The Ministry of Health, Labor and Welfare is proposing a considerable cut down in the pricing of both off-patent drugs and expensive innovative treatments, and also set up an annual review of the drug prices. The ministry is planning to finalize this new regulation by the end of this year. This proposal is made to cut Japan overspending on healthcare due to its aging population. Currently Japan spends more than 42 trillion yen ($371 billion) a year, and the fifth of that amount is dedicated to drugs.

Under the proposal, prices will be dropped for off-patent drugs whose generic versions have been available for 10 years, eventually aligning them with generics. If generics have replaced more than 80% of the market for an originator drug, the price of that drug would drop to 250% of the generic at the 10-year mark, then to 200% after two more years, and to 150% four years later. The price would be the same as generics six years after the cut begins. If the substitution rate is less than 80%, the originator drug’s price would fall to 150% of generics over a decade.

For new drugs, MHLW will allow drug makers to maintain prices of innovative drugs for a period to help them fund their products development, however, the ministry will narrow down the manufacturers and drugs to be protected under this arrangement.

Drug makers would be rated on whether they are developing innovative new drugs, and whether a so-called drag lag of slow approval is delaying introduction in Japan relative to other markets, among other criteria.

Additionally, the proposal recommends an annual revision of drugs fee schedule starting in fiscal 2021, instead of once in every two years.