Why Do the Japanese Spend So Much on Drugs?

Seiritsu Ogura and Takehiko Hagino

in Labor Markets and Firm Benefit Policies in Japan and the United States

Published by University of Chicago Press

Published in print October 2003 | ISBN: 9780226620947
Published online February 2013 | e-ISBN: 9780226620954 | DOI:
Why Do the Japanese Spend So Much on Drugs?

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This chapter examines the disproportionately high spending on pharmaceuticals in Japan. It presents evidence regarding the effects of price distortions on resource allocation in the health care sector. The estimates indicate that the magnitude of these effects exceeds 20 percent, and may be as high as 50 percent, of drug costs. It then shows that the government's attempts to control drug prices directly are at best ineffective, as they have been offset by drug-switching effects in most drug groups. These drug-switching effects are in turn induced by the built-in profit margins for “new” drugs, which are generously priced by regulators. The conclusions are based on statistical analyses of the first comprehensive microdata set compiled in Japan.

Keywords: drug prices; price distortions; drug switching; drug price controls; health care

Chapter.  12204 words.  Illustrated.

Subjects: Business and Management

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