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Editorial: Gov’t should use cost effectiveness in setting drug prices

  • November 29, 2017
  • , Nikkei , p. 2
  • JMH Translation

The Ministry of Health, Labor and Welfare (MHLW) has now finalized a drastic reform proposal for the National Health Insurance (NHI) drug pricing system. The aim is to substantially lower NHI drug prices from the conventional levels and prevent the national healthcare plan from going bankrupt, but the government should in principle take into account cost effectiveness and set drug prices based on easy-to-understand rules.


Revisions to medical service fees – official prices for healthcare services – are becoming the centerpiece of budget discussions for fiscal 2018. Once the NHI drug prices go down, the portion of drug costs inside medical services fees can be lowered. 


Arrangements are underway for securing financial sources to avoid cutting the main component part of medical services fees, which is to cover personnel costs for doctors. Pharmaceutical firms and others are raising the question whether the government is trying to lower the drug prices to make ends meet.


The NHI drug pricing method is complicated. The prices of new drugs are set relatively higher as the prices of similar drugs in foreign markets are used as a reference. But they are subject to price cuts when they are reviewed once every two years. And there will be a further price cut once their patents expire and generic medicines that are made of similar ingredients and prove as effective as them become available.


The latest reform proposal is aimed at accelerating a switch to generics by cutting the drug prices furthermore. Meanwhile, the government will narrow down drugs subject to the “premium for new drug development” program, which is designed to forgo a price cut for a certain period of time to make it easier for drugmakers to recoup their R&D investments in new drugs.


It is necessary to curb drug costs, which account for 20% of medical expenditures, but the reform proposal suggests that the government is trying to make it imperative to lower drug prices rather than give proper prices.


Opdivo, an anti-cancer drug which proves substantially effective, had been under criticism due to its high cost. In February, the government suddenly halved the price, but it was not clear on what grounds the price was cut.


If the government rushes to cut drug prices, that will dampen drugmakers’ R&D efforts. There are also concerns that this may hamper the entry of foreign pharmaceuticals’ effective drugs into the Japanese market. If the NHI prices become too low, generics will lose a competitive edge in cost and there will be an adverse impact on their sales. Thus the creation of a detailed system becomes necessary.


In fiscal 2018, the MHLW will revise NHI drug prices, based on the results of its analysis of the cost effectiveness of 13 products, including Opdivo, on an experimental basis. The government should broaden the scope of medicines subject to such analysis and show its commitment to using cost effectiveness as a base for price setting and increasing transparency.


Pharmaceutical firms also should refrain from merely voicing objections to lowering drug prices without stepping up their R&D efforts. The truth is that many of the new, innovative drugs are made by overseas rivals. The government should also extend institutional support to domestic drugmakers to help them access cutting-edge technologies and effectively conduct clinical tests at lower costs.  

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