directly to all patients.
Q4: How widely is cost-effectiveness analysis used in Japan?: A4: In Japan, from fiscal year 2019, some drugs and medical devices areCost-effectiveness evaluation system introduced on a trial basisSpecifically, among the new drugs that are covered by insurance, those with particularly high drug prices and those that are expected to have a large market size tend to be the targets. The results of this evaluation are used as reference material by the Central Social Insurance Medical Council (Chuikyo) of the Ministry of Health, Labor and Welfare when adjusting drug prices.

Although it has not yet been applied to all drugs and medical technologies, its importance is increasing in terms of both the rationalization of medical costs and the evaluation of innovation, and the scope of its use is likely to expand further in the future.
Q5: Aren't drug prices the same all over the world? I hear they're expensive in the US...: A5: Yes, that's right.Drug prices vary greatly from country to country.The main reason for this is differences in each country's health insurance systems, drug price determination mechanisms, patent systems, the negotiating power of governments and insurers, and market sizes.

For example, the United States is known for its extremely high drug prices, due in part to the reliance on market principles, the high degree of freedom for pharmaceutical companies to set prices, and limited public price negotiating power. In fact, one study (a 2021 literature review) reported that prescription drug prices in the United States were more than 32 times higher than the average of 2.5 countries compared.

On the other hand, in many European countries, Canada, Australia, and Japan, governments and public institutions are strongly involved in determining drug prices, and are trying to control prices by utilizing cost-effectiveness evaluations, etc. As a result, it is not uncommon for the price of the same drug to differ by several times from country to country.

Drug Prices, Drug Discounts, and Cost-Benefit Analysis: The Complete Guide for Beginners!