The Ministry of Health, Labor and Welfare (MHLW) has announced a new policy regarding generic pharmaceuticals in an attempt to stem the rise of health care costs. Japan spends JPY50 trillion (of which approximately one fifth represent prescription drugs) annually. Drug costs are expected to balloon as one third of the Japanese population will reach the age of 65 in 2035.

Spurred on by Prime Minister Abe’s Council on Economic and Fiscal Policy, MHLW has announced a push for greater use of generic drugs. The Minister, Yasuhisa Shiozaki, held a briefing to announce that  MHLW will bring the deadline forward  for raising market share of generics from 46.9% to 60% by FY 2016 and 80% by FY 2020. Japan lags substantially behind other countries in the use of generics (e.g. 90% in the U.S.; 82.5% in Germany and 75% in the U.K.). In order to achieve this, MHLW will raise the fee incentives for doctors prescribing generic drugs. They will also require doctors who prescribe patented drugs to explain why they are requiring those drugs when less expensive generic equivalents are available. Also implicit is the suggestion that, over time, insurance coverage for patented drugs should be reduced where a generic equivalent is available.

At the moment, the difference in prices to the consumer between generics and patented drugs is significantly less than in other countries. In the U.S., for example, generics cost between 10 and 20% of the price of patented drugs whereas in Japan they cost, on average, 60% of what a patented drug would. The MHLW has also suggested it might exclude prescription drugs from coverage in the public insurance scheme if there are similar to over-the-counter drugs available.

It is too early to ascertain how effective this initiative will be. There is an entrenched lobby by the Japan Medical Association to forestall the use of generics. In Japan, doctors are 'dispensing' physicians and therefore there is an economic benefit to them in prescribing more expensive drugs. Nevertheless, the pressure of ballooning health care costs in the G7’s most rapidly aging society has made MHLW conscious that this policy must be adopted in order to deal with insuring public health costs are managed.