Japan Incorporates Cost-Effectiveness into Its HTA: What Manufacturers Can Do to Prepare
In April 2019, Japan introduced its first formal health technology assessment (HTA), driven by a cost-effectiveness analysis (CEA). The CEA was introduced to adjust the price of already reimbursed products, with the overarching aim of reducing expenditure and increasing efficiency within the healthcare system. The Ministry of Health, Labour and Welfare (MHLW) recently published the first price adjustments for several listed agents, including a 4.7% reduction for Novartis’ Kymriah, and a 0.5% reduction for GlaxoSmithKline’s Trelegy.[1-4] Here we look at what the new CEA entails, how it impacts already reimbursed products, and what the road to access may look like for new drugs in the future.
What is the current pricing methodology, and what is driving the need for CEAs?
There are two established pricing methodologies in Japan: 1) the similar efficacy comparison method, and 2) the cost calculation method.
1) The comparison methodology applies to products entering the market where there are already similar drugs reimbursed within the same indication; premiums are applied if the product is deemed superior to the comparator.
2) If there is no comparable drug, the price is determined following the cost calculation method; here, price is set based on the manufacturing costs and expected profits.
While the current pricing methodologies have successfully introduced new and innovative products into the market, Japan’s health system is strained due to the trend of annually increasing healthcare expenditure, and the aging population is concerning to the MHLW.[7] Therefore, the MHLW and the Central Social Insurance Medical Council (Chuikyo) have turned to CEAs to introduce more sustainable pricing checks and balances.
Which products will the new CEA apply to, and how will it be implemented?
The new HTA system targets products based upon their impact on healthcare insurance expenditure, as measured by a five-tier classification system (Table 1). Products indicated for designated rare intractable disease, haemophilia, and HIV infections are excluded.[6-7] It is assumed that approximately ten products will be selected for CEA per year, though this number could increase over time.[6,8]
Under the new process, manufacturers must submit a CEA of a product within nine months. Then, a third-party academic analysis group (usually a university), as coordinated by the Center for Outcomes Research and Economic Evaluation for Health (C2H), will have three months to review the analysis, and three months to conduct its own analysis if needed. After a government review of the analysis, the proposed price adjustments will be submitted to Chuikyo, which decides the final product price.[6,9]
The completed assessments indicate a new turn in value-based pricing in Japan. High-cost products already on the market face risk of being flagged for CEA and facing price reductions. Products looking to launch may also be subject to a lower price at launch if deemed similar to a comparator that has had a CEA.
Table 1: Five Categories for Cost-Effectiveness Assessment Selection(6)
The CEA will apply to the following categories of drugs as described below:
Newly Listed Products – H1-H3
New products are listed quarterly, and category H1 products are selected at the time of listing for CEA. Category H2 products are candidates, and target products are selected from the category H2 reserve based on their peak sales and process capacity twice a year. Though a specific threshold is not provided for category H3 products, the Central Social Insurance Medical Council (CSIMC) can select targets if their prices are significantly high or if new clinical data that could influence the CEA becomes available.[5]
Already Listed Products - H4
Kymriah was one of the first drugs to undergo the CEA, as a product with premiums listed before the policy implementation. As it is already reimbursed, the 4.5% price reduction has been given a “transition period” to be applied, with the adjusted price effective on July 1.[1-4]
Similar Products – H5
Products classified as “similar” have typically been priced based on the “similar efficacy comparison methodology”; however, any CEA driven price reduction that is applied to the comparator will also be applied to new drugs entering the market.
Yescarta and Breyanz, whose prices were initially calculated based on comparison to Kymriah, were classified as H5 within the CEA selection criteria; as such, Kymriah’s 4.5% price reduction has subsequently been applied to their price prior to their listing.
CEA Price Adjustment Rates
The price adjustment for products eligible for CEA (H1-5) applies to utility premium (premium for innovation) and operating profit (profit margin for the manufacturer) with the cost per quality-adjusted life year (QALY) threshold set at ¥5 million per QALY, and price adjusted in a step-wise approach (Table 2).
Table 2: Price Adjustment Rates for Operating Profit and Premium
Price is adjusted as follows:
If the incremental cost-effectiveness ratio (ICER) is less than ¥5 million per QALY for a product, its price is not adjusted.
If the ICER is ¥5 million - ¥7.5 million, the price adjustment rates for utility premium and operating profit increase stepwise.
The price is adjusted at the maximum rate if the ICER exceeds ¥10 million per QALY6.
What is in store for the future?
While the focus has been on adjusting premiums for already listed products, Yescarta and Breyanzi’s recent price reductions indicate that new products may face cost-effective price cuts from launch. Given the increasing healthcare expenditure in Japan, the C2H notes the necessity of the CEA to ensure efficient allocation of healthcare resources and assure sustainability of the current healthcare system. With expensive products targeted, industry leaders have raised concerns that this method may deter new innovative products from entering the market and impact patient access.
Nonetheless, to balance sustainability, a price-raising scheme for highly cost-effective products has been introduced. This mechanism aims to foster and reward innovation within Japan’s HTA, where the price of a product is raised if it is evaluated as being either dominant or having an ICER below ¥2 million per QALY, and it is highly innovative with proven superiority over the comparator in clinical trials.[6,8-9]
The HTA in Japan is still in its early stages and is thus likely to further evolve, so monitoring the market will be necessary. Currently, the assessment appears longer than in other markets, and only a few universities have been selected as academic analysis groups, which poses challenges for manufacturers. It is also uncertain how, when, or if any given product will be selected, which creates obstacles for preparation.[6]
The risk of price adjustment may appear to make the Japanese market less attractive to manufacturers. However, the MHLW aims to reward innovation, and it remains focused on promoting the advancement of science and technology related to the improvement of its citizens’ lives. As such, to increase their chance of success upon dossier submission, manufacturers should:
1) Assess if their product will need to undergo a CEA early on to ensure all relevant inputs are available and provided.
2) Assess the opportunity to demonstrate superiority over a comparator and consider conducting robust cost-effectiveness analysis to achieve a premium through the price-raising scheme, if ICER is below ¥2 million per QALY.
3) Consider establishing local Japanese health economic capabilities to ensure the submitted analysis is in line with the requirements of the MHLW.
4) Include Japan-specific health economic evidence in initial dossier submission and demonstrate robust cost-effectiveness at launch to help protect against any subsequent price reductions.
Article written by Elizaveta Tchebaniouk, Senior Analyst Windrose Consulting Group
Sources:
Kymriah to Face 4% Price Cut in 1st CEA-Based Price Tweak, Yescarta Too, April 13th, 2021, Pharma Japan.
Japan Officially Announces CEA-Based Prices for Kymriah/Trelegy, Effective July 1, April 21st, 2021, Pharma Japan.
Yescarta to Join NHI Price List on April 21, Gets CEA-Tweak from Get-Go, April 14th, 2021, Pharma Japan.
Breyanzi to Join NHI List on May 19 at Post-CEA-Adjusted Kymriah Price, May 12th, 2021, Pharma Japan.
Takeru Shiroiwa, Cost-effectiveness evaluation for pricing medicines and devices: A new value-based price adjustment system in Japan, 18th May 2020, International Journal of Technology Assessment in Health Care.
Masataka Hasegawa, Shigekazu Komoto, Takeru Shiroiwa, Takashi Fukuda, Formal Implementation of Cost-Effectiveness Evaluations in Japan: A Unique Health Technology Assessment System, Value in Health, Volume 23, Issue 1, 2020, Pages 43-51, ISSN 1098-3015, https://doi.org/10.1016/j.jval.2019.10.005. Available from: https://www.sciencedirect.com/science/article/pii/S1098301519351708
Masanobu Yamate, Update of Drug Pricing System in Japan, Ministry of Health, Labour and Welfare.
Necessity of cost-effectiveness evaluation, National Institute of Public Health.
Japan to Adjust Prices of Pharma, Devices Based on Cost-Effectiveness Assessment Outcomes, March 1st, 2021. Pacific Bridge Medical.
