iStock photo/Diy13

Japan is known to have one of the most efficient universal healthcare systems in the world, in terms of monetary spending. What few people realize is that behind this admirable system is a burgeoning debt. In fact, there are now cracks all over.

One of the popular buzzwords foreshadowing the future of Japan’s healthcare is the mystery of Abenomics. Japan’s current Prime Minister Shinzo Abe has professed bold economic reforms with three supposed arrows, the third of which is a pledge to deregulate important foundations of the economy – including the pharmaceutical industry.

One of the most glaring changes in Japan’s healthcare system has been the rapid push for generics, but somehow the corresponding market share is still floating around 25%. There are two reasons for this much hindrance to the adaptation of generics.

In distribution and retail, there are two classic moves to make your products sell: end-consumer-pull and push-to-distributors. Unfortunately, the end-consumers of healthcare services do not have the incentive to avail lower-priced generics. This is because the actual economic burden of healthcare expenses is shouldered by the current workforce via the healthcare system and, potentially, additional subsidies from tax or other financial instruments, like bonds secured by the government. What escalates the pressure even more is that Japan’s senior citizens account for almost 30% of the population today and are the main beneficiary of the healthcare system. It is calculated that 2.8 working people support one senior citizen today, but by 2050, only 1.3 will support one senior citizen amidst rising healthcare costs, a low birth rate, and an aging population.

As for the distributor push, with the percentage of healthcare coverage among Japan’s population approaching 100%, playing the numbers game of sacrificing lower margins for higher sales volume a la Wal-Mart does not make any financial sense. Thus, from a distributor’s view, there is no financial incentive to support generics over branded medicines.

Generics are slowly but surely making more impact in emerging markets. In the Philippines, the implementation of the Generics Act of 1988 led to the “The Generics Pharmacy,” which promoted generics’ accessibility to poor, especially in far-flung areas.

Filipinos, as a basic rule of thumb, are very price-conscious. Though 81% are now covered by the Philippine healthcare system, more than 95% of medical expenditures is paid out of pocket. This is why the Philippines has a competitive landscape conducive to generics, with the intricate balance of quality and price serving as key success factors.

In Japan, on the other hand, the two primary key success factors are quality and availability.

Interestingly enough, Japan’s government is setting up tactical efforts to reduce medical costs, to the point of subsidizing loss of income for pharmacists who opt to fill a prescription with generics rather than expensive brands. While such sales incentives may seem like the concern of the actual companies supplying generics (Sawai, Teva, etc.), we cannot second guess Abe-san’s strategy to reorganize Japan’s healthcare. The Prime Minister likely realizes that his deregulation efforts (at least in pharmaceuticals) will be met with a lot of bottlenecks without a larger overhaul of the healthcare system.

The best way for Japan to increase generics is to increase price sensitivity via out-of-pocket expenses, even if that means collecting less health insurance from citizens. With this, people may think twice about harmful habits such as smoking or drinking and would opt for lower-priced generics, assuming the effects are comparable to brands. With customer demand comes wholesaler acceptance (a.k.a., distributor push).

There is some contention that generics will destroy pharmaceutical R&D. This is not entirely accurate. New blockbuster drugs would surely still enjoy market exclusivity, albeit at lower prices.

One thing that can destroy any enterprise is a lack of competition. If pharmaceutical companies do not see the need to become better, faster, stronger, or leaner, then R&D will rely purely on scientific curiosity.

The time has come to change mindsets and implement reforms that will transform Japan from a purely welfare state to more of a market-driven economy, particularly in the healthcare segment. The government’s established methods may have been effective to support Japan as a rising economic power, but in a globalized world, change is inevitable.

The generic threat to the world’s healthcare systems is complacency. Inaction can certainly be more dangerous than aggressive competition when there are warning signs of struggle ahead. The healthcare industry undeniably is driving head on into a future of massive changes in economics, social behaviors, and technology. Survival is by no means impossible, but will require action to adapt.

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