From the October 8, 2007, issue of "The Gray Sheet"
Pressures on reimbursement in Japan will not ease anytime soon and more payment cuts for medical devices are expected in 2008, according to a top Japanese health official.
The U.S. industry sees Japan as a mostly untapped market hindered by government barriers. U.S. device makers have long urged the Japanese health ministry to eliminate its controversial foreign average price rate-setting method, which generally reduces device treatment fees to be more in line with payment levels in lower cost countries.
Talks between U.S. and Japanese trade representatives in recent years have yielded commitments from Japan to work to improve medical technology access and consult with the device industry about its pricing policies (1"The Gray Sheet" June 11, 2007, p. 6).
But Toshihiko Takeda, director of the economic affairs division at Japan's Ministry of Health, Labor and Welfare, said last week that his government is likely to expand the practice of foreign average pricing and continue payment reductions in response to its own economic realities.
"The current situation is not favorable, and I think that's something we have to accept as a fact," Takeda said through a translator Oct. 1 at the AdvaMed 2007 conference in Washington, D.C.
Health care spending has been growing 3%-4% annually in Japan, but overall budget growth is close to zero, he said. Takeda said a political shift in power in Japan this year complicates the budget situation and further increases economic pressures to reduce health care spending. "It is not good news for the industry."
Industry Faces Uphill Battle At Upcoming Hearing
To help contain costs, every two years MHLW conducts domestic pricing surveys and since 2002 has gathered data from manufacturers in four other countries: the United States, the UK, France and Germany.
Under foreign average pricing, if the domestic market price of a new medical device is more than two times as high as the average price in those four countries (or 1.5 times as high for existing products), the Japanese price is reduced by up to 25% (see chart: "2Japan's Biennial Pricing Revisions").
According to Kathy Buto, Johnson & Johnson's vice president of health policy, Japan cut payments for medical devices by 330 billion yen, or about $2.8 billion, between 2002 and 2006.
"Along with regulatory impediments or possible delays, the overall environment is generally unfavorable for innovation," Buto said.
The next round of revisions will come in 2008. Device stakeholders, who argue that higher payments in Japan are warranted by the higher cost of doing business in that country, will have a chance to weigh in at an Oct. 24 industry hearing. An informal notice of new prices will be released early next year, to be implemented April 1.
Recent discussions between MHLW and Chuikyo, or the Central Social Insurance Medical Council that makes recommendations on medical service fees, suggest device stakeholders' arguments will not be well received.
Takeda says the discussions' intensity is so far "unprecedented." Many Chuikyo members think it is too high a limit to allow Japanese prices to be up to twice that of the foreign average, and the group is discussing reducing the threshold.
Asian Data May Further Lower Prices In Future
Takeda also said there is strong interest in expanding foreign average pricing to include additional countries in Asia and Europe.
MHLW recently collected pricing data from South Korea and Thailand. Prices in both countries were less than in Japan, and those in Thailand were even lower than the current foreign average price, Takeda said (3"The Gray Sheet" Nov. 6, 2006, p. 11).
In 2008, Japan will continue to average data only from the four countries it currently surveys, but Chuikyo is exploring ways to expand the program.
In addition, Chuikyo is interested in altering Japan's other process for setting payments. The so-called "R-Zone" method compares domestic market price survey data with the current reimbursement rates. MHLW allows only a "reasonable zone" of mark-up from the survey data. In 2006 the R-Zone percentage was reduced and Takeda said Chuikyo is discussing a further reduction for 2008.
Industry Seeks Reforms
AdvaMed and the American Chamber of Commerce in Japan have voiced a number of recommendations for the Japanese reimbursement system. Short of a complete overhaul, Buto said industry would at least like more predictability in the biennial revisions, such as a floor level for prices.
Industry has also asked MHLW to add premiums to payments to help cover the development costs for certain devices, such as those that were required to be tested in an extra clinical trial in Japan.
"The environment is not stimulating, to the extent maybe it could, the further investment in the Japanese industry and its development as a leader in innovation," Buto said. "So what is happening is that investment flows to some other countries, for example China, India and Thailand."
In lieu of payment cuts, she suggested other health care reforms such as policies to reduce the long average length of stay in Japanese hospitals or to improve chronic disease management.
Takeda acknowledged so-called "device lag" in Japan compared with the rest of the advanced world and said the government is trying to make med-tech investment more attractive. But he implored industry not to ignore the extreme domestic pressure in Japan. "I know industry people are strongly against foreign price adjustment, but it is very difficult to persuade Japanese people to accept twice as high as foreign prices," he said.
[Editor's note: Additional coverage of Asia is provided at Pharm Asia News, F-D-C Reports' new beta site for Asian medical products news. To register for complimentary e-mail updates, visit www.pharmasianews.com.]
- Chloe Taft
