Japan's health ministry has published a new long-term plan to cut health spending by JPY7trn (US$59.03bn) by 2025.

Under the reforms, there will be a reduction in medical fees, including a drop in drug prices on the National Health Insurance (NHI) scheme, to be introduced in April 2006. Reducing costs on treating elderly patients is key, with co-payments for patients over 70 to be increased from 20% to 30% from October 2006, while hospital meal and accommodation costs for this demographic will no longer be covered by insurance.

Meanwhile, a new health insurance package will be introduced in 2008 for those over 75 years of age. In 2004, the medical costs of the elderly accounted for 40% of health expenditure. The Health Ministry forecasts that by 2025, demand from pensioners will account for 50% of expenditure.

However, one real innovation will be the use of generics in pricing criteria. According to the proposals, market prices for original drugs will be lowered according to market share differentials with the generic competitor. Price differentials between generics and original drugs will also be used in the calculation for the original drug's price, while the plans also call for the pricing system's existing 4%-6% "special reduction rate" to continue.

The Japanese Pharmaceutical Manufacturers Association has criticised the new proposals, claiming that the proposed price reductions are arbitrary and illogical. Foreign research-based drugmakers have also warned that such measures would make Japan's drug industry unattractive and would impact R&D and investment. However, if the scheme receives final approval, it is likely to prove a boon for Japan's underdeveloped generics sector.