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Do You Know How to Manage Japan’s Revised Reimbursement Approach?

Be sure to understand Japan’s latest revision to its reimbursement policies, as it could influence your next filing.

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One significant change in Japan’s revised reimbursement process for new medical devices involves pricing.

Applicants have been required for some time to provide pricing for their medical devices in other primary markets such as the United States, the United Kingdom, Germany, France, and Australia. Pricing has been based on list price, not market price, and the intention was to cap the reimbursement of medical devices. Given the typical differences between U.S. pricing and European pricing, the high U.S. price tended to pull the average up. (Please see the example below in Table 1; each price is converted into Japanese yen using the average exchange rate published by the Bank of Japan.)

Until this past April, the FAP (Foreign AveragePrice) was calculated as follows in this example: The highest price (30,710 yen) is 4 times of the lowest price (7,745 yen). As only up to 3 times the lowest price was allowed, the U.S. price would have been omitted when calculating the FAP. With more than 3 countries left, the average omitting the second highest price (21,242 yen) is 8,350 yen, which is 2.5 times higher. As only up to 2 times would have been allowed, Australia’s price would have be recognized as 16,700 yen (8,350 x 2), lowering the FAP to 10,437 yen.

Since this April, the FAP (Foreign Average Price) is now calculated as follows: As only up to 2.5 times is allowed as a difference between highest and lowest price, the U.S. price will be omitted; this is the same as before. However, Australia’s price is now allowed only up to 1.8 times, so it will be recognized as 15,030 yen (8,350 x 2), lowering the FAP to 10,012 yen.

The change is not significant when the European prices are not far apart. However, if those prices are changed as in Table 2 below, with France’s price significantly lower (48%), the FAP will be further reduced.

The average of the three lowest countries will be 7,016 yen, recognizing Australia’s price as 12,629 yen (7,016 x 1.8), further lowering the FAP from 10,012 yen to 8,420 yen, a 16% reduction.

The guidance now allows up to 1.3 times of FAP for a standard device designated as a Specially Reimbursed Medical Device (SRMD) and up to 1.5 times of FAP for those SRMDs that satisfy one of the following conditions:

Designated as an Unmet Clinical Need Device (UCND) and meeting all of the following:

  • Regulatory submission completed within 3 years of designation.
  • Timeclock of the application must be within 120 days for a new device with expedited review and improved device with clinical data, or within 210 days for a new device without expedited review (not likely as all UCND have been expedited review).
  • Reimbursement submission completed within 120 days of regulatory approval.

Designated as an Orphan Device, for which the applicable patient population is less than 50,000.

  • Added to an existing functional category established with more than 10% add-on pricing from predicate device in term of innovation and efficacy. This is very rare as the trend has been about 3% to 5%.
  • Enrolled in the Sakigake (Early Bird) program. This program is for a new technology that Japan will review first, before other regulatory authorities such as the United States or Europe. FIH (First in Human) or POC (Proof of Concept) should be done in Japan first. It must be a UCND; the applicable patient population must suffer from a severe, life-threatening, or untreatable condition; and it must be an innovative technology. So far, only new technology originated in Japan has been granted this status, but the regulation does not restrict where the technology is originated.

So, with this new FAP calculation, a standard SRMD can get up to 10,946 yen (8,420 x 1.3) and Special SRMD up to 12,630 yen (8,420 x 1.5). Still, these are less than half the price of that of the United States, 30,710 yen. One word of caution: if there were only two countries pricing, such as the United States and France, the FAP would be France only, as the difference is more than 2.5 times.

So, if we reverse engineer the prices, keeping the U.S. price as is, the lowest price should not be more than 2.5 times cheaper than the U.S. price; for this case, France’s price needs to be at least 12,284 yen. Now that means that the U.K.’s and Germany’s prices need to be higher than 12,284 yen as the list price. If all European prices were at 12,284, then the FAP would be 17,761 yen, still lower than Australia’s. So, the next thing is to raise Australia’s price to 22,111 yen (12,284 x 1.8), but this only changes the FAP to 17,935 yen, not a significant change. If Europe’s price were half of that of the United States, then it would be 15,355 yen, and Australia would need to be 27,639 yen. Then the FAP would be 20,883 yen, still cheaper than Australia’s. Finally, the best scenario would be selling only in the United States before Japan, and the FAP would be 30,710 yen.

In addition to this FAP, one needs to consider the special add-on for the first two years, similar to that of CMS’s New Technology Add-On payment. This add-on is for two years, and it will be up to 50% more of the add-on for new functional category (C1) or up to 5% more for new code (C2). In order to be eligible, one needs to satisfy one of the following conditions:

  • The application to MHLW for regulatory approval is within 180 days of FDA submission or applied for before the clearance or approval from FDA.
  • The application is within 90 days for expedited review, within 180 days for the standard new device, and 105 days for standard improved device application.

So, what is this revision addressing? MHLW would like applicants to enter Japan before entering Europe or Australia for C1 and C2 devices, meaning new technologies. The reason is that if applicants enter Europe before Japan, then the FAP will gravitate downward unless they advocate with the authorities in those countries to keep the price similar to that of the United States.

I believe this is very challenging, considering the present situation. MHLW essentially is stating that if applicants entered Europe before Japan with a lower price than that of the United States, then Japan should also be entitled to such lower price. As I have written before, PMDA review is becoming competitive with FDA PMA review speed. At the same time, the CE mark is becoming more challenging. So why not focus on the United States and Japan, rather than on Europe? FDA wants applicants to commercialize in the States first as well. Regulatory approval in the United States and Japan are not as easy as in Europe, but the reimbursement will be more favorable if done correctly. As I wrote before, MHLW has been quite fast in giving reimbursement to new devices compared with CMS. But if you stay status quo, then Japan wants only to reimburse as much as Europe. In any case, for reimbursement, Europe is not united. Each country has its own rules and processes. Obtaining a CE mark does not give you reimbursement, and even you get one, reimbursement is lower than that of the United States.

In addition, here are some additional highlights in device reimbursement:

  • Robotic surgery was approved for 12 new procedures, but the price was kept the same as laparoscopic procedures. In fact, the code is the same, and the use of robotic surgery was added as coverage. The reason was that there is no clear evidence that robotic surgery is safer or efficacious compared with laparoscopic surgery.
  • A new process was developed in which the manufacturer can re-request a better price when new clinical evidence becomes available, but this has to be selected at the time of the first request. Thus, in reality, one needs to have an already ongoing study that might gain you that extra value.
  • IVD products now have their own process for new reimbursement: E1, E2, and E3 requests. E1 is same as a predicate. E2 is not a new measurement, but a new method. E3 is new measurement or new clinical benefit or usability compared with that of a predicate. The cycle is simiar to that for devices. E1 will be approved within 20 days of the request. E2 will be the following first day of the month if submitted before the 10th day of the month. E3 will be determined to be acceptable within 5 months of the request; now the actual reimbursement will depend on the price negotiation with MHLW and the approval of Chuikyo (Central Social Health Insurance Council).
  • For the device, there are new request codes. They are the A3, B2, and B3. The old B is now called B1. A3 is to request a change in coverage for an existing A2 code. B2 is to request a change in an existing B1 functional category definition. B3 is to request a temporary add-on to B1. This can be used for a new generation device that is already reimbursed as B1. This needs Chuikyo approval. Also, this will not be grouped together with the existing same functional category device for two revision periods, thus having a better chance to retain the price for 4 years.
  • There are pioneer benefits. For example, MitraClip obtained a new code. Now this will be B1 for the second-entry company, where it will be easy and straightforward to gain reimbursement. However, Abbott will be able to separate itself from two revisions in terms of price correction and be able to retain the price better than competitors.
  • Particle radiation therapy is now reimbursed for use on prostate cancer. Both proton and heavy-particle therapy are reimbursed 1,100,000 yen as DRG.
  • Percutaneous coronary intervention is only going to be reimbursed more tightly. If not AMI or unstable angina, a patient needs to have 90% stenosis, effort angina, or functional ischemia verified.
  • Promote shift from hemodialysis to peritoneal dialysis or transplant.
  • Gender reassignment surgery is now reimbursed.

Lastly, I would like to emphasize the importance of having a reimbursement strategy in place before you have a regulatory or other strategy, as reimbursement will drive your business decisions, whether Japan is an option or not. If Japan is an attractive opportunity, more than Europe, then consider Japan before Europe.

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