Latest Japanese P&R Reforms are Mixed Bag for Research-Based Pharma

Ahead of the new fiscal year starting April 2008, the Japanese pricing and reimbursement authorities have issued a number of important decisions that will affect the marketplace for innovative medicines. Quoted by Pharma Japan, the chairman of the Chuikyo (Central Social Medical Insurance Council) Takeshi Tsuchida commented that this year's revision to medical fees is "not as drastic as the last one two years ago but will still have a profound impact".

In Japan, changes to the fees that are paid to medical service providers often accompany a reduction in drug prices every two years, and this process routinely attracts criticism from the research-based industry (see Japan: 19 December 2008: Biennial Price Cut in Japan to Be Set at 5.2%). Nevertheless, there are a few encouraging developments for novel pharmaceuticals.

Perhaps the most obvious good news is that there has been some movement on how new pharmaceutical products are priced in Japan. The Drug Pricing Organisation will now contemplate using manufacturers' export prices when calculating prices for first-in-class imported pharmaceuticals, raising hopes of better margins for breakthrough drugs in future (see Japan: 14 January 2008: Innovators Bemoan Changes to Japan's Pricing System for Leading Drugs). In a further positive move, manufacturers' objections to pricing decisions under the Cost Calculation Method for imported drugs may be supported with testimony from clinical experts involved in drug safety and efficacy studies.

Japan's Elderly Drive Fee Changes

Turning to changes to medical fees, the key priority this year is to improve the reimbursement of medical services for Japan's growing army of elderly people. There is a particular emphasis on getting clinics and hospitals to work together in such a way that the money follows the patient better. There will be generous new fees paid for referrals in three main disease areas that can affect older people: dementia, depression and cancer. In oncology, there will be higher fees for hospitals that use chemotherapy on an ambulatory basis, provided that these facilities have the necessary specialist staff and a dedicated committee to oversee clinical practice in chemotherapy. Within acute conditions that affect the elderly, the Chuikyo has agreed that a ¥120,000 (US$1,112) premium will be paid to hospitals that administer Boehringer Ingelheim's (Germany) alteplase within three hours of cerebral infarction.

Meanwhile, any hopes that there will be a greater overall emphasis on ambulatory care for the elderly have been dashed. Plans to create a new category of doctor specifically tasked with looking after elderly patients across the whole treatment process were scuppered by powerful doctors' group the Japan Medical Association. Instead, planners have opted for a slight shift in the balance of responsibility between clinics and hospitals, and thus the fees they earn. Large hospitals will be the big winners from fee revisions that aim to incentivise repeat consultations, while smaller institutions already feel threatened by a decision to remove the somewhat nebulously defined "management fee" paid to doctors for looking after patients on an ambulatory basis.

Clinics and non-hospital care institutions will face further headaches under this year's reforms. From April, clinics will be eligible to receive a monthly fee of ¥600 per month for each chronically ill patient aged over 75. However, this is not all good news for drug-makers: although diagnostic tests will be bundled with this payment, pharmaceuticals will be excluded and their costs will have to be met through each clinic's often scant resources. Not surprisingly, the industry group that represents residential care homes, Zenroken, has urged the government to include medicines used in such institutions within the normal scope of the insurance system by 2010. However, given that Zenroken's own estimates put the average daily drug costs at ¥300 (US$2.8) per resident, the ministry will be unwilling to shoulder this burden.

Progress on Unapproved Drugs

However, there is some good news for innovative drug-makers from this year's reimbursement reforms. From April, providers will be reimbursed when using drugs off-label or in combination with other treatments and procedures that are already eligible for reimbursement. The health ministry will examine such uses case-by-case, on the basis of the scientific literature, and payment will be given for procedures that are deemed to be "advanced medical services". Although this does not amount to the flexible attitude to non-approved uses that the industry may desire, the authorities' willingness to budge on this issue has exceeded earlier expectations (see Japan: 7 January 2008: Japanese Government Hints at Softer Line on Unlisted Medical Products). Around 150 medical institutions in Japan will be able to offer "advanced medical services" in this way.

Dispensing Fees Reward Big Generic Sales

Elsewhere in the pharmaceutical sphere, this year's changes to pharmacy dispensing fees have gained the seal of approval from drug retailers, if not innovator drug companies. In an effort to make savings from greater uptake of generics, there will be a cut in dispensing fees paid to pharmacies that fill 30% or more of their prescriptions generically. This will be offset by giving a ¥40 premium to those pharmacies that have dispensed more than 30% of their medicines generically in the past three months. As with other healthcare services, scale is to be rewarded: pharmacies dispensing more than 4,000 prescriptions per month that are tied to specific large medical institutions will receive approximately double the premium of their lower-selling peers. In a disappointment for some parts of the drug retail industry, there are no plans to reconcile the two tiers of dispensing fees.

Outlook and Implications

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