Japan Update: Discussion Underway for Creating New Drug Pricing Methodology

Published Feb 13, 2023

Yoko Ishiguro, Healthcare Economics and Government Affairs Manager, Medtronic Japan, Tokyo, Japan, yoko.ishiguro@medtronic.com)

In Japan, there have been two types of pricing systems for new drugs: the first one is “cost accounting method” and the second is “similar drug comparison method”. In the “cost accounting method”, a manufacturer has to submit the cost of product. The Ministry of Health, Labour and Welfare (MHLW) then calculates the final reimbursement price with a specific formula. If the product is evaluated as innovative drug, the additional premium is added in the formula. In the “similar drug comparison method”, the similar drug should be determined first. Then the daily price of it would be referred to the new product. If the product is more innovative than a similar drug, a higher price is determined.

Even though major pricing schemes were developed to incentivize manufacturers to launch innovative products in the Japan market, the pharmaceutical industry has been confronting other initiatives driven by the MHLW. The MHLW has introduced several post-market repricing schemes to balance between acceleration of the innovation and medical expenditure. One of the examples is the more frequent routine price cut: in the past the price cut was carried out biennially, but it is now annual for some drugs. And the repricing system due to market size expansion and health technology assessment (HTA) would also be so. Both schemes are for big market-sized products, and they make the new price usually cheaper than the initial price.

Due to this transition, the Japan market is perceived by some to be getting less attractive for pharmaceutical manufacturers. Rigorous repricing rules and frequent changes in the pricing system may make it more difficult for manufacturers to predict their business. In the worst case they are not able to compensate the cost, which could lead to discouragement among manufacturers for new innovative product introduction into Japan market. Because this kind of scenario would be unbeneficial for Japan citizens as well, the MHLW started “Expert meeting for comprehensive measures to drug smooth introduction and stable supply” from mid 2022 to ease the dilemma.

In the past meetings, all the experts agreed to take some actions to ease the dilemma and one of which was making the 3rd pricing method. In the 6th meeting, they discussed how to design the new pricing scheme. The concept of the new measurement is the evaluation of new modalities. The cases examined in the meeting included molecularly targeted drugs, personalized medicine, or other new technologies to emerge in the future. Experts supported this concept while acknowledging it would be challenging to invent the new scheme.


Dr Narukawa (Professor of Department of Clinical Medicine (Pharmaceutical Medicine), School of Pharmacy, Kitasato University)

"The existing methodologies overwhelmingly focus on randomized controlled trial data. However, the main clinical area of innovative products is orphan or pediatrics, in which it is rather difficult to develop traditional high-level evidence. In order to push manufacturers to confront such clinical areas, a new scheme is welcomed."

Dr Katori (Professor of Faculty of Human Sciences, Department of Social Services, Sophia University)

"The existing evaluation system including regulatory affairs focuses on incremental efficiency or safety compared to existing products. However, there is no pricing measurement focusing on the innovativeness of mechanisms like new modalities."

Dr. Sugawara (Professor of Faculty of Economics, Department of Economics, Hosei University)

"New innovations tend to be evaluated in “cost accounting method” in these days. However, 'cost accounting method' has significant limitations for the new products to get the sufficient price. The reason why is that if a manufacturer cannot disclose the detail of the cost, the premium would not be given. However, it is not easy for all manufacturers to disclose them. The trend of complication in value chain causes diversity of developers and it would be one of the root causes. It needs to address that the main players of innovation are bio start-ups from overseas, which need more financial incentive. If we fail to evaluate the innovativeness, it will be difficult to make these companies to get in the Japan market."

Dr. Sakamaki (Professor of Kanagawa, University of Human Services)

"Some of the products are too new to set the similar drugs. For example, some of the products have no existing treatment, or some products have to be compared to surgical or older products. In this case it is unfair to use 'similar drug comparison method'."


[1] https://www.mhlw.go.jp/content/10807000/001022166.pdf

[2] https://www.mhlw.go.jp/stf/newpage_30206.html

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