Japan’s Ministry of Health, Labour, and Welfare (MHLW) announced its latest wave of drug pricing cuts last month, the latest in a series of biennial price adjustments that began in the early 1990s. Under the Japanese national healthcare insurance system, the government reimburses hospitals and other medical clinics for pharmaceuticals at prescribed rates, effectively setting wholesale retail prices. The government has continually cut reimbursement prices in recent years in an effort to reduce high healthcare costs. As a result of these cuts, the size of Japan’s domestic prescription drug market has remained relatively stagnant around 6 trillion yen (US$47 billion) since 1995.
The April 1, 2002 price cuts amount to an average reduction of 6.3 percent, meaning a loss of 400 billion yen (US$3.1 billion) in revenue for Japan’s pharmaceutical industry. Drugs with expired patents are subject to price cuts of about 10 percent. Previously, the government did not lower reimbursement prices after a drug’s patent expired. Despite significantly higher prices, original patent holder’s products continue to dominate the market, even after cheaper generic versions are introduced. To change this, the government will pay incentives to institutions and doctors that prescribe generic products rather than those of the original patent holder.
In addition to the drug price cuts, the government plans to increase salaried workers’ portion of healthcare costs from the current 20 percent to 30 percent. The increased out-of-pocket costs for consumers may very well mean lower usage, further lowering overall costs to the government and lowering profits for pharmaceutical companies in Japan.
In 1991, drug costs accounted for almost 30% of Japanese healthcare expenditures. Today, the rate is about 20%. However, per capita drug utilization in Japan remains roughly 70% higher than in the U.S. or most European markets, contributing to higher healthcare costs. The higher per capita drug utilization in Japan is explained not only by Japan’s large elderly population, but also by cultural considerations. Japanese doctors have a greater propensity to prescribe medication, and Japanese patients are more willing to listen to the doctor’s advice unquestionably and take anything that is prescribed. To ease the burden of healthcare costs on Japanese consumers, especially the elderly, the government plans further price reductions in the coming years.