Considered a world leader in innovation that stretches well beyond healthcare, Japan is in the midst of substantial changes that govern how novel therapies will be assessed and reimbursed now and in the future. As the world’s second largest pharmaceuticals market, Japan has long been considered an attractive market for manufacturers, thanks to a variety of aspects:
EU – European Union; US – United States.
Sources: L.E.K. Special Report: New Realities of Drug Pricing and Access in Japan; Harvard Business Review. Why the pharmaceutical industry is booming in Japan; McKinsey & Company. Improving Japan’s health care system.
However, as the cost of healthcare increases, the healthcare climate is changing in Japan. To overcome these favorable conditions for those seeking access in the Japanese market, policymakers have begun taking measures to keep healthcare resource utilization under control, starting with drug pricing.
Until recently, all new drugs and medical devices approved by the Japanese Pharmaceutical and Medical Devices Agency (PMDA) (the equivalent of regulatory bodies like the European Medicines Agency [EMA] / Food and Drug Administration [FDA]) have been reimbursed by the public healthcare insurance without any cost-effectiveness appraisal. In place of a pharmacoeconomic appraisal, the official price for all drugs and medical devices has been determined by the Ministry of Health, Labor, and Welfare (MHLW) based on 2 calculation methods:
While the prices derived from both methods cannot be negotiated, they are revised based on the average list price in France, Germany, and the UK. (The US was removed from the foreign reference pricing basket in January 2017 due to its exceptionally high drug pricing). Depending on where the initial calculated price for a novel therapy in Japan lands, as compared to these reference countries, the calculated price is increased or decreased if it is ≤0.75 or ≥1.25 times the average price abroad. Foreign reference pricing (FRP) has been a major factor that has affected a number of therapies in past years. For instance, Eisai’s antiepileptic Fycompa (perampanel) benefited from an upward FRP adjustment to receive a 100% premium over its comparator, GSK’s Lamictal (lamotrigine). On the other end of the spectrum, the price of Minophagen Pharmaceutical’s Targretin (bexarotene) for cutaneous T-cell lymphoma was cut down by 25% to match the price of Targretin in the UK, France, and Germany.
The need for pharmaceutical pricing reform became apparent when this system resulted in several instances of atypically high drug costs. The shortcomings of the Japanese drug pricing system were highlighted in 2014 when Bristol-Myers Squibb’s Opdivo (nivolumab) was launched at a price more than double its US price and almost 5 times its UK price. These high costs were compounded as the therapy was approved for additional indications (non-small cell lung cancer and renal cell carcinoma) in 2016, resulting in increased healthcare costs. The Special Organization for Cost-Effectiveness was created as a subcommittee of the Central Social Insurance Medical Council (Chuikyo) in order to reprice selected “ultra-expensive” drugs and medical devices at the end of FY 2017. The Special Organization for Cost-Effectiveness represents the Japanese government’s effort to reduce healthcare expenditure through a health technology assessment (HTA) pilot system.
The Special Organization for Cost-Effectiveness Subcommittee, consisting of 16 Chuikyo and 7 non-voting members, first targeted 13 products (7 drugs and 6 medical devices) for cost-effectiveness evaluation based on their premium rate and market size.
Manufacturers of the selected products were asked to submit cost-effectiveness data to the MHLW in October 2016. In lieu of the non-existent HTA agency, the Japanese National Institute of Public Health (NIPH) has coordinated the review process alongside various academic groups. Although early 2016 saw several price cuts for targeted products (eg, the prices for Sovaldi and Harvoni were reduced by 31.7% and Opdivo by 50%), these products saw further repricing considerations upon completion of this pilot project.
In early 2018, the Special Organization for Cost-Effectiveness appraisal was completed, and the impact on drug pricing was revealed. As a result of this endeavor, the Japanese government anticipated the price of drugs would decrease by at least 1.45% starting in April 2018. Drugs that are newly entering the market and cost at least 5 million yen (approximately USD $44,700) more than existing treatments per year will also face price cuts. Additionally, the 2018 pricing reform package resulted in a number of other changes that aim to limit pharmaceutical expenditure:
- Further limiting the number of products exempt from mandatory repricing
- Changing how the FRP is calculated
- Subjecting drugs to mandatory repricing every year instead of every 2 years (beginning in FY 2021)
Furthermore, the reforms include a provision for the development of a “full-scale” HTA system to be completed by the end of FY 2018, which is likely to be modeled after the pilot cost-effectiveness tested on the initial 7 drugs.
Considering the dramatic shift in Japanese drug pricing policy, it will be critical to remain abreast of the ongoing changes in 2018 and beyond. Regardless of the nuances that are discussed and implemented, it is clear the traditional mechanisms for determining reimbursement in Japan will make way for a more novel and sophisticated evaluation centered on cost-effectiveness.
The article should be referenced as follows:
Clark R, Jang R. Japan’s ongoing shift from a traditional reimbursement assessment to a novel cost-effectiveness submission requirement. HTA Quarterly. Late Summer 2018. Sept. 12, 2018.