Many medical device companies try to get their devices into Japan. Japan is the third-largest device market in the world. It is also a very competitive market where only relatively unique and innovative products will succeed there. While many device companies focus on registering their product and finding the right distributor or sales mechanism in Japan, perhaps the most important factor is how your device will be reimbursed in Japan. Will Japan price your device so your company can make money?
Introduction to Japan’s healthcare environment
Before we delve into the key reimbursement issues, please note everyone in Japan has healthcare provided by the Japanese government. Japan has a national universal system which was set up over 60 years ago — and everyone has it. Japanese people will only use medical devices if they are fully reimbursed. Using devices that are not fully reimbursed is illegal. Thus, it is crucial that your device gets a reimbursement price that will make your business profitable.
The Central Social Insurance Medical Council, better known as Chuikyo, under the Ministry of Health, Labour, and Welfare (MHLW), is the main reimbursement agency with assistance from the Health Insurance Bureau. Of course, in certain situations, an expert committee including leading doctors in different medical specialties is formed too. Reimbursement normally occurs 3-6 months after device approval. However, please note that oftentimes you can have a preliminary reimbursement consultation with the MHLW prior to or during the registration process.
Preparing for device reimbursement
If you have a PMDA reimbursement consultation before or during the registration process it is essential that your presentation materials include your key points for reimbursement in Japan. Failure to properly submit the right reimbursement information during this MHLW meeting can come back to haunt you later. In addition to the MHLW materials, it is crucial that your registration application also has key reimbursement information to get the Japanese government understanding your pricing logic. One area that device companies oftentimes do not focus on includes the Japan Medical Device Nomenclature (JMDN) code. If you use a JMDN code that will not be helpful once you apply for reimbursement you will likely be disappointed later. It is very difficult to change the JMDN code in your reimbursement application.
For innovative or unique devices where increased reimbursement is sought, the most important point is to show the clinical value of your device. It is very important to show the superiority of your product over existing technologies. Does your device have a new mechanism of action, have superior clinical outcomes, or provide a new treatment that is better than the current treatment methods. Sometimes for a new device, a device maker will also need to try to change industry guidelines to enhance your case.
Two main reimbursement methods
Japan has two reimbursement methods – the cost accounting method and the comparison method. Generally, Chuikyo looks for similar products to yours and will employ the comparison method for reimbursement. In this case, Chuikyo will look for products with similar functional categories where the standard material price of the similar product will be the baseline price. From there the MHLW may add small premiums as an improvement surcharge or pioneer surcharge but price increases will normally only be increased 10% to 15% maximum.
The cost accounting method relates to determining the cost to make your device or a premium over the imported price of your device. For the cost to make your device please see the chart that needs to be filled in below.
For the premium over the imported price of your device, you will have the imported price and then add things like selling expenses, administrative costs, distribution expenses, consumption taxes for import, and operating profit. Normally, for very unique new medical devices you will get a higher price by using the cost accounting method. There are different types of premiums allotted depending on the device and situation that can be between 0 and 100%. Pricing premiums are allotted as follows – 1. Novelty premium, 2. Usefulness premium, 3. Improvement premium, 4. Safer and more effective treatments, 5. Devices used for children that are smaller sizes, 6. Due to a change in structure the device leads to easier techniques, 7. Improvements in durability, 8. Easier to use devices, possibly at home, and 9. Devices that use less human tissue.
What should be in the reimbursement application
The reimbursement application includes several formats depending on the nature of your device. There are also about 9 attachments. Specific forms include the following — Form 1-1 is a copy of the regulatory approval, Form 1-2 is the expected number of users, Form 2-1 is the reimbursement application, Form 2-2 is for a similar functional category, Form 2-3 asks for the rational for the fact your device cannot fit into an existing functional category, Form 3-1 is used to show a usefulness premium, Form 3-2 asks for the rational of an improvement premium, Form 3-3 asks about the marketability premium, Form 3-4 is the rational for a challenge, Form 4 requests clinical evidence, Form 5 asks for your cost accounting method details, Form 6 asks for foreign reference pricing, Form 7 wants you to claim a premium for a new medical technology, and Form 8 asks for health economic data, and Form 9 asks about device maintenance.
Again, for unique devices the main point is you clearly show why your product is superior to existing devices already on the market. Showing how your device helps the patient get better easier, quicker, or reduces future complications or death are very important. Have you done clinical studies overseas or in Japan to help substantiate your claims? Are ethnic differences important in your clinical studies? If you have not done a comparative clinical study in Japan is that something you think will help your reimbursement case?
The Japan reimbursement process
The Japan reimbursement process entails many meetings and negotiations. First, you must apply to see if the agency will even accept your reimbursement application. Then, a medical device specialist committee will review your application. The time to receive reimbursement will be a function of how many meetings you will need to have plus how long the negotiations will last. For devices looking to get significantly higher prices, the process may last 6 months or longer. Please see the graphic below to learn more about the reimbursement process.
Functional reimbursement categories
At some point during the reimbursement process, you will be asked to identify the functional category you believe your device falls into. Functional categories in Japan include A1, A2, A3, B1, B2, B3, C1, C2, and F. If you have a device in A functional categories, your device will be covered by a technical fee, and your device will not be considered new or unique. If your device falls into one of the B functional categories, you will be put in a functional category where there are already similar devices. Functional category B1 means your device will fall into an existing functional category. Functional category B2 means you will go into an existing functional category but with a new usage. Functional categories B3 means your device will fit into an existing functional category but will get an additional price since there is some improvement or add-on to your device. If your new device falls into functional category C, it will either go into C1, where your device has a new function with the same technical fee, or C2, where your device will have a new function and a new technical fee. Normally, C2 functional categories are for breakthrough devices. Please keep in mind that the number of devices included in the functional C reimbursement categories is only about 25 devices per year.
Foreign Reference Pricing (FRP)
Another measure Chuikyo will investigate is FRP. While FRP is important, it has become less so over the last few years. For FRP, the Japanese government will take the unweighted average price in 5 reference countries, including the US, UK, France, Germany, and Australia. Japan has set up a number of additional formulas to ensure that pricing in Japan is never as high as in the US. For example, Japan’s maximum limit of device reimbursement pricing is fixed at 1.25 times the unweighted average of these 5 countries. Via another FRP rule, if the highest device price is more than 2.5 times the device price in the lowest of the five countries, then the highest price will not be included, and the unweighted average of the remaining 4 countries will be the price in Japan. In addition, if the highest price is more than 1.8x the average of the other 4 countries, the maximum price will be set at 1.8x. Today, Japan device FRP pricing closely follows the prices in Europe.
Health economics
It is important to show how your device will decrease costs for the Japanese government. Like many other single-payer systems, the Japanese government is bankrupt from paying high reimbursement prices each year. To the extent your new device can show how the patients will need less time in the hospital or recovery times will be quicker, the better for your overall price reimbursement. Strong health economic data is still very important.
Key Opinion Leaders (KOLs) and Japanese Associations
In addition to the above key factors for reimbursement, Japanese KOLs and the appropriate Japanese Association support can be very beneficial in influencing Chuikyo and other government agencies. It takes time to court and gain the support of both KOLs and trade associations. To maximize reimbursement, this courting work needs to start early and be done in a very thorough manner. For example, a carefully selected and qualified KOL can import your non-registered device early on to see how it helps their patients. Keeping KOLs and associations updated on your new device features, registration and reimbursement success in other advanced countries, successes with overseas clinical trials, etc., will help you develop and enhance these key relationships.
Conclusion
Medical device reimbursement is a complicated issue that needs to be well thought out in advance to ensure it will lead to a profitable business in Japan. Too many companies spend time and lots of money registering their device and/or signing up a Japanese distributor without closely looking at pricing and reimbursement upfront. If the Japan pricing is not high enough and will not lead to a profitable business, why spend money and time on these other Japan-related activities?