All residents of Japan are mandated by law to have healthcare insurance under the country's universal health insurance system. The health plan is strictly regulated by the government to keep the monthly premium affordable, depending on the income and age of the person. However, the plan is administered by different health insurers, private or public. Employed people join a plan through their employer (social insurance system) while others, such as the self-employed or students will join the national health insurance plan (national insurance system). The elderly—over 75 years old—will join their own plan administered by local government.

The plan covers ambulatory and hospital care, extended care, most dental care, and prescription drugs. The copay is 30% for adults, 20% for children under age 6 and adults over age 70, and 10% for those over 75 years old. However, if the copay paid per disease and person exceeds a fixed monthly limit, dependent on income and age, a portion will be subsidized. If the copay per family also exceeds a limit, it will be subsidized. If the copay for a particular disease exceeds three consecutive months, then it will be subsidized from the fourth month on. Lastly, if the annual medical expenditure including the copay exceeds 100,000 yen, it will be subject to tax deductions.

Healthcare Reimbursement

The Central Social Insurance Medical Council (know as Chuikyo) determines the plan and two different payer organizations (social insurance and national insurance) review and reimburse the healthcare providers on behalf of the administrators, according to the plan. The plan is reviewed and revised every other year in April. 

The reimbursement fee structure for medical practices, the billing codes, consist of two parts: Basics and Specifics. The Basics (Code A) covers basic consultation and hospitalization fees. There are 13 categories within Specifics (Code B to N) as shown in Table 1. Basically, the fees reimbursed are “pay per service.” However, as part of an effort to control the rising cost of healthcare, the Ministry of Health, Labour and Welfare (MHLW) has been expanding a prospective payment system, called Diagnosis Procedure Combination/ Per-Diem Payment System (DPC/PDPS). Presently, the scope of this system includes 2,309 codes (April 2014) which are hospital fees such as basic hospitalization, laboratory tests, diagnostic imaging, medication, injection, and treatment fees that are less than 10,000 yen, but physician fees such as surgery, anesthesia, and treatment fees above 10,000 yen are excluded. As of April 2013, 1585 hospitals and 492,206 beds were under this system.

Codes may have institutional requirements. For examples, to reimburse off-hours basic consultation, a hospital needs to be seeing outpatients for more than 30 hours per week. Furthermore, the number of minimum annual cases and number of staff members may be defined for a hospital to be able to obtain reimbursement. On top of that, physicians and pharmacists need to register in each prefecture where they practice to be eligible to conduct business under the universal health insurance system.

Device Reimbursement

Medical devices are categorized into four groups in term of reimbursement, as shown in Table 2. A2 devices are linked to specific codes. For example, an MRI is linked to code E202, an ultrasound is linked to code D215, an anesthetic is linked to code L000, extracorporeal shock wave lithotripsy is linked to code K678, an electrocardiograph linked to codes D208 and D209, and intraocular lens are linked to code K283. These are not reimbursed separately but as part of the code. This also includes devices that are rented to the patient such as an oxygen system for homecare use and Holter monitors. 

A1 devices do not have a specific link to any code, but rather are considered a true commodity used in all medical practices. B devices (known by some as special treatment material (STM)), which translate as Specific Insurance Medical Materials, are disposable devices that can be further categorized based on their functionality. For example, an intravascular sheath introducer has 5 functional categories, intravascular ultrasound (IVUS) has 4, a pacemaker has 13, a suction catheter has 13, a biliary stent has 8, and an orthopedic plate has 19 functional categories. Usually, B devices are relatively expensive and have a large market size. There are presently more than 180 devices in the B category. 

One thing to remember: Becoming a device recognized by the universal health insurance system (A1, A2 or B) means that the availability of the device must be ensured immediately after the enlistment in the system. Also, the law mandates that a sufficient supply of devices be available until replacement by a successive device.

Reimbursement Request

Once regulatory approval is obtained, a request for reimbursement of a new device must be made to MHLW. If applying to an existing category, the process is quite simple. For A1, A2, and B, the device will be enlisted as a reimbursable device in a timely manner, as outlined in Table 3, if determined to be within the present category definition. 

With a new device for which the manufacturer would like to request a different reimbursement category, there are two options. C1 is for a device where a code already exists but the device functional category does not match the present one. C2 is for a device where even a code does not exist, meaning both a new code and a new functional category are necessary. The additional value will be evaluated based on a score system consisting of innovation, efficacy, improvement, and the applicable patient population. 

Once the decision is made to accept C1 or C2 by the Device Insurance Committee within the timeline described in Table 3, then the actual price negotiation starts with MHLW. Once the price is mutually agreed upon, the reimbursement coverage will be publicized once every quarter on January, April, July, or October 1^st. The agreement must take place at least two months before the public notice to gain approval by Chuikyo.

Meanwhile, the applicant has the option to request a provisional price until the official date discussed above. The provisional price will be the same as the most relevant similar device presently available on the market. In most cases, a C1 device more easily gains this provisional price as the code already exists and the only request is to gain a new functional category for the applying device. Meanwhile, a C2 device is more challenging as this will also require a new code. Please be aware that this provisional pricing might be a good idea but depending on the situation, may not be favorable in the long term. Some hospital may request to maintain the provisional pricing. Also, C1 does not mean you will have a higher price, just that it will be a new functional category. Thus, you may end up with the same price as others.

There are two reasons for applying either for C1 or C2. The obvious reason is to claim a new value for the technology which is usually accompanied by an increase in price. The other is to protect the value of the technology against price erosion. As discussed, the plan is revised every other year. So, device reimbursement is also revised accordingly. The MHLW does conduct market research and will try to figure out the discount given to the hospital, if any. MHLW is aware of such discounts and are willing to accept such discounts within limits. When the limit has surpassed a predefined “R” zone (Reasonable zone), then they will adjust the reimbursement price accordingly. Also, MHLW will revise the pricing if the list price in Japan is substantially higher (1.3 times or more) than the average price from the United States, United Kingdom, Australia, France, and Germany (knows as FAP). When there is a significant reduction in price, MHLW may allow for the price to gradually reduce over two years, until the next revision.

Recent Trends and Upcoming Revision

In 2015, seven devices requested for C1 and five for C2. Three of them did not get a new functional category as a new B device but were determined to be a new A2 device. For the nine new B devices, only two devices, heart and vascular-related offerings, were able to gain more than the FAP, despite the rule allowing up to 1.5x FAP. There is a concerning trend to lean toward European pricing rather than U.S. pricing for devices that aren't related to the top three causes of death in Japan: cancer, heart and brain. One way to prevent this price erosion is to utilize the “Unmet Clinical Need Device,” the so called Device Lag Initiative.

The new plan will become effective on April 2016. The major change in this plan is a revision reducing the upper limit for a reimbursement price against FAP from 1.5x to 1.3x. However, "Device Lag" devices or orphan designated devices, as well as those where the innovative and efficacy scores were higher than 10%, will be kept at 1.5x FAP, with some restrictions including speed to approval. The method to calculate FAP will also be modified to eliminate skews to the average, meaning the outliers will be eliminated, lowering the FAP. There is also a new C1 rule on when a bottom up cost method can be used instead of comparison to the existing reimbursement price to keep it in line with the already reimbursed devices. This is a concern as “improvement” will be less appreciated. The process to gain Chuikyo approval for reimbursement will be shortened to one month (as opposed to two months), allowing the notice to come in March, June, September, or December, but March may drift to April during the year of revision. 

Lastly, there will be a new initiative starting this April. The universal health insurance system prohibits the use of unapproved devices together with reimbursed care, meaning all care would be considered out-of-pocket if an unapproved device is used. The new initiative is similar to a compassionate use program, because patients will be able to make a request to a designated hospital to have the hospital evaluate and apply for a special permit from MHLW to have the system pay the regular fees, excluding the actual care cost. The process is similar to the existing Advanced Therapy Program, with the difference being that this is patient initiated and should be a faster process.

Keisuke Suzuki is the consultant and owner of Keisuke Med Tech Consulting LLC. Reach him at [email protected].

[Image courtesy of PINKBLUE/FREEDIGITALPHOTOS.NET]