Points of View NHI drug price listing status of new drugs Impact of the FY2018 NHI Overhaul on NHI Drug Prices at the Time of Listing

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The Office of Pharmaceutical Industry Research Akiko Yoshida, Senior Researcher

1. Introduction

Recent reforms of the NHI drug pricing system, including the fiscal 2018 overhaul, have been implemented from the perspective of achieving both "sustainability of universal health coverage" and "promotion of innovation," as well as "reduction of the national burden" and "improvement of the quality of medical care " ¹⁾ from which the public will benefit. The new rules are generally finalized in mid-January based on the framework for system reform that becomes clear around the end of the previous year, and new pricing (determination of NHI prices at the time of listing) and NHI price revisions are promptly implemented in April and thereafter based on this framework.

For new drugs listed from April 2018 to September 2021, it is assumed that they were already in the late development stage or close to approval and listing on the NHI drug price list when the details of the drastic reforms in FY 2018 became clear, and the NHI price at the time of listing may have been affected in some way.

In this report, we use publicly available information to examine the NHI drug price listing status of new drugs and investigate the impact of the drastic reforms on NHI drug prices at the time of listing.

2. Focus points for fundamental reform

The key to investigating and discussing the impact of the fundamental reforms on NHI drug prices at the time of listing is the fundamental revision of the Additional Allowance for New Drug Creation and New Indications, the review of the evaluation of innovation of new drugs, and the review of foreign average price adjustment ^. The outline of the revisions is shown in the "Outline of the Fundamental Reform of the NHI Drug Price System in Fiscal 2008"2).

2.1. Fundamental Review of the Additional Allowance for New Drug Creation

Under the Fundamental Reforms, the existing requirement that the deviation ratio (the difference between the actual market price and the NHI price) be less than or equal to the average has been eliminated for the additional allowance for new drug creation, and eligibility is now limited to drugs for rare diseases, drugs that obtained an additional benefit for usefulness when listed, and drugs with new mechanisms of action. ³⁾ (Figure 1) As a result, the additional allowance for new drug creation, including the additional benefit for breakthrough and usefulness, is now limited to drugs that have been listed in the market for a certain period of time. (Fig. 1) This means that whether or not a new drug is evaluated for innovation, such as obtaining an additional indication for staging or usefulness, will affect not only the drug price at the time of listing, but also the price after listing.

2.2. Review of the Evaluation of Innovation of New Drugs

Before the drastic reform, under the similar drug effect comparison method, additional adjustments were applied to the overall NHI price as necessary from the perspective of innovation and usefulness, etc. Under the cost accounting method, the operating income portion was adjusted in the range of -50% to +100%, depending on the degree of innovation and usefulness, etc. Although the cost accounting method is applied to some innovative drugs, the evaluation of their innovation was limited in relation to the overall drug price, compared to the comparable drug price method. Therefore, in order to ensure appropriate evaluation of innovations of innovative drugs, an addition is made to the overall price (the calculated NHI price before the addition) in the cost accounting method as in the similar drug effect comparison method. However, in order to improve the transparency of NHI drug price calculation, the cost accounting method has been modified to include an addition factor that varies according to the percentage of the total product cost that can be disclosed in the NHI drug price calculation organization (degree of disclosure). The additional amount is calculated as the product of the total price (NHI price before addition), the addition ratio (0-120%), and the addition coefficient (0.2-1). If the degree of disclosure is 80% or more, the addition coefficient is 1 and the full addition ratio is applied. The additional amount is 0.6 for disclosure of 50% to 80% and 0.2 for less than 50%. Hereafter, the addition rate multiplied by the addition factor will be referred to as the actual addition rate. The requirements for the addition to the product price are based on the requirements for the addition to the product price under the comparable drug price system (the point ^system4).

2.3. Review of Foreign Average Price Adjustment

For items already sold in foreign countries, if the difference between the foreign price and the actual price is large, the price is adjusted to reduce the difference by a certain percentage.
In this case, the foreign prices to be referred to are the average prices of the U.S., the U.K., France, and Germany, which are countries with the same capacity to create new drugs and the same market size as Japan.

In the fundamental reform, the referenced U.S. price list was changed from the RED BOOK, which is the manufacturer's suggested retail price, to ASP and ^NADAC5), which are the price lists used in the public health insurance systems Medicare and Medicaid. In addition, while the foreign average price adjustment was to be applied in both the cost accounting method and the similar drug effect comparison method, the foreign average price adjustment is not to be applied in the similar drug effect comparison method from the viewpoint of ensuring fair market competition, and new drugs calculated by the cost accounting method and drugs with similar pharmacological action The foreign average price adjustment is to be applied to new drugs that are calculated based on the similar drug effect comparison method without the existence of a similar drug. Furthermore, a change was made to exclude the highest foreign price if the highest price exceeds 3 times the lowest foreign price, whereas the highest foreign price was to be excluded if the highest foreign price exceeds 2.5 times the lowest foreign price.

3. Survey Methodology and Analysis Approach

New drugs listed as new drugs (all 365 components excluding regenerative medical products) for 7 years from October 2014 to September 2021, 3.5 years before and after the April 2018 overhaul, were examined and analyzed separately before (171 components) and after (194 components) the overhaul. ⁶⁾ Examination reports on information related to drug prices at the time of approval and listing (drug price calculation method, usefulness system additions and correction additions, foreign average price adjustments, appeals, and delays in listing), with those listed from October 2014 to March 2018 as before the fundamental reforms and those listed from April 2018 to September 2021 as after the fundamental reforms, Data were obtained from the Central Social Insurance Medical Council (hereafter referred to as the Chuikyo) ^documents7).

The NHI drug price system is reformed every two years, and many changes are made each time. Therefore, it is impossible to make a general comparison, but it should be noted in advance that this survey and analysis focuses on NHI drug prices at the time of listing, with an emphasis on fundamental reforms. (Table 1)

The next section, 3.1 to 3.4, presents the cut-off points of the analysis.

3.1. NHI price calculation method

In Japan, either the Comparable Drugs Method I or the Comparable Drugs Method II (when there is little novelty) based on comparison with similar drugs is applied, with the most similar drug in terms of efficacy, pharmacological action, composition and chemical structure, and dosage form being used as the standard. If there is no similar drug, the cost accounting method is applied.

This paper examines recent trends in NHI drug price calculation methods and the impact of fundamental reforms.

Additional fee for usefulness and correction

If a drug is found to be highly useful compared to similar drugs, additional compensation is applied (additional charge for periodicity, additional charge for usefulness, additional charge for marketability, additional charge for pediatric patients, and additional charge for the system for designation of pioneering review) (Table 2). （This paper examines the status of application of the additional fee for usefulness (in this paper, the additional fee for staging and the additional fee for usefulness are collectively referred to as the "additional fee for usefulness"), the rate of application of the additional fee for usefulness, and the number of cases where the additional fee is applied, in order to understand how innovation of new drugs and their evaluation has changed before and after the fundamental reform and in recent years. Since there were no major changes in the additional requirements before and after the Fundamental Reform, the number of applications is considered to be mainly indicative of trends in the frequency of creation of new drugs with high utility. On the other hand, the change in the addition rate reflects both the change in average usefulness and the change in the evaluation system for new drugs subject to the cost accounting method.

Foreign Average Price Adjustment

This paper looks at the application of foreign average price adjustments before and after the Fundamental Reform, as well as recent changes in the average foreign price of drugs at the time of listing.

The overhaul resulted in a change in the U.S. reference price, a corresponding reduction in the maximum price exclusion criteria, and a decision not to subject new drugs to adjustment in the case of the comparable drug method where there are drugs with similar pharmacological actions. As a result, the number of new drugs subject to foreign average price adjustment has decreased, and it is speculated that the drug price at the time of listing may be lower than the foreign price.

3.4. Appeals and Delay in Listing

See Figure 2 for the NHI price calculation process for new drugs, appeals, and delays in listing.

When determining the NHI price of a new drug, pharmaceutical companies submit a "Request for Listing in the NHI Drug Price Standards" to the Ministry of Health, Labor and Welfare (MHLW). The MHLW then prepares a draft NHI price, a calculation plan is decided by a NHI drug price calculation organization composed of experts, and the companies are notified of the unofficial NHI price. If there is no appeal by the pharmaceutical companies, the NHI drug price will be listed if approved by the Chuikyo, an advisory body to the Minister of Health, Labor and Welfare. Once this is submitted, the NHI drug price calculation organization meets again to hear opinions from pharmaceutical companies and consider revisions to the original proposal. The results of the review are then notified to the companies, and if approved by the Chuikyo, the drug is placed on the NHI drug price list. If the results of the review of the objection are not accepted, the pharmaceutical company may decide not to list the drug on the NHI drug price list and continue negotiations with the MHLW, or withdraw its request to list the drug on the NHI drug price list. In most cases, NHI drug prices are listed within 60 days of approval, or 90 days at the latest, which is considered the standard administrative processing time, but there are certain cases of delayed listing.

This paper examines the status of appeals and delays in listing before and after the fundamental reform.

4. Summary of Survey Results

4.1. NHI Drug Price Calculation Method

While the similar drug efficacy comparison method I increased from 54.4% (before the Fundamental Radical Reform) to 56.7% (after the Fundamental Radical Reform) and the cost accounting method increased from 23.4% (before the Fundamental Radical Reform) to 25.8% (after the Fundamental Radical Reform), the similar drug efficacy comparison method II and other calculation methods, which cover drugs that are not new, both decreased from 11.1% (before the Fundamental Radical Reform) to 8.8% (after the Fundamental Radical Reform). The figures for the Comparable Drug Value Comparison Method II and Other Calculation Methods, which cover less novel drugs, decreased slightly from 11.1% (before the fundamental reform) to 8.8% (after the fundamental reform) (Figure 3). The breakdown of the NHI price calculation methods did not differ significantly between the pre- and post-radical reform periods, and the trends were similar to those shown in the ^past8), so there have been no major changes in recent years.

Utility and Correction

First, the application of the additional benefit system (Figure 4) increased from 17.2% (before the Fundamental Reform) to 30.0% (after the Fundamental Reform) for the Comparable Value Method I and from 35.0% (before the Fundamental Reform) to 62.0% (after the Fundamental Reform) for the cost accounting method. For the cost accounting method, which before the Fundamental Reform made corrections to operating income in the range of -50% to +100% depending on the degree of innovation, usefulness, etc., those with additional corrections were included as applicable.

The trend in the application of the additional usefulness system per fiscal year from FY2015 to FY2020 (Figure 5), which covers all listed drugs, shows an upward trend in both the similar drug effect comparison method I and the cost accounting method, although there are some highs and lows from year to year.

Next, we will look at the application of the supplemental cost adjustment by comparing the average values (Figure 6). In the case of the Comparison of Similar Drug Effects Method I, the rate decreased by 3.0% from 15.9% (before the Fundamental Reform) to 12.9% (after the Fundamental Reform). In the cost accounting method, the rate increased from 18.0% (before the Fundamental Reform) to 25.7% (after the Fundamental Reform), but the actual addition rate was 13.2%, a decrease of 4.8% from the rate before the Fundamental Reform. In addition, looking at the application of the supplemental cost index in terms of annual changes in average values (Figure 7), the average value showed a downward trend after the Fundamental Reform.

Figure 8 shows the relationship between the rate of addition and the number of additions to the supplementary adjustment and the number of cases where the supplementary adjustment was applied.

Foreign Average Price Adjustment

Figure 9 shows the application of the foreign average price adjustment. Both increases and decreases have been on a continuous downward trend, and the rates continued to decline after the Fundamental Reform. In addition, as shown in Figure 10, drug prices at the time of accession tended to be lower than foreign prices (including drug prices listed as reference prices), and this trend was particularly high after FY2020.

4.4. Appeals and Delayed Listing

The number of new drugs that filed appeals against the initial calculation proposal dropped from 6.4% (before the fundamental reform) to 4.6% (after the fundamental reform), but since there were only 11 and 9 components in both cases, we looked at annual trends during that period. (Figure 11) There were few cases in either year and no recent declines or upward trends.

Looking at the new drugs that were appealed from several angles, Table 3 shows the results. A breakdown shows that a total of five components (25%), two before and three after the Fundamental Reform, were changed in some way from the original calculation plan, and many of those that filed appeals were listed on the NHI drug price list without any change in the price at the time of listing.

The number of delayed listings increased slightly from 6.9% (before the Fundamental Reform) to 7.2% (after the Fundamental Reform), but since there were only 11 and 13 components in each case, we looked at annual trends during that period. (Figure 12) There were few cases in either year, and no upward or downward trends in recent years.

A look at the new drugs appealed from several angles is shown in Table 4.

5. Discussion

Innovative New Drug Innovations and Their Evaluation

The number of cases of additions to the usefulness system increased after the Fundamental Reform compared to before the Fundamental Reform in both the cost accounting method and the similar drug effect comparison method I. The number of cases of additions to the usefulness system increased in both the cost accounting method and the similar drug effect comparison method I. In addition, the number of drugs to which the supplemental efficacy supplement was applied increased after the Fundamental Reform in the cost accounting method as well as in the similar drug efficacy comparison method I, where there were no major changes in the way the supplemental efficacy supplement was applied and in the requirements for the supplemental efficacy supplement, and there was a clear upward trend in the number of drugs to which the supplemental efficacy supplement was applied in each fiscal year, especially in the similar drug efficacy comparison method I. This indicates that efforts to create innovative new drugs in recent years have produced a certain level of results.

On the other hand, a comparison of the addition ratio for cost-based new drugs before and after the Fundamental Reform shows a decline in the actual addition ratio, which is assumed to be the result of a significant contribution to the decline in the addition ratio by the addition factor based on the degree of disclosure introduced as a transparency factor, rather than the addition factor that evaluates innovation. There may be room for further improvement in the appropriate evaluation of innovations by NHI prices, which is the goal of the fundamental reform.

Pharmaceutical Company Foresight, Acceptability and Patient Access

In the cost accounting method, a change was made to differentiate the addition factor according to the ratio of the portion of the total product cost that can be disclosed by the NHI drug price calculation organization (degree of disclosure), resulting in an approximately 4% decrease in the actual addition factor. Although it is not possible to simply compare the amount equivalent to the addition to operating income ratio before the fundamental reform with the amount equivalent to the addition after the fundamental reform, the decrease in the rate of addition means that the degree of disclosure is less than 80%, which means that there are a certain number of cases where disclosure is difficult. As stated in the Pharmaceutical Industry Vision 2021, pharmaceutical companies have a responsibility to cooperate in transparency of calculations by presenting the basis of cost calculation and other information to the MHLW. On the other hand, it should be noted that with the globalization of pharmaceutical R&D and manufacturing, it may be difficult to gain the understanding of other companies to require disclosure of the same level of cost details for new drugs manufactured overseas as for those manufactured in-house in Japan, due to differences in standards and thinking.

With regard to foreign average price adjustments, the number of new drugs subject to adjustment has decreased as a result of the drastic reforms, and drug prices at the time of listing tend to be lower than in other countries. These issues affect the attractiveness of the Japanese market from the perspective of other countries, and may eventually lead to an access lag.

There have been few cases of both appeals and delays in listing, and there has not been an upward or downward trend in the period before and after the fundamental reforms or in recent years.

However, in many of the cases where appeals were filed, the drug price was not changed at all, and the drug was listed on the NHI drug price list in a situation that was less than satisfactory to the pharmaceutical companies.

The reasons for the delayed listing cases cannot be confirmed from the publicly available documents. Some cases may or may not be due to NHI price negotiations. In addition, we do not know whether the pharmaceutical companies are satisfied with the final NHI price at the time of listing.

However, in the cases of delayed listing after the drastic reform, there were many new drugs that were calculated using the cost accounting method, many of which were subject to the usefulness system addition, and were lower than the average price in other countries. It is possible that this is due to a discrepancy between the companies' projections and the government's perception regarding the degree of usefulness of innovative new drugs, the degree of disclosure of the cost accounting method, and the deviation from foreign prices.

According to the author's research using the Nikkan Yakugyo, after the 2016 listing of Tolz, some delays in listing began to occur due to drug price negotiations, and after the drastic reform, the companies themselves disclosed that three components (Istodax, Palmodia, and Baxmi) were due to drug price negotiations. Istodax is said to have "been put off the market because of the need for dialogue with the government in order for them to understand the value of this drug for PTCL (relapsed/refractory peripheral T-cell lymphoma), a rare disease. " ⁹⁾ However, until Istodax is put on the market, the company has been working on an ethical program to supply the drug free of charge in order to respond to requests from the medical community for its early use. However, until the drug is listed on the market, the company is responding to requests from the medical community for early use of the drug by implementing a program to supply the drug free of charge from an ethical point of view ^.)

In order to ensure the early delivery of innovative new drugs to patients, it will be important to continue to align values and improve predictability on the part of companies and the government.

6. Conclusion

In this paper, we examine and discuss the impact of drastic reforms seen at the time new drugs are listed on the NHI drug price list, using publicly available information.

This survey reminded us of the extremely limited information on NHI drug prices that is available to the public. ^(The only publicly available information that can be used as a reference point is the data provided by the Chuikyo. ⁾ "Since pharmaceuticals are products related to the public's health, their value is not limited to price. (12). ⁽¹²⁾ In this context, the specific details of the value and evaluation on which the drug price is based should be clarified and understood by the public, not just the size of the calculated drug price and the degree of usefulness added to the price.

In addition, as we have seen the creation of innovative new drugs in recent years, the value that innovation brings can change, and it is only natural that the evaluation of that value should change along with the system. However, a national debate is needed on whether a system in which a smaller percentage of the total product cost can be added if the percentage of the total product cost that can be disclosed is low is the right way to go.

For pharmaceutical companies, unforeseeable system reforms have shaken the predictability of their business, leading to a certain number of appeals and delays in inclusion. If such systemic reforms continue, patient access could be affected. We must not forget that Japan has world-class patient access speed and reimbursement ^coverage13).

We hope that constructive discussions on drug price reform will be held to ensure the early introduction of innovative new drugs into the Japanese healthcare system, and that the drug price system will become even more attractive to the Japanese market.

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