In a world where ageing populations and rising government debt levels have increased the pressure on pharmaceutical pricing, Japan has bucked the global trend and strengthened its support for innovation. In this past year the government here has made changes that have significantly improved the pharmaceutical pricing environment for the industry[i].
There have long been some major strengths to the Japanese pricing system, principally that reimbursement almost always quickly follows regulatory approval (see image below). In addition, this reimbursement is nationwide. The only significant hurdle to be cleared between regulatory approval and reimbursement is the price negotiation with the Ministry of Health, Labour and Welfare (MHLW)[ii]. But there have also been some longstanding weaknesses, mainly that after the launch price has been agreed there are regular price cuts. These – as I know from multiple comments I have heard over the years from company general managers in industry association meetings – make business planning more difficult.
The result of these regular price cuts – biennial cuts for all products, but other price cut mechanisms for selected products too – was that by the end of the first decade of the 2000s there was a considerable “drug lag” (products reaching Japan much later than the US and Europe) and “drug loss” (not reaching Japan at all). Growing awareness of these twin problems led the government of the time to introduce in 2010 the Price Maintenance Premium (PMP), a mechanism for protecting the more innovative products from the regular price revisions. What followed was a “golden” period of five years or so, in which the pricing system was supportive of innovation and the drug lag and drug loss problems lessened significantly[i].
Unfortunately, good things don’t always last, and beginning in 2016 with the introduction of annual (not just biennial) repricing for selected products, the pricing system entered a period of deterioration as the Japanese government attempted to squeeze drug spending to manage overall healthcare spending. Revisions to the PMP criteria were made to narrow the range of products benefiting and also to reduce the value of the protection2. This decline in the support for innovation led to the somewhat predictable outcome of worsening drug lag and drug loss problems, and commensurate growing concern from numerous stakeholders.
By the early 2020s the tone of the public debate was shifting, with support for pharmaceutical innovation becoming a cause taken up by several politicians and other stakeholders. At the same time, the industry associations here – for historical reasons there are three research-based associations, representing Japanese, US and European companies respectively (JPMA, PhRMA Japan, and EFPIA Japan) – began to better coordinate their efforts[ii]. This combination of a more positive political environment and more effective industry advocacy led to a number of significant positive changes in the annual revision of the pricing system in April 2024.
The changes last spring[iii] have made the Japanese market much more positive for the pharmaceutical industry. These changes included:
- Products receiving the Price Maintenance Premium (PMP) will now see their NHI prices fully maintained
- PMP product coverage has been expanded
- A new price premium has been created to incentivize the early introduction of new drugs to Japan
- Requirements have been eased for the granting of price premiums for new drugs
- The spillover repricing rule has been reformed
- The number of products eligible for unprofitability repricing has been increased substantially.
It was an impressive package, and received a cautious welcome from the Chair of PhRMA Japan, Lilly’s Simone Thomsen: “For the very first time in many years, we see some positive changes, and we feel like this is an important step”[iv].
It should be remembered though that there was a quid pro quo in all this. The Japanese government has improved the pricing environment because it wants to get more innovative treatments to patients in Japan. The MHLW has been frank about this and how any future improvements to the pricing system will depend on the industry holding up its side of the deal, as senior MHLW official Tadayuki Mizutani has said: “We sent a message…We want to see moves towards the elimination of drug losses. Such moves will then lead us in the direction of further rewarding innovation”[v].
So, will there be a virtuous circle – the drug lag and drug loss shrink, followed by further strengthening of the support for innovation, and then further shrinking of those problems? It is too early to tell quite yet, but there are some positive signs. Originator companies themselves may now bring more innovative products to patients here, but even if they do not others may step in, with media reports that “an increasing number of companies in Japan are showing an eagerness to snatch up ‘drug loss’ assets”[vi]. These include not only pharmaceutical companies but also trading companies, contract research organizations (CROs) and wholesalers. Neither the government nor the patients of Japan are likely to care who it is that brings the innovation to the country, so long as it happens.
The upshot is that the drug pricing environment has definitely improved in Japan in the past year. And if things go to plan, it may improve further. In this land at least, the sun is rising.
Simon Collier Head of Market Access, Japan at Cencora is an experienced market access professional who has lived in Japan for over 25 years. He is a former British diplomat, former Director General of EFPIA Japan, and has led the Japan market access function within pharmaceutical corporations.
[i] Pharma Japan, “Gist of FY2024 Drug Pricing Reform”, (23 December, 2023)
[ii] “Update of Drug Pricing System in Japan”, Masanobu Yamate (Deputy Director, Economic Affairs Division, Health Policy Bureau, Ministry of Health, Labour and Welfare)
[iii] How Could the 2024 NHI Drug Pricing Reform Reduce Drug Lag and Loss?”, PhRMA Japan (3 April, 2024)
[iv] JPMA/PhRMA/EFPIA “Joint Statement on Proposals for the 2024 Drug Pricing Reform”
[v] The MHLW’s summary of the changes can be found here: www.mhlw.go.jp/content/12404000/001218693.pdf (Japanese only)
[vi] Pharma Japan, “PhRMA Hails 2024 Reform, but Says Full Picture Unchanged as 50% of Patented Meds Still Face Cuts” (4 April, 2024)
[vii] Pharma Japan, “Japan Wants to See Positive Trends on Drug Development after Reform: Official” (23 April, 2024)
[viii] Pharma Japan, “Japan’s Drug-Loss Landscape is Transforming Driven by Private Sector” (21 August, 2024)
