Health Advances Presentation at ISPOR: An Initial Analysis of the Cost-Based Pricing Revisions in Japan

By Earl Gillespie, PhD, Patrick Campbell, and Julia A. Gaebler, PhD

At the upcoming ISPOR (International Society for Pharmacoeconomic and Outcomes Research) meeting in Barcelona, Earl Gillespie, PhD, of Health Advances will present a poster on findings from its recent study of changes to the Japanese cost-based pricing system, which is used to price drugs that have no valid comparator drug.

The Japanese cost-based pricing methodology uses industry-reported COGs as a basis for calculating NHI list prices. Starting in April 2018, the Central Social Insurance Medical Council (Chuikyo) introduced multiple changes to their cost-based pricing methodology for new drugs to improve transparency in COGs reporting and reduce overall pharmaceutical spending:

  • Each drug is now assigned a Transparency Coefficient (TC) based on the level of transparency in COGs reporting. The TC can be one of three numbers: 0.2 (not transparent), 0.6 (moderately transparent), or 1.0 (highly transparent) which is then multiplied by the premium percentage awarded.
  • Under this new system, the premium percentage is applied to the entire calculated drug price as opposed to only the drug’s operating profit.
  • All premiums for drugs priced via the cost-based methodology are calculated using the method currently used for drugs priced via the comparator-based methodology, where drugs can receive premiums for usefulness/innovativeness, marketability, pediatric medicine, and Sakigake designations.

Health Advances completed a study examining the first drugs to be priced through the modified pathway in April 2018 and May 2018 to determine whether the new cost-based pricing methodology is incentivizing transparent COGs reporting as desired. 45 drug price listings were reviewed. Six drugs were priced via the cost-based methodology and received a premium, and therefore qualified for the study.

Key Takeaways Include

  • While the introduction of the TC to the cost-based pricing methodology is meant to incentivize transparent cost disclosures, in early cases it is questionable how strong these incentives are.
  • Five of six study drugs reviewed chose to report transfer prices and received the lowest TC (0.2). All drugs reviewed received higher premiums than they would have under the previous system regardless of what TC was received, limiting the incentive to report transparent costs.
  • In addition, this preliminary look at the new cost system surfaced two categories of drugs whose sponsors are unlikely to disclose transparent costs:
    • Sponsors of drugs that receive little or no premium, as in this case the low TC has little impact on the final NHI list price and it makes more sense to report higher transfer prices and accept the small TC penalty.
    • Sponsors of drugs with low COGs, because they will be able to achieve significant increases in reported manufacturing costs via a transfer price. Even in the case where one of these drugs has a high premium and would incur a significant TC penalty, the benefit from the transfer price would outweigh the TC penalty.

For more details on cost-based pricing revisions in Japan, please view our poster presentation on November 13th from 08:45-13:30 CET in the poster hall, board G21 at ISPOR in Barcelona, or contact us at egillespie@healthadvances.com. Earl will be available for discussion at the poster from 12:30-13:30.

For analysis on the NICE HST pathway, please see our oral presentationFindings from the First Five Years of the NICE HST Program for Ultra Rare Conditions” which will be presented at 11:00 CET on Tuesday, November 13th.

Please also see our related blog post: Health Advances Presentation at ISPOR: Findings from the First Five Years of the NICE HST Program for Ultra Rare Conditions.

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