Japan‟s Reimbursement of Biosimilars

Japan‟s $116 billion US pharmaceutical market is influenced by regulations set at the national level that are intended to define the type of benefits and prices accessible to all citizens under the country‟s universal health care system.⁹ The Central Social Insurance Medical Council (Chuikyo) is the national body responsible for these making coverage decisions and setting prices for all pharmaceutical products for sale in the country. Roughly 3,500 insurance organizations covering nearly the entire population must follow the central council‟s decision making and are not permitted to compete with one another over new enrollees to their plans. Insurers must offer the same benefits at the same prices; however plans vary greatly in the premiums charged and employer contribution rates.⁶⁵

Nearly every pharmaceutical receiving market authorization in Japan is approved for health insurance reimbursement by the Ministry of Health, Labour and Welfare (MHLW). Pharmaceuticals do not require the additional clinical evidence that national review agencies in most other OECD countries require before being considered a benefit on national insurance schemes.⁶

Another unique feature of Japan‟s regulation of pharmaceuticals is the price setting process which occurs at the same time as market authorization. Patented

pharmaceuticals are priced either according to prices of similar comparator drugs on the market, or using a cost-accounting method when there are no similar drugs on the market. A premium is added to the base price when the new drug is shown to offer

36

clinical benefits over existing treatment.^45,66 Generic drugs also follow a similar process of price setting; however they are priced at a set discount to the brand price. Prices are adjusted once every two years to capture savings from discounts to the official price often received by hospital or pharmacy purchasers of medications.⁶⁶

4.4.2 Issues Facing Reimbursements of Biosimilars in Japan

Japan has a large, growing market for biologics – spending on biologics for rheumatoid arthritis reached $1 billion US in 2009 following growth of over 40% from 2008.⁶⁷ A challenge for Japan is that it currently does not many of the policy tools found in European countries to encourage more cost-effective use of biologics and obtain expenditure reductions from lower prices. Japan is still developing a national agency to take into account economic evaluations such as cost-effectiveness and budget impact.

The government has targeted the formation of a HTA agency in 2014 -2016; however, there is pressure from industry groups to prevent such an agency from setting prices and restricting access to new medications, drawing on Germany and UK as negative

examples.⁶⁸

Whether the HTA agency developed for Japan will have the mandate to makes recommendations related to pricing and restrict access on the basis of unfavorable cost-effectiveness will be an important factor in guiding the future market for biosimilars.

Biosimilar adoption will be helped by policies that promote prescribing of lower cost treatment options before higher cost biologics are chosen. Japan‟s current clinical guidelines for rheumatoid arthritis and psoriasis were not found to take into account the cost of treatment, which contrasts guidelines developed by NICE for UK

prescribers.^66,69 It remains to be seen whether Japan‟s HTA agency will also develop clinical guidelines incorporating the cost-effectiveness of different treatment guidelines.

37

Japan‟s price regulations allows for a premium for biosimilars of up to 10% of the base price depending on data from clinical trials⁴⁵ This premium is intended to reward biosimilars that meet certain standards of safety and efficacy. Critics have noted that the criteria for determining this premium are subjective and may lack scientific basis.⁶⁶ The impact on biosimilar adoption from Japan‟s pricing regulations is also unclear. The premium may result in wider adoption of biosimilars if it makes

biosimilars more profitable to market in Japan or gives prescribers an additional profit incentive to prescribe the biosimilar. However, the impact will likely be limited if insurance plans are restricted from making preferential coverage criteria that could be used to reduce insurance plans‟ expenditures. Furthermore, the national healthcare system which limits competition between insurance plans and defines benefits and prices for all plans, further limits the measures insurers may take to use biosimilar reimbursement policies to reduce plan expenditures.

4.5 Discussion

The US, the EU countries analyzed in this paper (Germany, France, UK), and Japan have unique health care systems that lead to different health insurance policies that will affect future reimbursements of biosimilars. Table 4.2 summarises the key points of comparison between the drug reimbursement systems in the five countries discussed in this paper.

The US system is mainly privately operated with government playing a role in subsidizing drug insurance for various populations, including drug insurance for the Medicare eligible population under Medicare Part B and D. Pharmacy Benefit Management organizations will play an important role in developing reimbursement policies for biosimilars, and will use various strategies such as formulary management,

38

therapeutic substitution, and price negotiations to lead to more biosimilar adoption, if biosimilar use the plan administrator‟s economic interest. In this respect, the US is expected to have wide variation in the reimbursement policies of biosimilars as policies will vary on the size of the market covered by insurance and the level of competition between plan administrators.

Germany, France, the UK, and Japan have national-level policies influencing the type of pharmaceuticals covered as benefits and the reimbursement prices for health insurance plans available to the entire population of the country. Compared to Japan, the European countries appear to have policy mechanisms in that are better suited to take advantage of the entry of cost-saving biosimilars to the market. These countries have national HTA agencies which make recommendations for determining whether new pharmaceuticals should be covered under universal healthcare, taking into account the cost implications of the new treatments. Japan is still developing such an agency, with its implementation scheduled between 2014 and 2016.

German healthcare funds and UK medical providers appear to use market forces in the competition between different drugs in the same therapeutic class to obtain cost-savings. These are obtained through negotiated price discounts, reference pricing, or in the case of UK hospitals, through tendering. These pricing tools should provide an opportunity for biosimilars to gain market share relative to the reference biologic, or other biologics treating the same medical condition. Japan‟s price regulations, set at the national level through a bureaucratic process, do not appear take advantage of

competition between different drug manufacturers. It is uncertain whether Japan‟s reimbursement environment is as conducive to wide adoption of biosimilars. One advantage Japan has over European markets is that market approval and reimbursement

39

policy are set at the same time, by the same government ministry (MHLW). This feature of Japan‟s healthcare system could lead to faster market access for biosimilars.

Table 4.2: Summary of Comparasion of Reimbursement Policies Affecting Biosimilars for US, Germany, France, UK, and Japan

US EU (Germany, France, UK) Japan

National healthcare systemⁱ

Universal mandate (ACA, starting 2014), privately operated with government subsidies

All: universal coverage;

Germany and France: public and private insurance funds; UK:

national health insurance

Universal coverage, public and private insurance funds

Main agencies setting national reimbursement

policies

Centers for Medicare &

Medicaid Services (only applies to Medicare and Medicaid;

limited guidance on actual reimbursement policies)

Germany: Institute for Quality and Efficiency in Healthcare (IQWiG);

France: National Authority for Health (HAS);

UK: National Institute for Health and Clinical Excellence (NICE)

The Central Social Insurance Medical Council (Chuikyo);

National Health Technology Assessment agency still in development

Germany and France: public and private insurance funds; UK:

national health insurance

Public and private insurance funds

Use of clinical criteria

Varies by insurance plan; set by plan administrators

Germany and France: varies by fund, guided by national recommendations;

UK: NICE develops guidelines for NHS coverage

Set by clinicians, does not incorporate information on cost of treatment

Pricing policies

Medicare Part B: maximum reimbursement prices; Medicare Part D: driven by market prices, with negotiated discounts varying by insurers

Germany and France:

mandatory discounts for insured benefits;

Germany: reference pricing and negotiated prices for insurance funds; UK: market prices with negotiated and tendered prices for purchasing providers

National regulated prices with allowance for premiums and periodic price cuts

Issues for future consideration

Defining Medicare Part B billing codes for biosimilars - whether same code groups are inclusive of a wider range of biosimilar products, or are restrictive

Biosimilar substitution regulations: France started to permit pharmacy substitutions in 2014; Germany and UK still prohibit substitutions

Development of national HTA agency - whether the new agency will influence reimbursement policies to incorporate economic considerations

ⁱUniversal mandate under ACA requires nearly the entire US population to acquire health insurance with a tax penalty for non-compliance. Insurance benefits will vary by plan. Universal coverage in other countries provides nearly identical health insurance benefits for the entire population.

40

Chapter 5: Corporate Strategy - Incumbent Response to Future