Medical System Network operates the Nanohana Pharmacy chain. It also provides a wide range of pharmacy management support services (from pharmaceuticals procurement to pharmacist training) to dispensing pharmacies and medical institutions including directly operated pharmacies and non-group affiliates that register to become members of the company’s network. The core of these services is the one-stop supply chain management service that comprises price negotiations with drug wholesalers, drug ordering, and settlement of bills. Medical System Network receives commissions from its network members based on the amount of drug orders they place. As of end-FY03/21, there were 6,116 network members (+871 from end-FY03/20) comprising 416 directly operated pharmacies and 5,700 affiliates. The company has reorganized its business segments in FY03/20, moving the Pharmaceuticals Network and Dispensing Pharmacy businesses, as well as the manufacture and market pharmaceuticals business previously included in the Other business, under the Community Pharmacy Network segment. The Leasing and Facility-related business and the Meal Catering business are unchanged. In the Other business, since the manufacture and market pharmaceuticals business is transferred out, the main business comprises home-visit nursing care.
Nanohana Pharmacies, the company’s directly operated pharmacies, are generally located near large medical institutions or in medical malls or complexes that integrate multiple clinics and hospitals. According to the Ministry of Health, Labour and Welfare, there were 60,171 dispensing pharmacies in Japan at end-March 2019, but the market is highly fragmented; the top 10 pharmacies with nationwide chains, including Medical System Network with 0.7% share of pharmacies, have a combined market share of less than 10%. Because mid-tier regional chains with roots in local communities and small, family-owned pharmacies account for 90% of the domestic market, the primary growth strategy of major pharmacy chains is opening new pharmacies and expanding through M&A. Through this increase in affiliates to the Pharmaceuticals Network, the number of network members as of end-March 2021 had exceeded 10% of the market share.
In FY03/21, Community Pharmacy Network accounted for 95.2% of sales, Leasing and Facility-related 2.2%, Meal Catering 2.4%, and Other 0.2%. The Community Pharmacy Network segment is a new segment following a segment change in FY03/20 that initially combined the former Pharmaceuticals Network and Dispensing Pharmacy segments with manufacture and market pharmaceuticals business (previously part of Other segment), but the digital shift business was added from FY03/21. The Community Pharmacy Network segment comprises the Pharmaceuticals Network, Dispensing Pharmacy, and manufacture and market pharmaceuticals, and digital shift businesses. The company discloses operating status of each business under the Community Pharmacy Network segment, but does not provide a sales and profit breakdown by business.
FY03/22 results: For FY03/22, the company reported sales of JPY106.7bn (+2.3% YoY), EBITDA of JPY6.7bn (+4.4% YoY), operating profit of JPY3.9bn (+12.3% YoY), recurring profit of JPY4.3bn (+24.0% YoY), and net income attributable to owners of the parent of JPY2.4bn (+8.9% YoY). Sales were 2.3% higher YoY as there was steady growth in new network affiliates in the Pharmaceuticals Network business, while in the Community Pharmacy business a certain degree of recovery in the prescription count offset a decline in prescription unit price. Operating profit grew 12.3% YoY, thanks in part to the increase in new network affiliates in the Pharmaceuticals Network business. Net income attributable to owners of the parent increased 8.9% YoY thanks in part to gains on the sale of investment securities and a decrease in the company's income tax burden stemming from its July 2021 absorption of consolidated subsidiary Home-Visit Nursing Care Station Himawari Co., Ltd.
The company's FY03/22 earnings forecast calls for sales of JPY110.0bn (+3.1% YoY), EBITDA of JPY6.2bn (-7.6% YoY), operating profit of JPY3.5bn (-9.1% YoY), recurring profit of JPY3.7bn (-14.2% YoY), and net income attributable to owners of the parent of JPY1.8bn (-26.9% YoY). In the dispensing pharmacy industry, earnings traditionally have been at the mercy of revisions to NHI drug prices and dispensing fees. Although the NHI drug price and dispensing fee revisions implemented in April 2022 resulted in a 1.35% reduction in drug prices, they also delivered a 0.08% increase in dispensing fees due to higher points awarded for the interpersonal work of pharmacists. The company views these circumstances as an
opportunity for expansion and in the Pharmaceuticals Network business it will strive to acquire new network affiliates, provide comprehensive management support to pharmacies, and further improve the efficiency of pharmaceutical distribution. In the Community Pharmacy business, it will endeavor to strengthen interpersonal operations by fostering a medical mindset and facilitating high-quality pharmacotherapy, while also targeting prescription acquisition primarily through its official "Tsunagaru Pharmacy" LINE account. In the Leasing and Facility-related segment, it will aim to achieve occupancy rates of 90% at Wisteria SenriChuo and Wisteria Minami-Ichijo (both serviced residences for the elderly) as soon as possible.
When reporting FY03/22 results, Medical System Network also released its sixth medium-term plan spanning FY03/23 through FY03/26. While under the fifth medium-term plan the company sought to expand both market share and the scale of operations, under the new plan it aims to transition to a new stage in which the company's networks form a foundation platform that functions as a new pharmacy infrastructure with group pharmacies at the core but also including affiliates. Medical System Network plans to utilize this platform to pursue growth in various businesses.
Strengths: a management support network service available to small and mid-tier pharmacies; certified pharmacist training support system that appeals to pharmacies struggling with the pharmacist shortage; and regional dispensing pharmacy strategy in line with administrative guidance. Weaknesses: potential conflict of interest between M&A-driven pharmacy chain expansion and support services for small pharmacies; low profit margins for dispensing pharmacies without drugstore function; and relatively small assets being a disadvantage in acquisitions. (See the Strengths and weaknesses section for details.)
|Gross profit margin||35.4%||34.4%||37.7%||37.4%||38.4%||39.0%||37.9%||38.2%||40.7%||41.6%|
|Operating profit margin||3.7%||3.2%||3.5%||4.3%||2.4%||3.4%||1.5%||1.5%||3.3%||3.6%||3.2%|
|Recurring profit margin||3.5%||3.1%||3.4%||4.4%||2.4%||3.5%||1.5%||1.5%||3.3%||4.0%||3.4%|
|Shares issued (year-end; '000 shares )||25,970||25,970||25,970||29,890||29,890||30,523||30,643||30,643||30,643||30,643||-|
|EPS (fully diluted)||-||-||-||-||-||34.3||15.0||-||-||-||-|
|Dividend per share||8.0||8.0||8.0||9.5||10.0||10.0||10.0||10.0||10.0||12.0||12.0|
|Book value per share||222.9||214.7||243.3||334.9||345.3||351.4||354.8||310.4||370.2||439.7||-|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||2,092||3,106||2,499||2,081||2,252||10,201||11,703||11,722||10,118||8,201|
|Total current assets||8,271||10,941||11,023||10,783||11,098||18,736||21,055||20,578||19,313||18,701|
|Tangible fixed assets||11,472||15,976||17,249||20,253||21,246||24,129||25,721||25,126||24,634||24,624|
|Investments and other assets||2,783||3,798||3,759||4,329||4,559||4,847||5,922||6,143||6,926||6,848|
|Total current liabilities||14,375||24,880||21,626||21,061||16,920||21,769||23,844||23,296||25,418||20,435|
|Total fixed liabilities||10,178||12,882||17,826||17,520||23,172||30,404||34,329||33,749||27,841||29,219|
|Total net assets||6,236||5,352||6,136||10,265||10,644||10,584||10,761||9,418||11,187||13,286|
|Total interest-bearing debt||13,877||23,870||24,605||21,769||24,049||33,792||38,897||37,558||32,558||29,566|
|Cash flow statement(JPYmn)|
|Cash flows from operating activities||3,790||3,706||3,838||6,409||3,084||6,699||2,840||4,232||5,205||4,010|
|Cash flows from investing activities||-5,425||-7,559||-3,958||-5,040||-3,909||-6,848||-5,921||-2,383||-1,485||-2,511|
|Cash flows from financing activities||1,654||4,864||-483||-1,792||998||8,050||4,338||-1,687||-5,312||-3,415|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Gross profit margin||38.4%||38.0%||38.3%||38.2%||38.6%||40.2%||40.5%||40.7%||41.4%||41.9%||41.9%||41.6%|
|Operating profit margin||1.3%||1.5%||1.6%||1.5%||-||2.7%||3.5%||3.3%||2.6%||3.6%||3.8%||3.6%||3.6%|
|Recurring profit margin||1.3%||1.5%||1.5%||1.5%||-||2.7%||3.5%||3.3%||3.6%||4.3%||4.4%||4.0%||3.9%|
|Gross profit margin||38.4%||37.5%||38.9%||38.0%||38.6%||41.7%||41.2%||41.2%||41.4%||42.4%||41.8%||41.0%|
|Operating profit margin||1.3%||1.7%||1.6%||1.5%||-||5.5%||5.2%||2.5%||2.6%||4.6%||4.3%||2.9%|
|Recurring profit margin||1.3%||1.7%||1.6%||1.3%||-||5.6%||5.1%||2.7%||3.6%||5.0%||4.5%||3.1%|
|By segment (cumulative)||FY03/20||FY03/21||FY03/22|
|Community Pharmacy Network||24,224||49,290||74,637||99,617||23,922||48,539||74,368||99,214||24,657||49,663||75,986||101,457|
|% of total||94.1%||93.6%||93.8%||94.0%||94.5%||94.5%||94.6%||94.6%||94.6%||94.6%||94.5%||94.5%|
|Leasing and Facility-related||760||1,829||2,659||3,425||723||1,438||2,194||2,940||739||1,536||2,461||3,326|
|% of total||3.0%||3.5%||3.3%||3.2%||2.9%||2.8%||2.8%||2.8%||2.8%||2.9%||3.1%||3.1%|
|% of total||2.8%||2.7%||2.7%||2.6%||2.4%||2.4%||2.4%||2.4%||2.2%||2.2%||2.2%||2.2%|
|% of total||0.1%||0.2%||0.2%||0.2%||0.2%||0.2%||0.2%||0.2%||0.3%||0.3%||0.3%||0.3%|
|Segment sales adjustments||-154||-417||-603||-764||-154||-292||-442||-601||-143||-350||-563||-727|
|Community Pharmacy Network||825||1,736||2,764||3,743||434||2,369||4,329||5,703||1,202||2,885||4,663||6,117|
|Operating profit margin||3.4%||3.5%||3.7%||3.8%||1.8%||4.9%||5.8%||5.7%||4.9%||5.8%||6.1%||6.0%|
|Leasing and Facility-related||-8||68||67||45||6||16||34||32||-2||32||53||39|
|Operating profit margin||-||3.7%||2.5%||1.3%||0.8%||1.1%||1.5%||1.1%||-0.3%||2.1%||2.2%||1.2%|
|Operating profit margin||-||-||-||-||-||-||-||-||0.1%||0.4%||0.0%|
|Operating profit margin||-||-||-||-||-||-||-||-||-||-||-|
|Segment profit adjustments||-447||-934||-1,508||-2,057||-472||-1,003||-1,569||-2,253||-523||-1,043||-1,650||-2,293|
|Community Pharmacy Network||24,224||25,066||25,347||24,980||23,922||24,617||25,829||24,846||24,657||25,006||26,323||25,471|
|% of total||96.6%||93.3%||94.2%||94.4%||94.5%||94.6%||94.7%||94.7%||93.5%||94.5%||94.3%||94.4%|
|Leasing and Facility-related||760||1,069||830||766||723||715||756||746||739||797||925||865|
|% of total||3.0%||4.0%||3.1%||2.9%||2.9%||2.7%||2.8%||2.8%||2.8%||3.0%||3.3%||3.2%|
|% of total||2.9%||2.6%||2.6%||2.5%||2.4%||2.4%||2.3%||2.3%||2.2%||2.2%||2.1%||2.1%|
|% of total||0.2%||0.2%||0.2%||0.2%||0.2%||0.2%||0.2%||0.2%||0.3%||0.3%||0.3%||0.3%|
|Segment sales adjustments||520||-263||-186||-161||-154||-138||-150||-159||-463||-207||-213||-164|
|Community Pharmacy Network||825||911||1,028||979||434||1,935||1,960||1,374||1,202||1,683||1,778||1,454|
|Operating profit margin||3.4%||3.6%||4.1%||-||1.8%||7.9%||7.6%||5.5%||4.9%||6.7%||6.8%||5.7%|
|Leasing and Facility-related||-8||76||-1||-22||6||10||18||-2||-2||34||21||-14|
|Operating profit margin||-||7.1%||-||-||0.8%||1.4%||2.4%||-||-0.3%||4.3%||2.3%||-|
|Operating profit margin||-||-||-||-||-||0.9%||1.8%||-||-||0.3%||1.0%||-|
|Operating profit margin||-||-||-||-||-||-||-||-||-||-||2.5%||-|
|Segment profit adjustments||-447||-487||-574||-549||-472||-531||-566||-684||-523||-520||-607||-643|
|Area||Directly operated pharmacies||Affiliates||Total|
|Kanto and Koshinetsu||96||2,210||2,306|
|Tokai and Hokuriku||44||1,287||1,331|
|Chugoku and Shikoku||21||761||782|
|Kyushu and Okinawa||63||1,035||1,098|
Full-year FY03/22 (April 2021–March 2022) earnings results
Sales rose 2.3% YoY as the Pharmaceuticals Network business recorded a steady increase in new network affiliates, and the Community Pharmacy business saw some recovery in the number of prescriptions filled despite a drop in the average prescription price. The increase in Pharmaceuticals Network business network members contributed to profit growth with operating profit increasing 12.3% YoY. Net income attributable to owners of the parent increased 8.9% thanks in part to gains on the sale of investment securities and a decrease in the company's income tax burden stemming from its July 2021 absorption of consolidated subsidiary Home-Visit Nursing Care Station Himawari Co., Ltd.
The number of new network members continued to increase, driven by the need for improved operating stability for dispensing pharmacies amid harsh business conditions in the industry, including annual NHI drug price revisions starting in April 2021. As of end-March 2022, network members numbered 7,401 (+1,285 versus end-FY03/21), consisting of 425 directly operated pharmacies and 6,976 affiliates.
The number of prescriptions filled during the period recovered to some extent, despite a drop in the average prescription price. As of end-March 2022, the group had 42 community pharmacies, one care plan center, and eight cosmetics/drug stores.
This business aims to provide a stable supply of good-quality, low-priced generic drugs. The company launched 14 products (seven ingredients) during the fiscal year under review, and had 82 products (41 ingredients) available as of end-March, 2022.
Subsidiary PharmaShift Co., Ltd. was established on October 1, 2020, to create a “new pharmaceutical platform” for the digital age. In March 2021 the subsidiary launched the “Tsunagaru Pharmacy” service utilizing its official LINE account. As of end-March 2022, the official LINE account had more than 310,000 registered users, with 911 stores having introduced the service.
Property leasing revenue was generally strong and orders for construction projects increased. However, occupancy rates at the company’s serviced elderly housing facilities remained sluggish. As of end-March 2022, the company reported stable occupancy rates at three of its five properties, while for the remaining two, at Wisteria Senri-Chuo it reported an occupancy rate of 78.1% (with 64 out of 82 units occupied), and at Wisteria Minami Ichijo it reported an occupancy rate of 69.8% (with 81 out of 116 units occupied).
Despite a drop in the number of meals supplied due to the pandemic, the segment turned profitable in Q2 as the company revised its operations and changed its suppliers. The segment remained in the black in Q3.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||1H Est.||2H Est.||FY Est.|
|Cost of sales||30,542||31,303||61,845||30,307||31,949||62,256|
|Gross profit margin||40.2%||41.2%||40.7%||41.9%||41.4%||41.6%|
|Operating profit margin||2.7%||3.9%||3.3%||3.6%||3.7%||3.6%||2.1%||4.2%||3.2%|
|Recurring profit margin||2.7%||3.9%||3.3%||4.3%||3.8%||4.0%||2.4%||4.3%||3.4%|
Community Pharmacy Network business: sales of JPY104.7bn (+3.2% YoY), segment profit of JPY6.0bn (-1.5% YoY)
Other three businesses (Leasing and Facility-related, Meal Catering, and home-visit nursing care): sales of JPY6.2bn (+3.7% YoY), segment profit of JPY61mn (+114.1% YoY)
Adjustments: -JPY874mn for sales, -JPY2.6bn for segment profit
In the dispensing pharmacy industry, earnings traditionally have been at the mercy of revisions to NHI drug prices and dispensing fees. Although the NHI drug price and dispensing fee revisions implemented in April 2022 resulted in a 1.35% reduction in drug prices, they also delivered a 0.08% increase in dispensing fees due to higher points awarded for the interpersonal work of pharmacists. Under these circumstances, the company believes the needs for improved operational efficiency and more stable management will persist in the pharmacy industry.
The company views these circumstances as an opportunity for expansion and in the Pharmaceuticals Network business it will strive to acquire new network affiliates, provide comprehensive management support to pharmacies, and further improve the efficiency of pharmaceutical distribution. In the Community Pharmacy business, it will endeavor to strengthen interpersonal operations by fostering a medical mindset and facilitating high-quality pharmacotherapy, while also targeting prescription acquisition primarily through its official "Tsunagaru Pharmacy" LINE account. However, the company expects to incur upfront costs associated with strengthening store development and increasing new store openings with a view to expanding the pharmacy network.
In the Leasing and Facility-related business, which is the largest of the other three businesses, the company will aim to achieve occupancy rates of 90% at Wisteria SenriChuo and Wisteria Minami-Ichijo (both serviced residences for the elderly) as soon as possible.
When reporting FY03/22 results, Medical System Network also released its sixth medium-term plan kicking off in FY03/23. While under the fifth medium-term plan the company sought to expand both market share and the scale of operations, under the new plan it aims to transition to a new stage in which the company's networks form a foundation platform that functions as a new pharmacy infrastructure with group pharmacies at the core but also including affiliates. Medical System Network plans to utilize this platform to pursue growth in various businesses. Shared Research will report on the details following interviews with the company.
Medical System Network announced its fifth medium-term plan (FY03/19–FY03/22) at the time of its earnings announcement for FY03/18. The company had previously reviewed its medium-term plans every three years. The fourth medium-term plan that ended in FY03/18, was preceded by a plan covering FY03/13–15. Starting from the fifth medium-term plan, however, the company changed the term to four years, which would be in line with the cycle of medical treatment fee revisions.
The core strategies of the fifth medium-term plan are as follows. The first four are in response to the NHI drug price and dispensing fee revisions implemented in April 2018. The third strategy is linked to the company’s full-scale entry into the generic drug business (manufacture and sales), and the company expects earnings contribution from its consolidated subsidiary Feldsenf Pharma, which will have a central role in managing the business. Regarding the fifth strategy, given that the construction of a new serviced elderly housing facility was near completion as of end FY03/18, the company intends to focus on boosting occupancy rates for these units. Also, having made continued investments into these new facilities up until now, the company sees the period covered by the fifth medium-term plan as a time to focus on stepping up its financial base.
Drive collective efforts of all network members to expand the pharmaceuticals network and provide management support to small and mid-tier pharmacies that help sustain community-based medical care; also improve drug distribution efficiency through collective efforts.
Position directly operated pharmacies as medical institutions and raise their caliber; promote their family pharmacy functions, allowing them to take initiative in resolving issues surrounding community medical care.
Assist government-driven efforts to increase generic drug utilization and help develop efficient drug distribution systems by expanding manufacture and sales of quality generic drugs.
Strengthen collaboration among group businesses and take a unified approach in providing community care functions (medical care, long-term care, and disease prevention) that are considered essential to the community-based integrated care system.
Improve cash flows, take further steps to achieve efficient management structure, and fortify financial base.
We understand that in the mid- to long-term, Feldsenf Pharma, a generic drugs subsidiary (manufacture and sales) established by the company, will take on a significant role in Medical System Network’s generic drug business cited in the third strategy. In the final year of the fifth medium-term plan, the company plans on sourcing around 50% of its consolidated operating profit from the Supply Chain Management (SCM) business, which is the combination of the generic drugs business centering on Feldsenf Pharma, and the Pharmaceuticals Network business.
Medical System Network has not changed its basic policy outlined above, even after the change in business environment due to the spread of COVID-19 in FY03/20. It provides specific policies for each business in the core Community Pharmacy Network segment. In the Pharmaceuticals Network business, the company will continue to maintain and increase network members. In the Dispensing Pharmacy business, the company aims to strengthen the family pharmacy function of its directly operated Nanohana Pharmacies. In the manufacture and market pharmaceuticals business, the company seeks to increase the product lineup of generic drugs sold as well as the number of network members that sell its products. In May 2021, the company announced a change to its fifth medium-term plan final year (FY03/22) sales and profit forecasts to reflect the impact of the COVID-19 pandemic.
According to information released by the company in February 2018, Feldsenf Pharma’s product lineup only comprised six generic drug APIs and 13 products, but the subsidiary looks to expand and improve the lineup, which would also include existing generic drugs. At end-FY03/20, Feldsenf Pharma’s product lineup had grown to 23 generic drug APIs and 51 products, with a target of 100 products at end-FY03/22. Feldsenf Pharma is unmatched by industry peers in that it can lower transport costs, control production based on demand from network members (affiliates and directly operated pharmacies), and has a strategy to reduce delivery charges. We believe Feldsenf Pharma, by fulfilling its given role, will not only help raise the generic drugs ratio at Medical System Network pharmacies but also contribute to the company’s consolidated results. The company targets an increase in the number of pharmacies selling its products to 1,000 at end-FY03/21.
The company outlined numerical targets for FY03/22 (the final year of the fifth medium-term plan) as follows: JPY120.0bn in sales, JPY5.0bn in operating profit (consolidated EBITDA of JPY7.5bn), equity ratio of over 30%, and 5,000 network members (when initially announced).
The number of pharmacies looking to become network members continues a steady increase. With more pharmacies having sought to become network members since the April 2018 NHI drug price revision, the company cleared the 5,000-member target in FY03/20, two years earlier than initially planned. In FY03/21, the number network members surpassed 6,000, exceeding a market share of 10% (number of pharmacies basis). In terms of earnings forecasts, the company revised its FY03/20 forecasts to reflect the impact of COVID-19 and associated significant change in the operating environment. The company initially issued its full-year FY03/21 forecast in a range form and revised the forecast on November 6, 2020. As for the numerical targets for FY03/22, the final year of its fifth medium-term plan, the basic policy is unchanged but announced when reporting FY03/21 results that the forecasts need to reflect the continuing impact of COVID-19 pandemic and NHI price revisions.
|Pharmaceuticals Network||3,237||3,639||3,951||Community Pharmacy Network||97,461||-|
|Dispensing Pharmacy||81,650||87,172||90,706||Three other businesses||6,113||-|
|Operating profit||2,113||3,163||1,428||Operating profit||1,615||5,000|
|Pharmaceuticals Network||1,718||1,949||2,331||Community Pharmacy Network||4,783||-|
|Dispensing Pharmacy||2,314||3,060||1,068||Three other businesses||-240||-|
|Recurring profit||2,109||3,250||1,501||Recurring profit||1,560||-|
|Recurring profit margin||2.4%||3.5%||1.5%||Recurring profit margin||1.5%||-|
|Net income||571||1,022||462||Net income||-895||-|
|Equity ratio||20.1%||16.9%||15.6%||Equity ratio||-||30% or higher|
|Pharmaceuticals Network members||1,770||2,509||3,790||Pharmaceuticals Network members||5,000||5,000|
|No. of regional pharmacies||377||399||420||No. of regional pharmacies||-||-|
Medical System Network provides dispensing pharmacy support services to its own pharmacies and to affiliates. Based on the FY03/19 results reported under the former segment classifications, approximately 90% of the company’s sales came from the operation of dispensing pharmacies (Dispensing Pharmacy business*). The dispensing pharmacy support service (Pharmaceutical Network business*), while highly profitable, accounts for a smaller portion of overall sales than operation of dispensing pharmacies. As such, the company can be considered a pharmacy chain that also extends its services to non-directly operated pharmacies.
*The Dispensing Pharmacy business and the Pharmaceutical Network business were formerly independent reportable segments. The two businesses were consolidated into the new Community Pharmacy Network segment in FY03/20.
The dispensing pharmacy support service developed by Medical System Network is provided not only to directly-operated pharmacies but also to non-group dispensing pharmacies (affiliates). The Dispensing Pharmacy business generated about 30% of operating profit (unadjusted for internal transactions) in FY03/19 while the Pharmaceuticals Network business accounted for about 70%, suggesting high OPM for the latter considering the segment’s small share of sales.
Dispensing pharmacies in Japan are regulated by the nation’s universal healthcare insurance system governed by the Ministry of Health, Labour and Welfare (MHLW). The system requires the separation of prescription and dispensary practices, where patients receive prescriptions from physicians at medical institutions and have them filled at dispensing pharmacies by a pharmacist. Under the universal healthcare insurance system, the cost of medication is split between patients and their insurance plans. When a pharmacy dispenses drugs, it collects the patient co-payment (30% of total cost for most company employees) in cash and obtains dispensing fee receivables for the insurance plan portion (70%), for which a reimbursement claim is later submitted. The prices for drugs and medical services are set by the regulatory authorities.
Medical System Network comprised five business segments until FY03/19. The mainstay segments were Pharmaceuticals Network and Dispensing Pharmacy. These two segments were consolidated into the Community Pharmacy Network segment along with the manufacture and market pharmaceuticals business (previously included in the Other business and operated by Feldsenf Pharma). PharmaShift Co., Ltd, was established on October 1, 2020 to operate the Family Pharmacy Support Service. The new Community Pharmacy Network segment from FY03/21 comprises the Pharmaceuticals Network, Dispensing Pharmacy, manufacture and market pharmaceuticals, and digital shift businesses. The company does not disclose a sales and profit breakdown by business.
As peripheral business in healthcare and care-related businesses, the company maintains its three segments; Leasing and Facility-related, Meal Catering, and Other businesses. The main business in the Other business segment is home-visit nursing care. Each business segment continues to be operated by respective core subsidiaries.
|Segment||Company||Location||Ratio of voting rights|
|Community Pharmacy Network||Hokkaido Institute for Pharmacy Benefit Co., Ltd.||Sapporo, Hokkaido||100.0%|
|Nanohana Hokkaido Co., Ltd.||Sapporo, Hokkaido||100.0%|
|Clinics Co., Ltd.||Sapporo, Hokkaido||100.0%|
|Nanohana Tohoku Co., Ltd.||Hachinohe, Aomori||100.0%|
|Nanohana East Japan Co., Ltd.||Minato-ku, Tokyo||100.0%|
|Metro Pharmacy Co., Ltd.||Minato-ku, Tokyo||100.0%|
|Nanohana Central Co., Ltd.||Nagoya, Aichi||100.0%|
|Nanohana West Japan Co., Ltd.||Toyonaka, Osaka||100.0%|
|Total Medical Service Co., Ltd.||Kasuya, Fukuoka||100.0%|
|Nagatomi Pharmacy Co., Ltd.||Oita, Oita||100.0%|
|Feldsenf Pharma Co., Ltd.||Sapporo, Hokkaido||80.0%|
|Digital Shift||PharmaShift Co., Ltd.||Minato-ku, Tokyo||51.0%|
|Leasing and Facility-related||Paltecno Co., Ltd.||Sapporo, Hokkaido||100.0%|
|Meal Catering||Sakura Foods Co., Ltd.||Kasuya, Fukuoka||100.0%|
|Other||Agrimas Corp. *||Ota-ku, Tokyo||77.7%|
|Home-Visit Nursing Care Station Himawari Co., Ltd.||Nerima-ku, Tokyo||100.0%|
The Community Pharmacy Network business is a new segment created in FY03/20 from consolidating the Pharmaceuticals Network, Dispensing Pharmacy, and a part of the Other (manufacture and market pharmaceuticals business) segments. The new Family Pharmacy Support Service business was also added from FY03/21.
The company cited following two reasons for the reorganization:
The core Pharmaceuticals Network business offers comprehensive support for operating pharmacies, ranging from the sourcing of drugs to pharmacist training and financing. It can be broken down into four major functions: Pharmaceuticals supply chain management, slow moving inventory clearance, pharmacist training, and financing.
Medical System Network negotiates terms of business with drug wholesalers on behalf of its network members. Typically, dispensing pharmacies have to negotiate prices separately with each wholesaler. However, the company represents its network members collectively in negotiations with wholesalers around the country. The wholesalers benefit from the company’s services in a number of ways. They can receive payment from all network members two months after closing instead of the standard three months, which reduces interest expenses. The company’s collection service helps them minimize the cost of recovering outstanding payments for pharmaceutical products. The online ordering system improves and optimizes inventory control for pharmacies, reducing order frequency and emergency deliveries, thus lowering wholesaler costs. These cost-saving advantages give the company the power to negotiate better prices with wholesalers. Price negotiation is crucial to dispensing pharmacies that interact with multiple drug wholesalers since the difference between the actual drug sourcing cost and official price of prescription drugs represents their profit stream, but it is also a source of heavy operational burden.
In negotiating terms with wholesalers, Medical System Network adopts the law of one price. Instead of using order volume as bargaining power (making lower price a condition for large orders), it negotiates with all wholesalers based on a common price per each pharmaceutical product. Further, the company does not get involved in the transactions and relationships between the pharmacies and their regular suppliers* (wholesalers). Members can choose which wholesaler to buy from on the basis of service and other conditions, not price. This system lowers the hurdle for dispensing pharmacies thinking of joining the network, but wants to keep existing trading accounts with their regular suppliers, and appeals to wholesalers as well, because they can maintain relationships with existing customers. It is thus a win-win for both retailers and wholesalers. The company also benefits, because it can attract new network members by allowing them to maintain their existing accounts.
Medical System Network is also focusing on handling generics, whose use is being strongly promoted by MHLW. The company gathers and analyzes detailed information such as interview forms** mainly about drugs added to the NHI list that it receives from pharmaceutical companies. The company then negotiates with wholesalers about stable supply of the product, price, and other conditions, and provides information on the product to network members if it concludes that it can be dispensed safely by the pharmacists. The company also provides a substantial support system to its affiliates to increase their handling of generics, including an inventory management system with the same features as the generic drug recommendation system used by its directly operated pharmacies.
*Regular supplier/trading account: A relationship between retailer and wholesaler whereby the retailer has a trading account with the wholesaler. For a retailer, a regular supplier is a wholesaler with which it has a history of doing business.
**Interview form: Pharmaceutical Interview Form (IF), whose purpose is to supplement information that is not fully covered in package inserts of prescription drugs. These forms are supplied by pharmaceutical companies and provide all-round product information. Japan Society of Hospital Pharmacists (JSHP) sets IF drafting guidelines and instructs pharmaceutical companies to distribute the forms. Historically produced by pharmacists interviewing companies, the current format was established in 1988.
This system allows for the exchange of dead stock pharmaceuticals among network members. A pharmaceutical product can no longer be dispensed once it expires, so the disposal of dead stock becomes a cost burden on dispensing pharmacies. The primary objective of the system is to reduce inventory disposal losses substantially by registering members’ dead stock in the system and matching the stock with other members that can use it. Charges for matched dead stock can be settled together with order placement commissions to Medical System Network, so member pharmacies do not need to make payments to each other.
The MHLW has identified wasted pharmaceuticals as a cost burden that needs to be addressed in healthcare reforms. Note that Medical System Network has acquired a patent for this system.
An attractive training system can improve staff loyalty and draw talented recruits to dispensing pharmacies. The company holds nationwide training courses for pharmacists including those working at network pharmacies in collaboration with training organization Iyaku Sogo Kenkyukai (ISK). These workshops are run by dispensing pharmacies and online courses are also available. The workshops cover topics such as simulated patient training, POS* training, case studies, and customer relations training. Certification by Japan Pharmacists Education Center (JPEC; a public interest incorporated foundation) requires attendance at, and gaining credits for workshops run by JPEC and registered organizations that provide group and practical training sessions such as Japan Society of Hospital Pharmacists (JSHP) and Japan Pharmaceutical Association (and their regional chapters).
ISK is one of the few private-sector organizations registered as a provider of various certification programs for pharmacists. Medical System Network and ISK help pharmacies run training sessions and apply for accreditation, which enables them to become members of the ISK organization and run JPEC accredited training courses. ISK issues attendance stickers to pharmacists who attend these courses. This is an incentive for network pharmacies, because it helps them recruit pharmacists.
*POS: Problem Oriented System. A predetermined logical and scientific resolution approach used in team medical care, wherein patient information and healthcare professionals’ records are shared to clearly ascertain patient medical problems from each professional’s point of view.
In Japan, the cost of prescription drugs is borne by patients and the public health insurance programs (such as social insurance for company employees and the National Health Insurance [NHI] for non-employees). Dispensing pharmacies receive the patient co-payment over the counter when dispensing drugs and the portion covered by insurance becomes dispensing fee receivables until it gets monetized two months later when pharmacies receive payment from the insurance programs. Under the company’s financing support service (optional), these receivables are purchased and securitized, and directly operated pharmacies are provided cash funding more than a month earlier than the payment from insurance programs. This service offers dispensing pharmacies stable low-cost financing, as unlike financing from a bank, no collateral is required. There are also no restrictions on how the funds can be utilized. Social insurance and NHI claims can be securitized separately. Dispensing fee receivables are converted into small-lot securities through financial institutions and sold to investors for capital recovery.
The Dispensing Pharmacy business (operation of dispensing pharmacies) is a core business that accounts for about 90% of the company’s sales and about half of its operating profit. The group’s dispensing pharmacies had been operating under the umbrella of a holding company Pharmaholdings Co., Ltd., which was the company’s subsidiary until October 2017, when it was absorbed by the company. As of May 2019, the group’s dispensing pharmacies are operated through seven consolidated subsidiaries. Another subsidiary, Hokkaido Institute for Pharmacy Benefit Co., Ltd., publishes specialized books for pharmacists and other healthcare professionals and analyzes pharmaceuticals-related data.
The Dispensing Pharmacy business operates the group’s directly operated pharmacies. The company provides support services through its pharmaceuticals network to both its directly-operated pharmacies and non-directly operated pharmacies (affiliates). Directly operated pharmacies and affiliates make up the company’s pharmaceuticals network, but the affiliates are not included in the scope of the Dispensing Pharmacy business. The numbers of both affiliates and directly operated pharmacies continue to rise. The total value of drug orders (which dictates the company’s commission revenue) tends to rise in line with the increase in network members, although there have been periods when the value declined due to drug price revisions.
Affiliates and directly operated pharmacies are found in most areas nationwide, although the home base of Hokkaido has the highest concentration of the latter followed by the Kanto and Koshinetsu area. The highest concentration of affiliates is in the Kanto and Koshinetsu area followed by the Tokai and Hokuriku area (for recent regional patterns see the figures Distribution of network members and Number of pharmacies by region in the Trends and Outlook section). As of end-March 2021, the number of directly operated pharmacies and non-directly operated pharmacy members of the Pharmaceuticals Network (affiliates) stood at 6,116, exceeding 10% of the 60,171 pharmacies in Japan (MHLW survey) and ranking first in the domestic market. The total value of drug orders was JPY391.7bn (+16.3%), representing the largest scale in Japan.
Functions provided by the company’s directly operated dispensing pharmacies do not dramatically differ from those of other dispensing pharmacies, although one distinguishing characteristic is that they tend to be located in residential areas where homes and medical institutions coexist (categorized by the company as the medical mall format including medical plazas). As such, they are well suited to take on the “family pharmacy” function advocated by MHLW. The company aims to strengthen the family pharmacy functions of its pharmacies by offering consultation services concerning nutrition, health, and self-care.
The company regularly provides guidance to directly operated pharmacies. It sets a bar for their financial performance, and when the pharmacies fail to meet those targets, the company investigates the cause and seeks possible solutions. It also advises pharmacy managers, on matters including potential closures. With such guidance, the company continues to promote revitalization of pharmacies, and in FY03/19 it closed 15 outlets while opening eight new stores and acquiring three through M&A.
The number of Nanohana brand pharmacies totaled 416 at end-March 2021. The following table compares sales and pharmacy numbers for other major pharmacy chains as of their fiscal year-ends. Unlisted companies and companies mainly operating dispensaries within drugstores are excluded. While Medical System Network brand pharmacies rank within the top 10, it has far fewer outlets than the top-ranking pharmacy chains.
|FY end||Sales (JPYmn)||No. of pharmacies|
|4||Sogo Medical Holdings||March||-||748|
|8||Medical System Network||March||90,706||416|
The company has taken steps in line with the MHLW objective of reducing medical expenses through streamlining distribution to establish a more efficient supply chain that bolsters online ordering, reduces product returns, and lowers delivery frequency. Particularly noteworthy is its local network initiatives.
A local network aims to foster collaboration among local affiliates of the company’s pharmaceuticals network within a community with the following four objectives:
Several measures have been taken to streamline operations of the directly operated pharmacy chain, Nanohana Pharmacy.
The manufacture and market pharmaceuticals business was transferred from the Other business to the Community Pharmaceutical Network business in FY03/20. It is operated by consolidated subsidiary Feldsenf Pharma Co., Ltd., which was established in September 2016 to manufacture and market ethical drugs. It does not have manufacturing capabilities or facilities but aims to develop an efficient pharmaceutical distribution system from manufacturing through the filling of prescriptions at the pharmacy by building a collaborative relationship with pharmaceutical manufacturers with capability to provide a stable supply of high-quality, lower-priced generic drugs. In 2018, it formed a business alliance with Daito Pharmaceutical Co., Ltd. (TSE1: 4577), which manufactures and supplies ethical drugs to Feldsenf Pharma.
Feldsenf Pharma started marketing generic drugs from 2018. It mainly supplies directly-operated pharmacies and network members, but eyes expanding its lineup of in-house brand generic drugs to become a supplier to dispensing pharmacies and medical institutions nationwide.
In FY03/19, Feldsenf Pharma started out with 17 active pharmaceutical ingredients (API) across 34 items, and expanded to 34 API across 68 products at FY03/21. Management aims to further expand the product lineup of in-house drugs and sales tie-up products. In FY03/21, the company supplied its products to directly-operated pharmacies and to 1,116 network members. It reported sales exceeding JPY1bn and it was profitable at the operating level.
The company established a Joint venture, PharmaShift Inc. in September 2020 with OPT, Inc. (unlisted; company name later changed to Re:teigi, Inc.), a core subsidiary of Digital Holdings (TSE1: 2389). Medical System Network holds a 51% equity stake while RePharmacy, Inc. (wholly-owned subsidiary of Re:teigi, Inc.) holds the remaining 49%.
PharmaShift’s main business is Family Pharmacy Support Service. Medical System Network created the digital shift business as a new business with establishment of PharmaShift. In the joint venture, PharmaShift is mainly in charge of customer development while RePharmacy focuses on system development.
Family Pharmacy Support Service engages in and pursues the following three points:
The plan is to integrate various functions based on the LINE communication app to facilitate communication between patients and pharmacies using the official LINE account. Specifically, Medical System Network looks to incorporate functions such as prescription transmittal, electronic medication records, surveys of pharmacy visits, and follow-ups during medication. In collaboration with OPT, it aims to develop products using the LINE official account based on a common platform for dispensing pharmacies so that it can provide the products not only to directly-operated and network member pharmacies, but to all pharmacies nationwide.
In FY03/21, the Family Pharmacy Support Service utilizing the official LINE account launched from March 15, 2021 and the number of registered friends grew from 10,000 on April 2 to over 30,000 as of May 6. As of end-March 2021, 36 pharmacies had adopted the service, expanding to 168 pharmacies by end-April. According to the company, the number of prescriptions sent to pharmacies that have adopted the service more than double that of those that have not. Safe management of personal information is a high priority, so proactive measures being taken include no need to fill out personal information on the LINE Talk screen, making service available on external website apps, and utilizing highly secure domestic servers.
LINE is a messaging application developed and operated by LINE Inc (unlisted). The LINE messaging application has achieved substantial market penetration in Asian countries such as Japan, Thailand, and Taiwan.
In addition to private practice clinics, the company engages in the planning and development of facilities that house multiple medical clinics (medical buildings and medical plazas). The real estate business is mainly operated by subsidiary Nihon Leben, which was a subsidiary, but was absorbed in October 2017.
This business supports development of clinics that goes beyond just real estate brokerage. The focus is on providing a broad range of support to physicians looking to start a practice, beginning with the stage of formulating a basic business plan for the clinic, and spanning the creation of a management philosophy and strategy, investigating the medical area, selecting real estate property, overseeing design and construction, financing, and processing the business start-up application.
The company develops medical malls* where multiple medical institutions are located in one area, which benefit both patients and physicians. Grouping various medical institutions in the same premises provides patients with opportunities to receive one-stop treatment from multiple specialists. It is also more efficient for physicians, as they can lower costs by sharing facilities and benefit from synergies in patient traffic and advertising.
*Medical mall: Where several specialized clinics and dispensing pharmacies are located in the same building or area. It is called a medical building when they are in the same building and a medical plaza when they are located in the same area.
Medical malls have different formats. For the building format where tenants are only clinics and dispensing pharmacies, the building is often constructed based on the assumption that clinics will move in, so the floor space and specifications are designed accordingly. Another type is a medical area located within a shopping mall or a commercial facility attached to a train station; since station users and local residents frequent these commercial facilities, they can see their physicians after shopping or on their way home. A third format is a congregation of multiple detached clinics in the same area, often established along suburban main roads where land is easy to acquire.
An example of a medical building developed by the company is the Leben Building in Sapporo, Hokkaido. Standing near a general hospital in Sapporo, in an area where multiple specialty clinics are also located, the building houses four clinics, including surgery and internal medicine, and a Nanohana Pharmacy. An example of a medical plaza is the Shizunai Aoyagi district, located in Hidaka, Hokkaido, with five clinics, including internal medicine and otolaryngology, and two Nanohana Pharmacies. The company notes the latter is a medical mall with roots in the local community, and has been attracting attention as a model case for supporting regional medical care in cities experiencing depopulation and aging.
The company plans and develops serviced elderly housing facilities that collaborate with medical institutions, long-term care centers, and dispensing pharmacies to ensure an environment where residents can live safely with peace of mind. Wisteria N17, located in Sapporo, Hokkaido, is the company’s first serviced elderly housing facility. Standard services include daily safety checks and 24-hour on-call emergency service while fee-based services such as meal catering and long-term care services are also available. Wisteria N17 is also networked with local medical institutions such as the general hospital, specialty clinics, dental clinics, and dispensing pharmacies. The company’s fourth facility, Wisteria Senri-Chuo (Toyonaka, Osaka Prefecture), was launched in 2016, and the fifth facility, Wisteria Minami Ichijo (Sapporo, Hokkaido), was opened in November 2018.
According to the company, investment for expansion of serviced elderly housing facilities came to an end in FY03/19, and it is now taking measures to boost occupancy rates at the Wisteria series facilities, especially for the Wisteria Senri-Chuo and Wisteria Minami Ichijo. The company plans to focus on building a community where medical care and long-term care are offered as one, with dispensing pharmacies, hospitals, and long-term care and childcare facilities surrounding the serviced elderly housing facilities.
The company provides meals to hospitals and welfare facilities. The meal catering service is provided by Total Medical Service, Kyushu Iryo Shoku Co., Ltd. (merged with Total Medical Service in April 2018), and Sakura Foods Co., Ltd. (wholly owned subsidiary of Total Medical Service) in the Kyushu and Chugoku areas (Fukuoka, Saga, Nagasaki, Oita, Kumamoto, Miyazaki, Kagoshima, and Yamaguchi prefectures).
The major business in this segment is home-visit nursing care carried out by subsidiary Home-Visit Nursing Station Himawari Co., Ltd., which is slated for an absorption-type merger from July 1, 2021. In addition, the manufacture and market pharmaceuticals business, conducted by subsidiary Feldsenf Pharma Co., Ltd., was consolidated into the newly established Community Pharmacy Network segment from FY03/20.
The home-visit nursing care business dispatches specialized nurses to patients’ homes to check on their conditions, and provides appropriate nursing care and advice. It collaborates with physicians, healthcare and long-term care professionals, and pharmacists at the company’s Nanohana Pharmacy.
Dispensing pharmacies fill prescriptions issued by medical institutions. This is based on the separation of prescribing and dispensing functions, in an effort to raise the quality of medical care by letting physicians focus on examining patients and determining appropriate treatment while allowing pharmacists to specialize in dispensing drugs, managing medication history, and providing guidance on usage. According to the Japan Pharmaceutical Association (JPA), the separation accelerated sharply from 1997 when the Ministry of Health and Welfare (the predecessor of MHLW) instructed 37 national hospitals to adopt complete separation (more than 70% of prescriptions must be filled outside the hospital). The out-of-hospital dispensing ratio exceeded 50% nationwide for the first time in 2003. According to JPA estimates, the average ratio rose to 70% by 2016.
The number of dispensing pharmacies steadily increased as separation of prescribing/dispensing advanced and pharmacies that previously marketed OTC drugs became dispensing pharmacies. There was also a pronounced increase in independent pharmacies operating near large hospitals—so-called “monzen” (Japanese meaning “in front of the gate”) pharmacies. Another factor driving growth has been the expansion of drugstores into the dispensary business. Prescription volumes issued by medical institutions have also been rising.
Relative to the increase in the elderly population, the number of dispensing pharmacists has not kept pace with the increase in pharmacies, and securing sufficient staffing is a pressing issue, particularly for small and mid-tier pharmacies.
A 2018 Nippon Pharmacy Association (NPhA) survey of member pharmacies showed that the percentage of pharmacies planning to embark on home-based medication management and guidance services, one of the new roles being promoted by MHLW, is not expanding. Most respondents cited labor shortages as the main reason. MHLW is also advocating for 24-hour availability as a means to improve patient convenience, but this service will also likely increase labor costs for dispensing pharmacies.
The motivation behind MHLW’s push to expand these roles for pharmacies is a response to steadily rising medical costs in Japan, and, as the Japanese population ages, reducing unnecessary drug use will be essential to maintaining sound healthcare spending. For the same reason, MHLW is also encouraging pharmacies to take on a more patient-centered approach rather than to focus primarily on pharmaceuticals.
MHLW wants dispensing pharmacies to expand their role from just filling prescriptions to providing comprehensive care to patients as a family pharmacy. This push has made the shortage of pharmacists an even more pressing issue.
The dispensing fee revision implemented in April 2014 reduced the basic dispensing fee for pharmacies that receive more than 90% of their prescriptions from specific medical institutions. The government enacted the changes after reassessing medical care finances amid chronic fiscal deficits, a health insurance program on the verge of collapse, and continually expanding long-term care expenditures. Further reductions in dispensing fees are likely. In addition, faced with concerns of rising medical costs, the government opted to expand the functions of pharmacies rather than increase physician numbers. Thus, it has promoted home medical care services such as prescription delivery and offered preferential treatment to dispensing pharmacies that can provide a 24-hour on-call service. These trends put smaller pharmacies (such as those near large hospitals) at a disadvantage. At a time of flat dispensing fee expenditures, it is crucial for community pharmacies to strengthen their family pharmacy functions and strengthen services that directly earn revenues such as technical fees.
The “Guidelines for the Improvement of Commercial Transaction Practices of Ethical Drugs” (so-called distribution improvement guidelines) were adopted starting April 2018. Issued by MHLW, the guidelines targeting industry members reflect the ministry’s initiative to shift the role of spearheading improvement in prescription drug distribution from the distributors to the government. Items of note on the relationship between drug wholesalers and medical institutions/dispensing pharmacies include the avoidance of excessive discounts. According to these guidelines, offering prices involving excessive discounts that do not reflect the actual value of pharmaceuticals, such as using a benchmark without considering transaction terms, is incompatible with the current NHI drug price system (where individual drug price reflects the value). The guidelines urge wholesalers and medical institutions/dispensing pharmacies also to consider distribution costs and stable provision/sourcing of pharmaceuticals, and to take a comprehensive perspective on each price negotiation, seeing it as an extension of the price negotiations between drug manufacturers and wholesalers.
Key points from the “distribution improvement guidelines”
Items of note between manufacturers and wholesalers:
Items of note between wholesalers and medical institutions/dispensing pharmacies:
Ensured efficiency and safety of distribution
MHLW will establish a consultation office to support guideline compliance and plans to proactively disclose cases as they come up. In addition to confirming compliance, it will also check to see if the guidelines’ intent and substance are reflected in medical fees.
The FY2020 medical fee revision called for a 0.46% net medical fee reduction, comprised of a 0.55% increase in core medical fees and 1.01% reduction in NHI drug prices (official price of medicines).
Net medical fee revision -0.46% = core medical fee +0.55% + drug reimbursement price -1.01%
The increase in the core medical fee includes +0.53% for medical fees, +0.59% for dental fees, and +0.16% for dispensing fees. In contrast, the reduction in the NHI drug prices includes -0.99% for pharmaceuticals prices and -0.02% for medical material prices. The result of the revisions is a shift from a merchandise-based approach to a patient-centered one, evidenced by the expansion of guidance fees for pharmacists who interact with patients, and the recognition of pharmacies that contribute to community-based medical care such as through provision of medication information to hospitals.
|Year of revision||2002||2004||2006||2008||2010||2012||2014||2016||2018||2020|
|Core medical fees (actual)||-1.30||±0.00||-1.36||+0.38||+1.55||+1.379||+0.10||+0.49||+0.55||+0.55|
|Drug prices (actual)||-1.40||-1.05||-1.80||-1.20||-1.36||-1.375||-1.36||-1.33||-1.74||-1.01|
|Consumption tax addition||-||-||-||-||-||-||+1.36||-||-||-|
The key point regarding dispensing fees raised around the time of the FY2018 revision is a reassessment of the role of dispensing pharmacies with an emphasis on patient-centered service. Specifically, it promotes evaluation of family pharmacies and pharmacists, patient-centric businesses and at-home medical care; and promotes the use of generic drugs. It also encourages the proper assessment of large pharmacies operating near medical institutions. On generic drug utilization, MHLW is continuing efforts to improve utilization rates, and the FY2020 medical fee revision includes components that will further stimulate generic drug use.
NHI drug price revisions, previously held once every other year, were shifted to an annual basis effective from 2021 with the first mid-year revision conducted in April 2021. The reasoning behind the shift was that the stance of the Japanese government and MHLW intending to reduce healthcare expenditures by reflecting the drop in market values more quickly onto the official reimbursement pricing.
As of May 2021, about 14,228 drugs were listed as ethical drugs used in healthcare services provided by health insurance for reimbursement under the NHI scheme and 12,180 of them were subject to this mid-year price revision. The first mid-year revision was applied to drugs for which the pricing differential between official reimbursement price and actual market price was 0.625x of the average 8.0% divergence (divergence of 5.0% or higher). A breakdown of the 12,180drugs for which reimbursement prices were revised shows 1,350 were new drugs (59% of new drugs), 1,490 were long-listed drugs (88% of long-listed drugs), 8,200 were generic drugs (83% of generic drugs), and 1,140 were products in the other categories commercialized before 1967 (31% of other drugs). Most of generic and long-listed drugs were subject to this price revisions. Shared Research anticipates the impact of the NHI price revision will be far-reaching, not limited to generic and brand drug manufacturers but extended to pharmaceutical distribution-related companies and dispensing pharmacies.