WHAT YOU NEED TO KNOW
  • Medical inflation remains the dominant near-term risk, with Aon projecting Indo-Pacific medical costs to rise 11.3 percent in 2026, well above global and consumer inflation. Demand from aging populations and chronic diseases, together with the rapid uptake of costly biologics and diagnostics, continues to outpace cost-containment reforms.
  • U.S. tariff rhetoric remains a real risk but largely symbolic in effect, yet it continues to shape health care companies’ strategies. High-profile proclamations such as the 100 percent tariff on branded drugs proposed in October triggered market turbulence but were mostly paused or renegotiated. Multinationals are nonetheless restructuring supply chains and strengthening in-market protections.
  • Patent expiries and growing generics competition are intensifying price pressure. The loss of exclusivity is compressing company margins across the Indo-Pacific and driving more aggressive tendering, bulk purchasing and value-based procurement.
  • Medical technology faces greater exposure to tariffs and component costs than pharmaceuticals. Ongoing U.S. Section 301 and 232 investigations, together with ad hoc device and semiconductor duties, make device pricing and sourcing vulnerable to trade policy shifts.
  • Local policy and procurement dynamics remain decisive. Centralized purchasing in China and India, diagnosis-related group pilots and value-based contracting with companies are the main tools governments use to curb rising costs, and their varying success will shape market access, profitability and the need for trusted local advisory support.
ON THE HORIZON
  • The rate of increase in health care costs is no longer accelerating but is still significantly higher than general inflation. Surveys show a mild easing from 2024-2025 peaks, but the Indo-Pacific continues to record inflation increases above consumer price levels.
  • Tariff tensions remain largely symbolic, but selective deals are reshaping the landscape. Major multinationals are negotiating price and investment commitments with U.S. authorities to avoid duties and secure market stability.
  • Competition from generics and biosimilars is intensifying as more drugs lose exclusivity. Centralized procurement is driving deeper discounts, forcing multinationals to defend prices and manage portfolio transitions carefully.

Sector Overview and Forecast


Macrotrend Monitor
Between Inflation and Intervention: The Health Care Economy in Transition

Indo-Pacific health care costs remain structurally high entering 2026. Medical inflation continues to outpace general prices by a wide margin, with Aon projecting regional medical costs to rise about 11.3 percent, compared to 2-3 percent consumer inflation. Indonesia and Malaysia are tracking in the high-teen range, China sits in mid-single digits and Australia and Japan remain in low single digits. Even as costs ease slightly from the 2024-2025 peaks, elevated medical trend levels are compelling public payers and employers to tighten reimbursement, rationalize benefits and renegotiate provider contracts.

Demographics and disease burdens reinforce the upward curve: aging populations in Japan, Korea and China are driving sustained long-term and chronic-care spending, while younger-onset noncommunicable diseases in India and Southeast Asia are expanding lifetime treatment costs. Intermittent infectious disease flare-ups, from influenza to dengue, continue to spike utilization and underline the fragility of regional preparedness systems. Cost pressures are compounded by the growing use of high-cost therapies such as biologics, oncology immunotherapies and gene treatments, rising labor costs and continued capital investment in digital health and hospital infrastructure. Supply chain constraints remain material as semiconductor shortages, freight volatility and tariff-exposed inputs inflate the cost of devices and consumables, leaving medtech margins particularly sensitive.

The U.S. tariff rhetoric adds an unpredictable overlay. Headline announcements, most notably the threatened 100 percent tariff on imported branded drugs, were largely symbolic, but they have altered strategic behavior. Many multinational manufacturers are striking one-off arrangements with Washington that combine price concessions and domestic investment pledges to avoid punitive duties. These side agreements are quietly becoming a commercial tool to secure both policy goodwill and market access. For Asia-based suppliers, the uncertainty itself is shaping decisions. Companies are rerouting supply chains through Southeast Asia, India and Mexico to hedge against future tariff shocks while building parallel production lines to meet localization requirements in the United States.

Regulatory recalibration across Asia is now equally consequential. Governments are tightening control over drug and device pricing through accelerated adoption of health technology assessments, price reviews and mandatory tender participation. Japan’s next scheduled price revision in April 2026 will deliver further cuts to off-patent brands, while China’s volume-based procurement continues to reset benchmarks for both domestic and foreign manufacturers. Australia and Korea are expanding value-based reimbursement frameworks that link payment to clinical outcomes, an approach now echoed in pilot programs in Malaysia and Thailand. These reforms, while curbing immediate fiscal pressure, are also raising entry barriers for new therapies and devices, forcing global firms to localize evidence generation and engage regulators early.

The U.S. drive to lower domestic drug prices through Medicare negotiations and a proposed most-favored-nation referencing policy is already reshaping global pricing strategies. As Washington pushes manufacturers to align U.S. prices more closely with lower-cost markets, Asian regulators are beginning to adopt similar tactics, tightening reference bands and reviewing reimbursement benchmarks in parallel. While full cross-market price convergence has yet to occur, the long-standing global differentials that once allowed higher U.S. margins to offset tighter pricing abroad are now under strain.

Governments are pairing price discipline with industrial policy to build resilience. Incentives for local manufacturing, such as tax relief, capital grants and priority procurement status, are multiplying for active pharmaceutical ingredients, biologics and medical equipment. The measures aim to reduce import dependency and strengthen supply security but will require years of investment to scale.

The overall outlook for 2026 is mixed. Mature economies are moving toward fiscal restraint and benefit redesign, while emerging markets continue to balance access expansion with inflation control. For health care multinationals, the convergence of high medical inflation, regulatory tightening and trade uncertainty reinforces one strategic imperative: on-the-ground policy intelligence and local engagement will determine who maintains margin and market share in the year ahead.

Subsector Highlight
Pharmaceutical Pricing and Access Realignment

Pharmaceutical markets in the Indo-Pacific are entering a decisive phase of pricing recalibration. The convergence of patent expiries, inflation-linked fiscal pressure and global policy spillovers is driving a shift from discretionary pricing toward state-managed value frameworks. More than $200 billion in global drug sales are expected to lose exclusivity by 2026, intensifying competition in both mature and emerging markets. Governments are expanding centralized procurement, tender consolidation and reference pricing to secure budget relief. China’s “4+7” volume-based procurement model now covers more than 60 percent of hospital purchases, India’s National Pharmaceutical Pricing Authority continues to widen its essential drugs list and Japan’s 2026 biennial price revision will deliver deeper cuts to off-patent products. The result is growing price convergence across the region, with discounts on legacy therapies reaching 40-70 percent below pre-tender levels.

The ripple effects of U.S. domestic price reforms are amplifying these trends. As Washington advances Medicare drug negotiations and revisits most-favored-nation referencing, Asian regulators are moving to tighten their own reimbursement formulas and international reference bands. Several markets have begun using Organization for Economic Cooperation and Development or peer-market comparators to guide new reimbursement ceilings. While parity with U.S. pricing remains distant, the perception that multinational firms can absorb lower margins globally has emboldened cost-control measures. In effect, Asia is no longer treated as an isolated low-price region but as part of a global rebalancing that links access to equitable pricing commitments.

Regulatory sophistication is reshaping market access. Health technology assessment frameworks are rapidly proliferating, and countries are integrating these assessments into routine reimbursement decisions. Payers are linking inclusion in national formularies to real-world evidence, cost-effectiveness thresholds and outcome-based payment pilots. Pharmaceutical companies must plan earlier, generate locally relevant data and co-develop evidence packages that align with each market’s policy logic. The new year will test multinationals’ pricing agility and depth of local engagement. Success will hinge on anticipating government cost-control cycles, participating in policy consultations and demonstrating measurable health outcomes. Those that embed adaptive pricing and access strategies early will sustain trust in the Indo-Pacific’s increasingly evidence-driven, value-conscious health care economy.

We will continue to keep you updated on developments in the health care sector as they occur. If you have comments or questions, please contact BGA Director Yeh Cher Low at clow@bowergroupasia.com.

Best regards,

BGA Health Care Team

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BowerGroupAsia