Healthcare

December 2001

The government and ruling coalition parties decided to reduce the treatment fees paid to medical institutions under the public health insurance program, including payments for prescription drugs, by the largest percentage ever, at 2.7% for fiscal 2002. This move effectively completes the medical system reform, which also calls for patients to shoulder a higher burden. The cut takes into account deflation and lower salaries, and consists of a 1.3% decline in payments to doctors and a 1.4% fall in the official prices of prescription drugs/items used in treatments. It will be the first ever cut in payments to doctors. In principle, medical treatment-fee reimbursement of the health insurance scheme is adjusted biannually. The Japan Medical Association (JMA), a powerful constituency of the LDP, wanted less than a 1% cut in the fees paid to doctors, saying that payments to doctors in Japan are low by international standards. It was also seeking less than a 2.5% combined cut for doctors' fees and drug payments. Meanwhile, the government was looking for more than a 2.5% cut in broader-defined treatment fees, to achieve its goal of slashing government medical spending by 280 billion Yen more than initially estimated. The JMA finally gave in to Prime Minister Koizumi's uncompromising stance, calling for an equal share of increased burden among patients, medical institutions and the health insurance scheme. The official prices (health insurance plan payments to hospitals) of hospital-use drugs in September were 7.1% above the prices at which hospitals buy drugs from the pharmaceutical companies. The government will lower this figure to 5%, allowing a 2% gap to cover costs incurred by hospitals to store the drugs. The cut will be translated into a 1.4% fall in the drug portion of the broader treatment fee. The government and ruling coalition are still discussing where to set the monthly ceiling on payments by elderly outpatients. Although the Ministry of Health wants to raise the ceiling to 40,200 Yen from the current 3,000 Yen, the coalition parties have proposed setting the maximum payment at 24,600 Yen or even lower. (December 18, the Nihon Keizai Shimbun)

Pharmaceutical companies are concerned that price cuts for prescription drugs will have an adverse effect on their business performance. Prices of proprietary drugs will be slashed more than usual in fiscal 2002, if copycat drugs, produced after the patent on the proprietary drugs has expired, are on the market. Although drugmakers selling mainly newly released products are not expected to be affected severely, "companies with a lot of long-established proprietary drugs" will be hit hard. On the other hand, prices of new drugs proven to have dramatic effects in treating illness will be raised further. Since the criteria for gauging the potency of new drugs have not been set straight, it remains unclear how much benefit drugmakers will gain from the change. As cuts in drug prices limit the expansion of the domestic market, drugmakers will have to depend on overseas operations for survival. The management of medical institutions will also be affected by the cuts in treatment fees. In the case of hospitals operating at a loss, personnel expenses account for more than 50% of revenues from their medical operations, according to a survey by the Social Welfare and Medical Service Corp. If these institutions face falling revenues due to the cuts in treatment fees, they will have to reduce personnel expenses.. (December 18, the Nihon Keizai Shimbun)

Major pharmaceuticals companies are ready to increase sales in China on the expectation that the country's entry into the World Trade Organization will ease expansion moves for foreign firms. Fujisawa Pharmaceutical Co. will establish its own marketing network in China by the end of 2004, becoming the first Japanese drugmaker to do so. Within three years, the firm plans to begin selling on its own an immunosuppressant drug that is currently handled by a local agency. It will also release a dermatitis medication around 2004 and an infectious disease treatment around 2006. Fujisawa expects sales of the three drugs to increase annual revenue in China to over 5 billion Yen in five years, from the current 700 million Yen. The Chinese government allows foreign drugmakers to sell pharmaceuticals only through joint ventures with local firms, or it requires them to outsource sales to Chinese firms. The country's WTO entry is expected to end a ban on independent drug sales by foreign companies. China's drug market is currently valued at about 600 billion Yen a year, about one-tenth the size of Japan's, but Fujisawa expects the market to rank among the global top five by 2010. Takeda Chemical Co. will team up with Biofermin Pharmaceutical Co. to sell a drug for intestinal disorders in China next fiscal year. It plans to market the drug after processing ingredients exported by Biofermin at Takeda's joint venture in Tianjin. Mitsubishi Pharma Corp. and Tanabe Seiyaku Co. have separately set up representative offices in Shanghai to increase sales in China. Mitsubishi Pharma is preparing to seek approval from Beijing to import an anticoagulant. (December 14，ｔhe Nihon Keizai Shimbun)

The Central Social Insurance Medical Council approved lowering prices on proprietary drugs. The ruling　will see the price of a drug cut by up to 10% immediately the patent has expired. Although generic drugs, produced after the patent has lapsed, are often priced at less than half the level of the proprietary original, physicians are more likely to place their faith in drug products from the original patent-holders. The council's ruling aims to reduce drug prices, which account for 20% of overall medical costs. The council has also decided to abolish minimum prices on generic drugs from FY 2002, which are set at 40% the price of the proprietary original. A revision to an existing rule will see new proprietary drugs that are certified as particularly effective priced 2-fold higher the level set for ordinary drugs. Allowing for drugs that are more effective than similar products to be priced at up to 10% higher levels than less effective ones, current rules will be changed to allow for a difference of as much as 30%. The Health Ministry plans to keep the gap between government-mandated and wholesale prices of drugs used by medical institutions at 2%. A survey run by the ministry found that the gap averaged 7.1% in September. (December 12, the Nihon Keizai Shimbun)

Prime Minister Koizumi will not get any support from doctors to reduce medical costs sufficiently to live up to his pledge to limit annual government bond issues to 30 trillion Yen. Medical costs are rising by about 1 trillion Yen a year and represent a large portion of social security spending, which, at more than 18 trillion Yen, accounts for one-third of the general account budget. Koizumi aims to cut treatment fees paid to hospitals and physicians under the public health insurance scheme to avoid imposing a disproportional burden on the public as a result of a planned cut in government medical care spending. In order to stick to the bond cap, the government plans to slash medical outlays in fiscal 2002 by 280 billion Yen. Even if the government implements all the measures stipulated in its reform guidelines, medical spending will be reduced by only about 100 billion Yen. To achieve the spending-cut target, the government must lower fees to medical institutions, including payments for drugs prescribed to patients, by just less than 3%. Senior LDP members with ties to the Health Ministry met to discuss how to change treatment fees paid to hospitals and physicians for the next fiscal year. Few participants dared to propose the fee cut, however, fearing it could have ill effects on medical institutions. The group of doctors is poised to lobby against any cut in treatment fees proposed for the fiscal 2002 budget. The association says the government should lower official prices of prescription drugs and other goods used in medical treatment rather than lowering payments to doctors for treating patients. Although the government has significantly cut official prices of prescription drugs, so far it has not lowered payments for treatment. In the past, the government was able to reduce reimbursements to hospitals and physicians by slashing official prices of prescription drugs, which were set at above-market prices. This option will no longer apply, however, now that official prices are only 7% higher than market levels, compared with 20% a decade ago. The Finance Ministry believes there is room to cut medical care-related reimbursements by 5.8% next fiscal year if hospitals attempt to reduce salaries and cut fixed costs to reflect price deflation. The ruling coalition parties have flatly dismissed the estimate. Confident of the feasibility of its idea, the ministry is backing the efforts of Koizumi and the Health Ministry to push for a significant reduction in medical costs. (December 12, the Nihon Keizai Shimbun)

The government may keep separate medical fees in fiscal 2002, despite strong calls to scrap them. The delay in eliminating the fees is in line with the government's decision to postpone a hike in out-of-pocket expenses shouldered by patients. Although ruling coalition members had strongly called for scrapping the charges in October next year, the government has concluded that it would not be able to make up for the resulting revenue shortfalls. Introduced in September 1997, the fees sought to heighten patients' cost awareness and correct the medical system's overemphasis on prescribing drugs. Under the national health insurance system, patients shoulder 20-30% of the costs for a medical visit, which include an examination as well as the cost of any drugs prescribed. In addition, patients are required to pay an additional 30-100 Yen for a daily dose of internal drugs and about 50-150 Yen for external drugs. The Japan Medical Association opposes the separate charges, arguing that they are another burden on patients and that they put patients off seeking medical care. In response, the government eliminated separate fees for patients aged 70 years or older. For younger patients the government planned to first consider measures to secure alternative sources of funding before also scrapping the charges. Medical reform proposals drafted by the Health, Labor and Welfare Ministry called for an increase in the expenses of salaried workers to 30% by October 2002. Also, the ministry intended to eliminate the separate fees paid by patients for medicines. However, in November the government and ruling coalition parties agreed to postpone increases in patients' costs until April 2003 or afterward. While some want the separate drug fees to be abolished earlier in October 2002, the elimination would force the government to find 20 billion Yen in alternative revenues. (December 12, the Nihon Keizai Shimbun)

Chugai Pharmaceutical Co. and F. Hoffman-La Roche Ltd. have agreed to form a partnership in the nation's pharmaceutical market that will convert the drugmaker into a subsidiary of the Swiss company. The deal will enable Roche to establish a strong development and sales base for new products in Japan, while helping Chugai engage in global research and development operations. The deal calls for Chugai to merge with Roche's wholly owned subsidiary, Nippon Roche K.K. in the fourth quarter of 2002. Chugai will be the surviving entity in the merger and will remain listed on the Tokyo, Osaka, Nagoya and Fukuoka stock exchanges. Roche will acquire a 50.1% equity stake in Chugai through the merger as well as a tender offer and third-party allotment of new Chugai shares. Chugai will become Roche's sole operation outlet in the nation's pharmaceutical market and be given the priority right to develop and sell new drugs subject to development and marketing by the Roche group. (December 11, the Yomiuri Shimbun, the Nihon Keizai Shimbun, the Daily Yomiuri)

The government is considering slashing official drug prices by 5% in an effort to rein in Japan's runaway medical costs.　　Drugs used at medical institutions are often criticized for costing much more than similar drugs purchased on the market. A September estimate by the Ministry of Health, Labor and Welfare shows that drugs used at hospitals were about 7.1% costlier on average than those available on the market.　Such a move, however would likely anger the Japan Medical Association, which has opposed all moves to reduce reimbursements to hospitals and clinics. Under the present system, national medical insurance covers 80% of the cost of drugs bought by white-collar workers and their families. At a Health Ministry panel studying the issue, it was agreed that the government should allow official drug prices to exceed those for drugs bought on the market by up to 2%, a compromise that takes inventory costs into account. Since outlays for drugs comprise about 20% of Japan's medical costs, a 5% reduction in official drug prices would theoretically shrink the nation's medical bills by about 1%. To reduce medical expenses by 2.5% in the fiscal 2002 budget, the government must shave another 1.5% off remuneration for doctors and nurses. (December 8, the Nihon Keizai Shimbun)