Industry Trend Analysis - Value-Based Medicine Pricing System To Challenge Drugmakers - SEPT 2017

BMI View: Reforms to drive higher efficiency in Japan's pharmaceutical sector will continue as the country seeks to curb costs, while adapting to its ageing demographic profile. Regulatory reforms on outcomes based healthcare announced in 2017 by the Ministry of Health, Labor and Welfare, are centred on improving the experience of care, improving the health of populations, whilst simultaneously reducing per capita costs of healthcare. Pharmaceutical companies will need to embrace the value-based care trend and increase the attractiveness of their medicines to the healthcare system.

Pharmaceutical companies commercialising their medicines in Japan will increasingly face a more challenging business environment. The government is focussed on maintaining the population's access to medicines and in the face of an already stretched healthcare system and a limited budget - will continue to target pharmaceutical prices. Japan is facing a demographic transition that will see its workforce shrink. Low birth rates, limited immigration and world-leading longevity have created a hyper-ageing society: over a quarter of the population is older than 65 years of age 1. In view of the potential implications of this demographic shift and spiralling healthcare costs, in early July 2017, the Ministry of Health, Labor and Welfare (MHLW) proposed creating a more structured cost-effectiveness assessment scheme and introduce a larger role for value-based medicines.

Under the plan, to be introduced in April 2018, the Central Social Insurance Medical Council/Chuikyo, will use a standard processing time for the completion of cost-effectiveness assessments, used to set the chargeable prices for new drugs in Japan. Currently the Chuikyo, which is composed of academics, health insurers, physicians and government officials, provides recommendations on pricing which the MHLW takes into consideration in reaching a final decision. In this new value-driven healthcare system, pharmaceutical companies will need to focus on providing medicines that demonstrate measurable value to the payers.

Outcome Based Healthcare Key To The Future Of Japanese Healthcare

Japan's healthcare expenditure continues to increase relative to GDP growth, driven by the combination of an ageing population, increased prevalence of complex chronic diseases, and expensive technological advances. Healthcare spending in Japan amounted to JPY51.5trn (USD473.5bn) in 2016 and as a percentage of GDP, healthcare expenditure is high in Japan at 9.6%. BMI expects this to rise to JPY56.4trn (USD458.0bn) in 2021 and JPY61.6trn (USD481.5bn) by 2026.

Healthcare Spending To Continue To Grow
Japan: Healthcare Spending (JPYbn)
f= BMI Forecast. Source: World Health Organization (WHO), BMI

The situation is exacerbated by newly developed and high-priced healthcare technologies such as anti-cancer and anti-hepatitis drugs which has led to the growing awareness of the importance of economic evaluation. Value-based healthcare - achieving the best value for patients at the lowest possible cost - is increasingly gaining traction in Japan as health systems, sponsored by governments, aim to contain costs. Japan recognises its importance and in 2015 the MHLW advisory panel published Japan Vision: Healthcare 2035, in which it identified value based healthcare as one of the central components of its vision - to drive better care at lower costs. Other countries in the APAC region, for example, South Korea, Taiwan and Australia, have also demonstrated a strong interest in moving towards value-based healthcare and thus healthcare systems are in transition from evidence-based healthcare to value-based care.

Values-Based Medicine To Impact Drug Pricing And Access

In Japan, discussions on economic evaluation began in May 2012 within a newly established sub-committee of the Chuikyo, referred to as the Special Committee on Cost Effectiveness and a pilot phase for economic evaluation of new technologies started in 2016. In 2016, MHLW selected seven drugs including Opdivo (nivolumab) and Solvadi (sofosbuvir), to incorporate health technology assessment findings into the re-pricing decisions for these therapies as well as for the 2018 round of price cuts with the goal of improving the efficiency and sustainability of the Japanese healthcare system.

Under the new paradigm, greater emphasis will be placed on cost effectiveness assessments as well as value-based pricing of medicines. Therefore, along with showing that medicines are efficacious; pharmaceutical companies will need to demonstrate improved outcomes that justify the price. The pharmaceutical companies will need to anticipate greater use of outcomes based healthcare and higher evidence thresholds to support pricing and access in the Japanese pharmaceutical market. The value-based care environment will also create opportunities for pharmaceutical companies, which position themselves as an attractive option to public payers along with attempting to reduce costs across the care continuum and also improve outcomes.

[1]"Japan Statistical Yearbook 2017, Chapter 2: Population and Households", Ministry of Internal Affairs and Communication, Statistics Bureau, 2016.