As global drug companies look to expand into Asia, having insight into the drug market access environment in China, Korea, and Japan is more important than ever. Although the drug registration procedure is getting less complicated in these markets, market access in terms of reimbursement and pricing is harder to attain. This article examines how changing reimbursement mechanisms, price management strategies, and access methods drive the life sciences sector in Asia’s three largest markets.
China: Easier Registration, Harder Market Access
In the last five years, drug registration in China has been smoother and more transparent. Regulatory reforms have opened the market to more foreign drugs, enabling faster routes to marketing authorization. However, these advances in regulatory approval have come with huge challenges in market access, especially through aggressive pricing controls and reimbursement restrictions.
Reimbursement Pathways and Pricing Pressures
The National Essential Medicines List (NEML) consists of medicines considered essential to disease prevention and need to be stocked in high proportions by public hospitals. The NEML is designed to ensure that Chinese citizens have access to safe, effective, and affordable medicines. It prioritizes essential drugs for common diseases and public health needs, supporting rational drug use across the healthcare system.
The Chinese National Reimbursement Drug List (NRDL) is one of the most important instruments for broad market access. All medicines in the NRDL are covered for reimbursement under this public program in China. Medicines on the A list are reimbursed fully, while medicines on the B list receive partial reimbursement.
In spite of these market access opportunities, foreign manufacturers are frequently under great price pressure if they want their products to be included on these lists. To get listed in the NRDL, manufacturers normally need to voluntarily accept deep price cuts—frequently 40% to 70%. In addition, once a product is listed, the same product manufactured by competitors can be reimbursed as well, making it harder to maintain a competitive edge.
In recent years, however, more foreign companies have opted instead to skip the NRDL entirely to maintain their price premiums – they simply sell their products at higher out-of-pocket costs and target mostly affluent patients.
Volume-Based Procurement: A Double-Edged Sword
The most significant overhaul of China’s drug pricing system is the increased use of Volume-Based Procurement, or VBP. Implemented in 2018, the VBP program compels individual manufacturers to significantly reduce their prices in exchange for large-volume purchasing contracts with government hospitals. Most drugs qualify for VBP when sales volume reaches $70 million annually.
The eighth and ninth rounds of VBP have seen prices fall by up to 80% in nearly 100 categories of drugs. The scheme, while able to push volume significantly, leads to a significant decline in unit prices, damaging margins and long-term profitability.
The tenth round of VBP with 60 drugs was issued in late 2024. This round includes therapeutic categories such as gastroenterology, hematology, cardiology, neurology, and oncology. The number of shortlisted companies was decreased, and only companies with a comparable price per unit of less than 1.8 times the lowest comparable price for the same product would be eligible. VBP remains an effective tool for the Chinese government to negotiate discounted drug prices in exchange for selling in high volume.
Emerging Reforms and Innovation Incentives
To counterbalance the drawbacks of VBP and low NRDL prices, pilot programs are being tested. In 2024, Shanghai initiated the “Measures to Diversify Payment Mechanisms,” a program that uses commercial insurance to cross-subsidize reimbursement for new medicines. Insurers will have access to greater health information under this plan, allowing them to issue customized policies that include coverage for new treatments.
Additionally, the National Healthcare Security Administration started an incentive that provides premium pricing for chemically innovative drugs of high value. These are initial measures toward achieving a balance between cost control and incentives toward breakthrough innovation.
Korea: Balancing Cost-Effectiveness and Innovation
South Korea’s National Health Insurance (NHI) program covers nearly the entire population and has a decent drug reimbursement system. As in China, however, Korea has been known for being more conservative in its pricing strategy, which has discouraged the launch of some expensive new medicines.
Reimbursement Process and Price Negotiation
The drug reimbursement process in Korea is handled by the Health Insurance Review and Assessment Service (HIRA). After a new drug has been approved, it is subjected to a pharmacoeconomic analysis (PE). Using the result of this analysis, the HIRA and National Health Insurance Service (NHIS) negotiate a reimbursement price – the maximum price that hospitals can sell the drug for.
Drugs for cancer and pediatric or orphan diseases for which there are currently no available alternatives are exempt from PE, making it faster for them to receive reimbursement. Price negotiations for other drugs are conducted based on comparative effectiveness or weighted averages of similar products that already exist on the market. If companies are not satisfied with the prices determined, they can appeal for a review.
Reforms and Risk-Sharing Agreements
To mitigate escalating pressure from patients and drugmakers, Korea has implemented numerous reforms to provide wider access to innovative drugs. A notable example is the expansion in Risk Sharing Agreements (RSAs), wherein conditional reimbursement of expensive medications is permitted. In an RSA, a company is obligated to offer refunds or price rebates if the medication does not yield desired outcomes, thus diminishing fiscal risk to the healthcare system.
A report released in 2024 by the Seoul National University R&DB Foundation indicated that RSA adoption and Cost Effectiveness Analysis (CEA) waivers have cut in half the drug reimbursement time, which used to take as long as 1,000 days. Concurrently, price negotiation duration has been cut from 60 to 30 days, further streamlining the process.
Despite these positive developments, one challenge persists: how to define what constitutes an “innovative” drug. Foreign manufacturers typically prefer lenient definitions encompassing drugs with new mechanisms or breakthrough designations, whereas domestic firms insist on stricter requirements, like involvement in domestic clinical trials or designation under Korea’s Global Innovative Products on Fast Track (GIFT) program.
The Korean Ministry of Health and Welfare (MOHW) has also set up a private-public working committee to synchronize these positions and establish more detailed standards. The result of these negotiations may determine the path of Korea’s reimbursement policy and its appeal to global drug companies.
Japan: Price Controls and Premiums for Innovation
Japan, the third-largest pharmaceutical market in the world, is known for its aging population and high healthcare spending. Although Japan has subsidized pharmaceutical innovation for decades, recent reforms seek to reduce costs while preserving an innovation-friendly market.
National Health Insurance Pricing System
Following drug approval by the Pharmaceuticals and Medical Devices Agency (PMDA), companies need to acquire a reimbursement price from the Central Social Insurance Medical Council (Chuikyo). The price is typically determined using a comparative pricing approach, or in cases of innovative medicines, a cost-based approach.
Chuikyo offers some price premiums:
- Innovation Premiums: For drugs that show significant clinical benefits
- Orphan/Pediatric Premiums: For products for rare or pediatric diseases
- Rapid Introduction Premiums: For needed drugs launched in Japan before they are available in the US or EU.
These premiums offer manufacturers higher prices, although they are likely to be reduced over time if the drug’s relative advantage decreases.
Price Maintenance and Adjustment
Among the prominent mechanisms within Japan’s price regime is the Price Maintenance Premium (PMP) to guard against the erosion of the price of patented medications. In 2024, the Drug Pricing Organization (DPO) advocated for the expansion of PMP coverage to include additional pediatric and foreign innovative medications.
But Japan imposes strict price control. In March 2024, the Ministry of Health, Labour and Welfare (MHLW) reduced prices of more than 13,000 drugs—a 4.7% reduction in total. The biennial revisions are now being restructured to be done annually as Japan attempts to regulate healthcare spending.
To offset these cuts, ¥45 billion JPY (about $310 million USD) was spent to enable the PMP to finance more favorable prices for innovative, patented medicines, while off-patent medicines had their benefits rolled back.
Incentivizing R&D with Fiscal Tools
To make long-term innovation more sustainable, Japan proposed the “innovation box” tax program, which offers lower tax rates on profits from intellectual property related to drugs. This initiative aims to reward companies investing in high-risk R&D by boosting their after-tax profitability.
Conclusion
Drug market access in the three biggest markets in Asia is being revolutionized. For China, the focus is on pricing efficiency and national procurement, although it may come at the expense of profitability. Korea is finding it difficult to achieve balance through RSAs and streamlined procedures, and Japan is further developing its price-setting mechanisms to promote innovation. For multinational pharmaceutical companies, success in these countries relies on a deep understanding of reimbursement policies, pricing models, and incentives for innovation in each country.
Written by: Ames Gross – President and Founder, Pacific Bridge Medical (PBM)
Mr. Gross founded PBM in 1988 and has helped hundreds of medical companies with regulatory and business development issues in Asia. He is recognized nationally and internationally as a leader in the Asian medical markets. Mr. Gross has a BA degree, Phi Beta Kappa, from the University of Pennsylvania and an MBA from Columbia University.