was spent on drugs (by contrast, in the United States the share of national health care expenditures for drugs was 6 to 8 percent) (35). By that time, as Neimeth mentions, Japanese firms had acquired the basic technology, R&D capability, and financial strength to generate major new drugs, and the government then enacted a product patent law to protect these products. In the 1980s significant downward adjustment of prices occurred, and pre-marketing approval requirements were harmonized with international standards, allowing international competition. As a result of increased competition and decreased profitability, Japanese companies increased their investment in research and their globalization efforts.

Neimeth thus shows how patent, regulatory, and payment policies have combined to create a strong industry. This growth, however, has come at a price. First of all is the likely inappropriate use of drugs reflected in the immense share of total health care expenditures. Moreover, some observers believe that Japan's innovative capacity might have developed sooner if policies had allowed more foreign competition and if patent protection had been in place earlier.


This society generally values technological innovation in medicine. Over time, a set of public policies has evolved to encourage the development of new medical technology. At the same time, in our pursuit of other policy objectives—such as enhancing safety, access, or cost-effective care—we may inhibit innovation. This volume discusses the complex interdependencies and trade-offs in public policy that affect the nature and rate of technological change.

In contrast to other sectors of the economy, research on the economics of innovation in medicine is just emerging, and this volume tends to pose more questions than it answers. This is especially true when one takes into account the influences that motivate innovation in the small device firm, the new biotechnology firm, or the surgeon innovator. Obviously, improved understanding of the basic mechanisms that underlie technological change is necessary if government interventions are to be successful in encouraging not only the diffusion, but also the development, of cost-effective technology. We hope that this volume stimulates much-needed empirical research on the economics of medical innovation and contributes to a better understanding of the critical issues in public policy during the 1990s.


1. The term “payment policy” encompasses both coverage and reimbursement strategies and practices. Coverage refers to the decision to pay or not pay for a technology and under what circumstances. The reimbursement decision involves how much to pay for the technological intervention and how.

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