A Shot in The Arm for Japan’s Healthcare Sector

GR Japan’s Jennifer Friedman and Junta Asai analyse how government policy will develop in the healthcare sector
Screenshot 2016-09-05 12.13.47

Chief Cabinet Secretary Suga: Wants to reward innovation through government policy in areas such as healthcare

Prime Minister Abe’s first “Japan Revitalization Strategy”, launched in 2013, included a bold vision for the healthcare sector – one where Japan leads the world in access to the most advanced medical technologies and services and the nation pioneers new solutions to the healthcare challenges of its aging society.

Since articulating this vision, the government has introduced a number of policies promoting the healthcare sector. The government’s Sakigake (“pioneer”) initiative sets out the goal of being a global leader in the practical application of innovative medical products and devices. Domestic and foreign manufacturers seeking first worldwide approval in Japan received Sakigake designation for six drugs, two devices and three regenerative medicines. With that designation, the manufacturers’ commitment to the Japanese market is rewarded with various benefits, such as streamlined approval processes and more generous reimbursement pricing.

The government’s efforts to shrink the drug and device approval lag have been effective, thanks to staffing boosts and efforts to streamline processes at the Pharmaceutical and Medical Devices Agency. The government aims to eliminate the drug and device approval lag completely by 2020.

Reimbursement under the National Health Insurance system is typically decided by the Drug Pricing Committee of the Central Social Insurance Medical Council, or Chuikyo, in a biennial price revision. Revisions are based on the market value of drugs and usually result in downward revisions (i.e. price cuts). The government has therefore introduced a price maintenance premium to protect important and innovative drugs from price cuts relative to changes in market prices for a fixed initial period.

However, these policies to encourage development, reward innovation and create stability are not “sure things”: the process and timeline for a next round of Sakigake designations are unclear; the price maintenance premium is not permanent, but rather extended two years at a time; and there have been hints from some government officials that the eligibility criteria for pricing premiums might be tightened.

The healthcare sector is also facing budgetary headwinds. The government’s goal of limiting growth in social security spending (which includes National Health Insurance) to approximately ¥1.5 trillion for the three-year period ending FY2018 – a level calculated only to keep pace with costs associated with population aging – does not allow for spending growth due to factors such as the cost of technological advances and new, innovative prescription drugs such as immuno-oncology and genomic medicines.

The government’s decision to delay an increase in the consumption tax from 2017 to 2019 also creates new financial pressure in the form of a hole in the 2017 budget that needs to be filled. Any inability to constrain spending in 2017 consistent with the overall three-year growth limit of ¥1.5 trillion will only serve to tighten the outlook for repricing in 2018.

These budget pressures reinforce and further inspire calls to “optimize healthcare spending” – a euphemism for cuts, including by limiting the use of some treatment options. New guidelines to “optimize” the use of expensive drugs will likely be taking shape as this piece goes to publication. Policy changes in 2017 may also include downward out-of-cycle repricing for some high-cost prescription drugs and legislation to give teeth to the government’s goal of shifting hospital care to lower cost settings and shortening the length of hospital stays, as well as increasing the proportion of health costs that higher-income seniors must pay.

Looking to 2018 and beyond, the government’s health technology assessment (HTA) pilot will begin to inform pricing for certain drugs. Implementation questions remain and more drugs will likely be subject to HTA, with expansion to medical devices also possible. Some political forces will also continue to seek annual repricing of prescription drugs.

The government has shown willingness to move quickly when it comes to rising healthcare costs, as seen by the price cuts for “huge seller” prescription drugs put in place less than one year after new treatments for hepatitis C entered the market. The government faces an array of health policy issues and while it will move quickly on some, such as those recommended by the Prime Minister’s Regulatory Reform Council, other public health and prevention issues are languishing and will take longer to materialize.

Meanwhile, Chief Cabinet Secretary Suga, who remains in place despite a recent Cabinet reshuffle, is expected to continue acting as a champion of policies that reward innovation.

The healthcare sector will continue to face an evolving array of business risks and opportunities as the government seeks to balance its many health policy objectives, including the dual goals of encouraging innovation and constraining costs.


Screenshot 2016-09-05 14.30.03This article appeared in an eight page special report produced in association with GR Japan. Click here to download the report