Signature
T = k * P_ref; D = P_prop - T
| Inputs | Definition | Unit |
|---|---|---|
k | Multiplier applied to the basket reference price, 1.25 in the article's illustrative rule | none, above zero |
P_ref | Basket reference price, such as the mean or the highest converted price | home currency per unit |
P_prop | Proposed domestic price for the same product and price type | home currency per unit |
T | Ceiling for the proposed domestic price | home currency per unit |
|---|---|---|
D | Proposed price minus the ceiling; positive means the price is above the ceiling | home currency per unit |
Function
Basket-of-countries reference price and currency conversion function
Maps the prices of one medicine observed in a basket of reference countries, each in its own currency, and the exchange rates or purchasing power parities that express them in one currency, to a domestic reference price under an aggregation rule and to a ceiling for a proposed domestic price. The same conversions move any cost record between currencies. A cost from another year is first moved to the common price year with the live price-year adjustment HE-FM-COST-002 of the resource costing function HE-FN-COST-001, and the index itself belongs to the Consumer Price Index concept. A basket price reflects what other countries list, while the economically justifiable price HE-FM-EJP-001 and the break-even price HE-FM-BEA-001 give the highest price at which a technology is cost-effective at home. Notation follows the Basket of Countries article.
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Implementations
Excel
Basket ceiling and margin from named cells
With the multiplier in CeilingMultiplier, the reference price in ReferencePrice and the proposed price in ProposedPrice, the first formula returns BasketCeiling and the second CeilingMargin. The third returns TRUE when the price is above the ceiling.
=CeilingMultiplier*ReferencePrice; =ProposedPrice-BasketCeiling; =CeilingMargin>0
Assumptions
Proposed price and basket prices on one basis
P_prop and P_ref are for the same strength, dosage form and price type and in the same currency after HE-FM-BOC-001, so the margin compares like with like.
Price exactly at the basket ceiling accepted
A price equal to the ceiling gives D = 0 and is accepted. This follows the wording of each trigger (derived here), since the article's rule cuts prices above 1.25 times the average, the MHLW slide adjusts prices exceeding 1.25 times the foreign average price and the PMPRB Guidelines send prices above the HIP threshold to an In-Depth Review, and none of these texts addresses an exact tie.
Worked examples
Article's Basket A ceiling at 1.25 times the mean
Basket A's mean of 105 gives a ceiling of 131.25, so the proposed price of 130 is accepted with 1.25 to spare, as in the article.
k = 1.25; P_ref = 105; P_prop = 130; T = 131.25; D = -1.25
Article's Basket B ceiling at 1.25 times the mean
Basket B's mean of 91 gives a ceiling of 113.75, so the same proposed price is 16.25 above it and is cut, as in the article. The change of basket alone moves the ceiling by 17.5.
k = 1.25; P_ref = 91; P_prop = 130; T = 113.75; D = 16.25
Highest-price test with a multiplier of one
Under a PMPRB style test with k = 1 on Basket A's highest price of 140, the proposed price of 130 is 10 below the ceiling and would not trigger an in-depth review (illustrative prices).
k = 1; P_ref = 140; P_prop = 130; T = 140; D = -10
Common errors
Multiplier applied to the lowest basket price
Applying 1.25 to Basket A's lowest price of 80 gives a ceiling of 100 instead of 131.25 under the article's mean-based rule, so the proposed price of 130 would be cut by mistake (computed here for illustration).
Basket ceiling read as a change in the value of the drug
The ceiling falls by 17.5, from 131.25 to 113.75, between Baskets A and B with no change in the drug or its evidence. A cost-effectiveness model that uses the ceiling as the drug price states the basket, the price type, the exchange-rate rule and the aggregation formula and tests other prices in sensitivity analysis, as the article recommends.
Sources
MHLW conditions for the foreign average price adjustment
Ministry of Health, Labour and Welfare (Abe Y). Japan's NHI Drug Price System. Presentation, 1 April 2021, hosted by the Pharmaceuticals and Medical Devices Agency. Slide headed Foreign Average Price Adjustment, part 1 (page 17 of the PDF), which defines the foreign average price as the average of prices in the US (Medicare or Medicaid), the UK, Germany and France and sets a reduction adjustment for prices exceeding 1.25 times the foreign average price and a raise adjustment for prices below 0.75 times it, for the cost calculation method and the similar efficacy comparison method for products without similar pharmacological actions.
PMPRB in-depth review of prices above the highest international price
Patented Medicine Prices Review Board. Guidelines for PMPRB Staff, in effect 1 January 2026. Paragraph 50, under Initial Review, which states that patented medicines whose prices are above the HIP threshold are subject to an In-Depth Review.
Canonical Identity
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