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Executive Summary

JAPAN's DRUG PRICE REVISION POLICY raised anew by U.S. officials at a recent bilateral trade meeting in Washington, D.C. on the market-oriented sector-selective (MOSS) negotiations. According to a Commerce Department summary of the March 23 meeting, U.S. representatives restated their fall proposal that pharmaceuticals be allowed a minimum of six months on the Japanese market before the price revision review begins. The U.S. government contends that drug product prices must depend on the accumulation of adequate market data and that six months is the minimum time necessary for building up that database. Commerce officials stressed that the current procedure of comparing the price of a new drug with a similar drug already on the market "lacks transparency and may be subject to arbitrary administrative price setting." Japan Ministry of Health and Welfare (MHW) representatives requested that the U.S. submit its proposal in writing "in order to take [it] under full consideration." Commerce officials, in turn, asked the MHW for a paper explaining the options the ministry has examined, and rejected, to date. The U.S. is expected to provide its written answer in April or May. Japanese officials are said to feel that the price setting issue was already settled during a 1986 meeting with the U.S. pharmaceutical industry, at which the Japanese representatives indicated they would moderate price decreases. The March 23 meeting was the fourth follow-up to pharmaceutical and medical device trade talks between the U.S. and Japanese governments which began in 1985. A fifth meeting is scheduled for this fall in Japan. The MHW, Japan's drug reimbursement agency, sets list prices at which it reimburses doctors for the drugs they dispense to patients under a national health insurance program. Physicians often obtain pharmaceuticals at a discount below the list prices and, when the agency learns of the discounts, it lowers the list prices. The policy is said to impede the introduction of new, more expensive drugs into the Japanese market and thus act as a de facto trade barrier. Other topics at the meeting included "R-zone" pricing for drug reimbursement, the new consumption, or value-added tax (VAT) for pharmaceuticals and medical devices, and MHW's requirement that pharmaceutical research data be published as part of the drug licensing application process. The U.S. wants Japan to continue discussions with the pharmaceutical industry on "R-zone" or "reasonable pricing" -- the difference between a drug's market price and its reimbursement price. Japan wants the R-zone set at 10%, while industry supports a 20% rate. The Commerce summary explains that MHW officials "saw no reason" to raise the R-zone "simply to increase profits for manufacturers, wholesalers, or dispensing institutions/physicians." The Japanese government is awaiting the results of a joint U.S./Japanese industry study on the issue. The Commerce representatives also asked the MHW to reconsider the requirement on publication of research material in Japan "at least for preclinicals studies performed in a country" with which the MHW has a good laboratory practices memo of understanding. The Pharmaceutical Manufacturers Association will be submitting a position paper on the issue and the MHW said the publication requirement will be a topic of the fall follow-up meeting. The MHW also informed Commerce that a committee has been formed in Japan to study broad intellectual property rights, such as the proprietary nature of preclinical data.

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