Medical Device Link.

Originally Published MDDI May 2004

NEWSTRENDS

Searing: Financial  incentives to sell medical devices in Japan are being removed.

Erik Swain

Japan’s pricing structure is so unfavorable to U.S. medical device manufacturers that the nation risks some innovative products never becoming available to it, an industry expert says. Marjory E. Searing, executive vice president for global strategy and analysis at AdvaMed (Washington, DC), said Japan’s economic turmoil and its aging society have created intense pressures to keep healthcare costs down. But, she said, some of the measures implemented have frustrated U.S. device manufacturers so much that some firms believe financial incentives to sell in Japan are being removed. Searing made her remarks at the Frost & Sullivan Medical Device Summit, held in March in San Francisco.

She noted that Japan has always been a high-cost market for the U.S. device industry, but it has also been a high-margin market. The latter is becoming less and less true, however.

Most significantly, Japan has introduced a concept called Foreign Average Pricing into its reimbursement policy, she said. The formula averages the price of the device in the United States and in three European nations. The policy was enacted in April 2002, in response to political pressure to address perceived price differences. At first, Japan targeted 18 product groups for cuts as steep as 25%. In January 2004, 10 groups were dropped from the list. But eight others received “substantial cuts,” to be phased in during 2004 and 2005, she said. 
Japan’s Ministry of Health, Labour, and Welfare has agreed to improve the decision-making process, but still faces tremendous pressure to keep the program intact, Searing said.

Another round of price-cutting occurred during Japan’s biennial price revisions, a process called R-Zone pricing. The government takes a survey of hospital discounting rates. It then cuts reimbursement by an amount equal to the difference between the actual discounting rate and the allowable discounting rate, which was 4% when the survey was taken in January 2004. The average discounting rate in 2003 was 9%, which means the average cut produced by the biennial revision was 5%, Searing said. Some product categories, such as pacemakers, had more-severe cuts. 

Japan does have a process by which device companies can obtain new pricing categories, and this is “critical for innovator firms,” Searing said. However, the application cycle is very slow, and Foreign Average Pricing still applies. 

Talks between the U.S. device industry and the Japanese government will continue, she said. “They need to know that their current dynamic is damaging,” she said. “But Japan honestly believes that there’s so much fat [in device prices] that the cost purges are justified.”

In other Japanese regulatory developments, the nation is implementing a user-fee program similar to FDA’s, and it has stepped up its requirements for postmarket surveillance, Searing said. She noted the two developments could become linked, in that some of the user-fee money might be earmarked for postmarket surveillance issues, which is not done in the United 
States. 

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