How has Japan valued innovation in healthcare-related technologies and where will it go from here?

How has Japan valued innovation in healthcare-related technologies?

Firstly, in Japan, newly listed NHI (National Health Insurance) drug prices are officially determined according to the following two methods:

  1. The Comparator Pricing Method – for new drugs that have a comparative drug (most similar drug). Under this method, the NHI price of a newly listed drug is basically set at the current NHI price level of its comparative drug. If the newly listed drug is superior to its comparative, a premium would be added.
  2. The Cost calculation Method – for innovative new drugs that do not have a comparative drug. In this case, the NHI price of a newly listed drug is determined by its estimated cost (that is to say the cost of manufacturing + development, including PMS + marketing + the premium), the industry-average profit margin, the industry-average distribution cost and taxes.

Under both of these methods, the average foreign price listings in the US, UK, France and Germany all play a crucial role as pricing references. These benchmarks suggest to policy makers a “sense of the appropriate price” and/or a “point of compromise.”

Secondly, Japan’s pricing structure for medical devices is virtually identical to that of the pricing structure for medications; the only difference is the existence of a functional category, which is based on the clinical benefits of each device. The level of reimbursement for a medical device is determined by this functional category.  On the other hand, drug prices are listed by brand and not by functional category.

Where will pricing and valuation go from here?  What are our challenges?

The QALY-based approach to valuing healthcare-related technologies has been intensively studied in Japan for the past two years. Nevertheless, it seems to me that the approach will not be put into practice in the near future in Japan, mainly because of political difficulties, lack of understanding and/or the lack of human resources for smooth operations.

However, other types of policy, based on cost-effectiveness and introduced in Europe, indirectly affect drug and device pricing in Japan. For example, suppose that cost-ineffective drugs are partially covered by a country’s NHI system although their list prices stay the same. Acknowledging this movement, Japanese policy makers would no longer see the average foreign list prices as reference prices and then the NHI price in Japan would be set at a much lower level than the average foreign list prices.  On the other hand, such a low price level might reduce R&D incentives for pharmaceutical companies.

May I ask for your suggestions/information – concomitant drugs?

I am personally concerned about concomitant drugs. The number of concomitant drugs is expected to increase. However, their cost effectiveness is usually considered as low. For example, suppose that a concomitant drug “A” enhances the effectiveness, efficacy and safety of the existing drug “B” by 30% if used together.  From the viewpoint of cost-effectiveness, the concomitant drug’s price must be 30% of “B”, implying significantly low R&D incentives for “A.”

I will welcome any suggestions and/or information from readers, regarding how to keep R&D incentives for concomitant drugs, while maintaining sustainability of our NHI system.

Professor Hiroshi Nakamura, Keio University

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