Japanese foreign average price adjustment of a calculated new drug price

Moves a price calculated by cost accounting, or by similar efficacy comparison for a product without a similar pharmacological action, towards the foreign average price when it is far from it, as the 2021 MHLW slide sets out. Above 1.25 times the foreign average the price becomes P_calc/3 plus 5 P_fap/6, below 0.75 times it becomes P_calc/3 plus P_fap/2 up to twice P_calc, and between the two it is unchanged. The single line writes the slide's branches with min and max (derived here); the branches meet the unchanged price at exactly 1.25 and 0.75 times P_fap, so a tie at either threshold gives the same price whichever branch is applied. P_fap is the mean of the converted prices of the four-country basket after the slide's trimming of an outlying highest price, a mean that HE-CF-BOC-002 computes for any number of countries, and the threshold test is HE-FM-BOC-004.

Signature

P_adj = min(max(P_calc, min(P_calc / 3 + P_fap / 2, 2 * P_calc)), P_calc / 3 + 5 * P_fap / 6)
Inputs
InputsDefinitionUnit
P_calcPrice calculated by cost accounting or by similar efficacy comparison before the adjustment, the calculated value of the MHLW slidehome currency per unit
P_fapAverage of the converted prices in the United States, the United Kingdom, Germany and France after the slide's trimming ruleshome currency per unit
Output
P_adjPrice after the foreign average price adjustmenthome currency per unit, yen in Japan

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.

Try this function

Implementations

  • Excel

    Japanese foreign average price adjustment with nested IF

    With CalculatedPrice and ForeignAveragePrice named, the formula writes the slide's two branches with IF in classic Excel and the result is held in AdjustedPrice.

    =IF(CalculatedPrice>1.25*ForeignAveragePrice,(CalculatedPrice/ForeignAveragePrice/3+5/6)*ForeignAveragePrice,IF(CalculatedPrice<0.75*ForeignAveragePrice,MIN((CalculatedPrice/ForeignAveragePrice/3+1/2)*ForeignAveragePrice,2*CalculatedPrice),CalculatedPrice))

Assumptions

  • Adjustment limited to the pricing methods named by the MHLW

    The adjustment applies to the cost calculation method and to the similar efficacy comparison method for products without similar pharmacological actions, as described in 2021. Later revisions were not checked at a primary source.

  • Foreign average price trimmed before the adjustment

    P_fap follows the slide's trimming rules. With two or more prices and the highest more than 2.5 times the lowest, the average excludes the highest; with three or more prices and the highest more than twice the average of the others, the highest is counted as twice that average. The slide does not say which rule applies when both conditions hold, so P_fap is entered here as a given value.

Worked examples

  • Calculated price above 1.25 times the foreign average

    With an illustrative foreign average of 105, Basket A's mean, a calculated price of 140 exceeds 131.25 and is reduced to 140/3 plus 87.5, about 134.17 (illustrative values, computed here).

    P_calc = 140; P_fap = 105; P_adj = 134.1667

  • Calculated price within the band around the foreign average

    A calculated price of 130 lies between 78.75 and 131.25 and is unchanged (illustrative values).

    P_calc = 130; P_fap = 105; P_adj = 130

  • Calculated price below 0.75 times the foreign average

    A calculated price of 60 is below 78.75 and is raised to 20 plus 52.5, that is 72.5, within the cap of 120 (illustrative values, computed here).

    P_calc = 60; P_fap = 105; P_adj = 72.5

  • Raise limited to twice the calculated price

    A calculated price of 20 would be raised to about 59.17 by the formula but is capped at twice the calculated value, 40 (illustrative values, computed here).

    P_calc = 20; P_fap = 105; P_adj = 40

Common errors

  • Price cut to exactly 1.25 times the foreign average

    Setting the price to the threshold gives 131.25 in place of about 134.17 for a calculated price of 140 against 105. The slide's formula keeps one third of the excess above 1.25 times the foreign average, 2.92 here (derived here).

  • Raise applied without the cap at twice the calculated price

    Without the cap a calculated price of 20 against 105 rises to about 59.17, almost three times the calculated value, against the capped 40 (computed here for illustration).

Sources

  • MHLW formula 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 gives the adjusted price above 1.25 fold as (1/3 times the calculated value over the foreign average price plus 5/6) times the foreign average price and below 0.75 times as (1/3 times the same ratio plus 1/2) times the foreign average price, up to twice the calculated value, with the two trimming rules for the foreign average price.

    View source →

Canonical Identity

Persistent URI
https://healtheconomics.wiki/formula/japanese-foreign-average-price-adjustment-of-a-calculated-new-drug-price

Stable URI · Machine-readable · Resolvable · CC BY 4.0

Japanese foreign average price adjustment of a calculated new drug price | HealthEconomics.wiki