At the instruction of Prime Minister Shinzo Abe, Japan’s Council on Economic and Fiscal Policy has begun to draw up a basic policy on drug pricing, based on which the Japanese government will start to reform the country’s prescription drug pricing system. In a first step, the Japanese government announced this week that drug reimbursement reviews will be expanded to cover all prescription drugs and that, starting in 2018, they will occur annually (instead of the current biennial reviews). It is expected that these changes will reduce government spending on medical care by reflecting market changes more quickly and requiring increased transparency by pharmaceutical manufacturers about manufacturing costs.

Under Japan’s current system, the national health insurance program bears a large part of the country’s medical costs. As a result, drug prices are set by the Central Social Insurance Medical Council (the “Chuikyo”) and reviewed (and, typically, reduced) every two years. In an attempt to control rising medical costs, Prime Minister Abe has suggested this need for an update in Japan’s drug-pricing policy.

Japan’s increasingly aggressive stance toward drug pricing has been evident in recent, and in some cases off-schedule, price reductions. For example, the Chuikyo recently reduced the price of Harvoni® (ledipasvir/sofosbuvir) and Sovaldi® (sofosbuvir) by over 30%. This is consistent with the Japanese government’s objective to increase the generics’ share of prescription drugs to 80% by 2020, comparable to the position in the US and Europe.

While changing the frequency of drug-pricing reviews may lead to an overall reduction in the cost of drugs, some expect that it will not affect the premium granted to innovative drugs, as the Japanese government has tended to encourage and reward research, development and innovation in its pricing scheme.