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Do cost-sharing and entry deregulation curb pharmaceutical innovation?

Volker Grossmann¹

¹University of Fribourg, Switzerland; CESifo, Munich, Germany; Institute for the Study of Labor (IZA), Bonn, Germany.

Journal of Health Economics

|July 31, 2013

Summary

Increased health insurance cost-sharing and stricter drug price controls reduce pharmaceutical R&D spending. Deregulating market entry, however, may boost R&D investment, impacting innovation and drug development.

Keywords:

Cost-sharing Entry deregulation Health insurance I10 L10 O30 Patent breadth Pharmaceutical innovation

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Area of Science:

Health Economics
Pharmaceutical Policy
Innovation Economics

Background:

Pharmaceutical R&D expenditure is crucial for drug innovation.
Health insurance cost-sharing and pharmaceutical market regulations influence R&D investment and drug pricing.
Understanding these relationships is vital for effective health and innovation policy.

Purpose of the Study:

To analyze the impact of health insurance cost-sharing (coinsurance) and pharmaceutical entry regulation on R&D spending.
To investigate the relationship between R&D spending per firm and the number of firms in the pharmaceutical sector.
To determine how coinsurance rates and labor productivity affect the optimal number of competitors for R&D expenditure.

Main Methods:

Econometric analysis of pharmaceutical R&D expenditure.
Modeling the effects of insurance cost-sharing and market entry regulations.
Examining the R&D spending per firm in relation to the number of competing firms.

Main Results:

Higher coinsurance rates and stricter price regulations negatively impact pharmaceutical R&D spending.
Deregulation of entry into the pharmaceutical sector can lead to increased R&D spending.
The relationship between R&D spending per firm and the number of firms may exhibit a hump-shaped pattern.
The number of rivals maximizing R&D expenditure per firm decreases with higher coinsurance rates and increases with labor productivity.

Conclusions:

Policies affecting health insurance cost-sharing and pharmaceutical market entry have significant implications for R&D investment.
A balance is needed to encourage pharmaceutical innovation while managing drug prices and healthcare costs.
Market entry deregulation could be a strategy to stimulate pharmaceutical R&D, contingent on other economic factors like labor productivity.