Objectives: Our main objective is to examine whether the Japanese government's pharmaceutical price reduction policy has reduced the size of pharmaceutical profit traditionally enjoyed by health care providers. We discuss alternative measures that the government could introduce in an attempt to control drug costs. Methods: We review Japan's pharmaceutical reimbursement system. We then analyse published and unpublished data in an attempt to reach our main objective. Calculations are made from raw data, provided by the National Hospital Federation of Japan, in order to discover the extent to which hospitals are experiencing financial difficulties. Results: Due to pharmaceutical product shifting by hospitals from older, less profitable drugs to newer, more profitable ones, drug profit margins may not have fallen to the extent that is often reported in the Japanese press. Furthermore, increased prescribing, possibly due to the ageing of the population, may have maintained the total drug profits of hospitals, to a large extent, despite any reduction in profit margins. Conclusions: Although drug price reduction policy has had some success in controlling pharmaceutical expenditure, there is little evidence to suggest that total pharmaceutical profits for the provider units have been seriously undermined, despite the prevalence of this notion among hospital administrators. Nevertheless, in order to promote the more efficient and effective manufacture and utilization of pharmaceuticals, the government should seriously consider alternative methods for controlling pharmaceutical costs.
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