Japan's Ministry of Health, Labour and Welfare (MHLW) has tabled a proposal that first generic versions of branded drugs be priced at 50% of the originator drug's price, from 70% currently. Concrete rules regarding special price cuts to long-listed drugs are also under consideration at the Central Social Insurance Medical Council.
IHS Global Insight perspective | |
Significance | The Ministry of Health, Labour and Welfare (MHLW) has put forward a plan to reduce the starting price for first generics to 50% of the originator branded price, from 70% currently, or 60% where more than 10 generics are on the market. |
Implications | Also under discussion are concrete proposals for special price cuts to long-listed drugs, with both measures part of government plans to increase generic uptake. The MHLW's proposed price change for first generics is designed to reflect actual transaction prices, after a market price survey in 2011 found an average 21% discrepancy between National Health Insurance list prices and transactions. |
Outlook | Although unlikely to be welcomed by the industry, the price cuts will be compensated for by volume growth, and are part of the government's cost-containment strategy to accelerate Japan's relatively low levels of generic uptake. |
Japan's Ministry of Health, Labour and Welfare has put forward a proposal that the National Health Insurance (NHI) reimbursement prices of first generics of branded drugs be set at 50% of the originator drug's price, as reported by Pharma Japan. The plan was tabled at the 13 November meeting of the Central Social Insurance Medical Council's (CSIMC) drug pricing subcommittee, where it met with no opposition from committee members. The CSIMC has also begun consideration of specific plans related to special price cuts for long-listed drugs.
Cut from 70% to 50% to reflect actual transaction prices
Currently, first generics are priced at 70% of brand-name drug prices, or 60% when more than 10 generic versions of the same product are on the market. The MHLW is proposing two calculation methods: either a simple halving of the NHI price of brand name drugs, or multiplying 70% or 60% of the brand name drug price by 79% – equating to prices at 55% of the originator where there are less than 10 generics going to market, or around 48% of the originator's price where there are more than 10 generics.
The MHLW justified its proposal as reflecting discounts applied to generics on the market. Reference was made to a market price survey carried out in September 2011 that found an average discrepancy of 21.0% between the NHI list price and actual market prices for first generics added to the NHI list from April 2010 to June 2011. Kunio Yanai, head of the Japan Health Insurance Association's Tokyo branch, referred to the discrepancy as indicating "NHI generic prices should be 60% of brand name drug prices. The percentage should drop to 50% when there are more than 10 generic products that contain the same ingredient", as quoted by the source.
The MHLW also proposes that generics prices be restricted to these two bands – under current rules, when there are at least 20 generic versions of a drug on the market, the price of a new generic is set at 90% of the cheapest existing generic. Committee members pointed to variable pricing for drugs containing the same active ingredient as contributing to doctors' and patients' distrust of generics.
Long-listed price cuts
At the same meeting, the CSIMC put forward concrete proposals for special price reductions against long-listed drugs for the next NHI price revision in April 2014. One-off price reductions are proposed for long-listed drugs (off-patent branded drugs) of which generic substitution rates are below 60% on a volume basis, following at least five years since first price reduction upon generic entry. The specific reduction rate was not tabled, and this will be considered by the CSIMC. The MHLW noted that calculation of the specific reductions will take into account the premium for new drug development, which currently amounts to JPY68.9 billion (USD689.4 million) annually for pharma firms as a result of price-maintenance effects for new drugs. Also coming into the calculation is the 4–6% automatic price reduction for original drugs upon first listing of generics.
Outlook and implications
The proposals are part of MHLW plans to increase generic uptake to at least 60% by volume of the off-patent market in Japan, and should produce considerable acceleration in uptake, as envisaged in recent plans that foresee promotion of generics as a central cost-containment strategy (see Japan: 10 September 2013: Japan's MHLW plans to reduce health spend by USD10 bil. through generics promotion). At the CSIMC meeting, the ministry cited a patient survey that found patients would be more incentivised to choose a generic if priced at 50% of the originator. Progress towards increasing generic uptake has been relatively slow in Japan, reaching 26.5% by the fourth quarter of fiscal year 2012/13 – falling short of an MHLW target of achieving 30% of overall prescription drug sales by end-2012/13 under the previous calculation method (see Japan: 8 July 2013: Japan's generics market share reaches 26.5%, JSGM proposes single brand name for combination drugs).
The announcement on long-listed drugs adds flesh to the bones of proposals announced last year, and will not surprise industry (see Japan: 19 November 2012: Japan's CSIMC approves further cuts to long-listed generics). The ongoing pricing pressure for long-listed drugs is designed to compensate for the 2010 introduction of the "premium to promote the development of new drugs and eliminate off-label use" – a price-maintenance scheme that grants exemption from the NHI price revisions for innovative drugs meeting certain conditions.
The CSIMC committee was made up of bill payors and healthcare providers, and the industry response has yet to be reported. The committee is likely to formally hear the views of the industry at a later date. The move will not be welcomed, although lower prices would be compensated by higher volumes. Generic companies have benefited from the ongoing promotion of generics uptake: amid third-quarter results releases for this fiscal year, the top-three domestic generic manufacturers are forecasting average full-year sales growth of 9.9%, while the other 12 generic-focused firms forecast sales increases of 17.0% on average for this year.
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