Introduction

Reimbursement fees in Japan are effectively established by the Central Social Insurance Medical Council (Chuikyo), a separate body designated by the Ministry of Health, Labor, and Welfare (MHLW). The Chuikyo consists of 20 members including 7 payer members (e.g. insurance union representatives), 7 providers (e.g. physicians and dentists), and 6 public representatives (e.g. members of the academia). The Chuikyo also has several subcommittees and designated organizations that support with the review of new reimbursement requests and establishment of reimbursement policy.


Reimbursement fees are reviewed every two years with the fees of existing drugs, for example, typically undergoing a 5-10% reduction, on average. The general aim of the reimbursement fee cuts is to bring the reimbursement fees down closer to the wholesale price level thus limiting the margin that hospitals and wholesalers may receive from negotiating with wholesalers and manufacturers, respectively.  Reimbursement revisions for some good and services may be reviewed annually starting in 2020.


Once a new drug or device is approved for marketing it is normally listed for reimbursement within a few months and marketed immediately thereafter. However, employment at facilities is not always immediate. Large hospital facilities as a policy often wait as long as 6 months before employing a new drug - especially if there already an alternative treatment available. The reasons for this delay include concerns about clinical safety as well as internal logistics when it comes to scheduling meetings to review products and ensuring the necessary space to stock the new products.

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Pharmaceutical Drug Reimbursement

The MHLW publishes a list of drugs reimbursed under the National Health Insurance (NHI) program in Japan. The list is often referred to as the NHI drug list and as of July 1, 2018, there were 10,499 oral medications, 3,923 injection agents, 2,375 external preparations, and 28 dental agents included in the NHI drug list. An updated NHI drug list is released by the MHLW every 3 months or so.


An overview of the process for the listing of new drugs in Japan is shown below. New drugs are reviewed for reimbursement 4 times a year in February, May, August, and November.  The Drug Pricing Organization (DPO), an organization designated by the Chuikyo, deliberates with the MHLW and manufacturers on the appropriate reimbursement. If manufacturers are not happy with the decision of the DPO they may challenge the ruling once. DPO deliberations are held behind closed doors. Decisions are then brought before the general meeting the Chuikyo for discussion and approval. Once they reach that stage most new submissions are approved. 

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An overview of the methods use for the reimbursement of new drugs is shown below. Generally speaking, the closest similar agent in the market that has been listed within the last 10 years and has no generic alternative is used as the pricing comparator for a new agent. This approach is called the Similar Efficacy Comparison Method (SECM) (or simply the Comparative Method). When the SECM approach is used the new agent is reimbursed at par with the daily reimbursement price of the most similar agent, but premiums for Innovation or Usefulness relative to the comparator agent may apply based on superior efficacy, safety, ease of administration, etc. The new product may also be considered for one of two Market Size premiums (Market Size I and Market Size II) and a Pediatric Use premium. If the agent is launched in Japan first and received an Innovation of Usefulness premium then it may also qualify for the Sakigake ("First Launch") premium.

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The most similar agent is selected from among agents listed within the past 10 years and that have no generic agents and have the same general indication as the new agent. If multiple drugs fit that description then they look more closely at the pharmacological effect, the molecular structure, and a the mode of administration to determine which is most similar. The pharmacological effect, molecular structure, and mode of administration of the most similar agent may differ from the new agent, but it is very rare for a new drug to be reimbursed based on an agent that has a different indication (I know of only 4 such cases). So if the new drug is for a completely new indication and/or offers a very different pharmacological effect then it would normally be reimbursed using a cost-based approach which is often referred to as the Cost Accounting Method (CAM) (or Cost Calculation Method).


Under the CAM approach the manufacturing costs (or the import / tariff price) for one unit of the new drug is the primary input and additional reimbursement is permitted up to a fixed ratio for administrative costs, distribution costs, operating profit, and consumption taxes. The allowable ratio for the administrative costs, distribution costs, operating profit are fixed based on an annual industry survey. The consumption tax is the same as the national consumption tax (presently 8% but planned to be  increased to 10% in Fall 2019). The unit reimbursement price of a new drug typically ends up being about twice the manufacturing costs (or import / tariff costs) and within 75% to 125% of the foreign average reference price. Premiums are allowed to the overall unit reimbursement price similar to the SECM approach described above.


Unlike medical devices, foreign average reference pricing is normally only applied once for drugs after the initial reimbursement price is determined. The MHLW references list prices in 4 markets for drugs: the US (Medicare/Medicaid), UK (MIMS), France (Vidal), and Germany (Rote Liste). Foreign average referencing pricing is only used when the drug (or dosage) is available in the specified lists in 2 or more of the reference markets. Moreover, the prices in some markets may be omitted or adjusted if they are unusually high relative to the other markets. Under new rules introduced in 2018, foreign reference pricing may be applied for some drugs even after initial reimbursement after they become available in the reference markets if the drug is launched first in Japan, if it is reimbursed using the CAM approach, and/or if it receives the "premium for promoting the creation of new drugs and elimination of off-label drug use" (which is sometimes referred to as the "price maintenance premium (PMP)" - but not a very good name in my opinion).


As mentioned above, like other interventions, new drugs are subject to repricing in Japan every two years and this is likely to be done annually for many drugs in the near future.  However, drugs that have received orphan drug designation, those that have been designated by the MHLW's Evaluation Committee on Unapproved or Off-labeled Drugs with High Medical Needs, and those that receive a premium for Innovation or Usefulness may qualify for the "premium for promoting the creation of new drugs and elimination of off-label drug use" (again - sometimes referred to as the "price maintenance premium (PMP)" - but not a very good name in my opinion). Unlike the premiums described above, this premium simply defers the repricing ruling until after a generic becomes available or 15 years passes since the product was listed. After that the repricing amounts that were deferred (typically 5-10% every two years) would be applied as a reduction to the reimbursement level for the drug.


Drugs that have achieved a substantial market size are also subject to repricing based on market expansion at the point of repricing if they have exceeded their initial sales and volume forecast by are large margin. This may occur when an extended indication is approved which greatly increases the market size for a new drug relative its original anticipated market size.


The MHLW is also discussing the full launch of the use of cost-effectiveness in reimbursement in Japan and at present it is likely to be required by the initial repricing for new drugs that receive a high premium and are expected to have a high market size in Japan. Please visit the Value Assessment page and review my Updates for more information on the use of cost-effectiveness in reimbursement in Japan.

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Device & Equipment Reimbursement

Generally speaking, only devices that are used for individual patients (i.e disposable devices) are reimbursed in Japan. These are referred to as Special Treatment Medical Devices (STMDs) (or Specified Insured Medical Equipment). All other devices that may be used across multiple patients  (e.g. ultrasound systems, hospital beds, etc.) and those that are considered to be a standard part of a procedure (e.g. needles, gauze, etc.) must be paid for by clinics or hospitals.


The reimbursement process for new devices is similar to that of drugs but a different Chuikyo sub-organization referred to as the Special Organisation for Insured Medical Materials is delegated to deliberate with the MHLW and manufacturers directly.  New device submissions are reviewed 4 times a year in March, June, September, and December.  


For STMDs, a “functional category” is established with a specific definition based on the design, usage, and/or indication of the device. Devices and equipment under this definition receive a level of reimbursement corresponding to the functional category. As of May 31, 2018, there were 1,236 functional categories recognized in Japan covering about 20,000 different medical devices and equipment. A new functional category is established for a new device when it does not fit in any of the existing functional categories. This is normally referred to as "Category C reimbursement". Similar to new drugs, new devices that require a new functional category may be reimbursed using one of two basic approaches: the Similar Functional Category Comparison Method (SFCM) or the Cost Accounting Method (CAM).  For the SFCM approach the new device is reimbursed at a similar level as its closest functional category but may be eligible for several premiums based primarily on efficacy, safety, and market size for the target indication. For the CAM approach a cost-based approach is used similar to the one described for new drugs above.


When a new functional category is not established the new device would be reimbursed at a similar level as the most similar existing functional category. This is normally referred to as "Category B reimbursement".


As a rule, the review process takes up to 4 months from the 1st of the month following the submission date for C reimbursement items that do not require the establishment of a new technical fee (C1 submissions). For C reimbursement items that also involve the established of a new technical fee (C2 submissions) the process may take up to 5 months from the 1st of the month following the submission date. In 2018 a new challenge submission process was also introduced to allow manufacturers to resubmit for better reimbursement once new data becomes available for the device.


Overall the methods used to reimburse STMDs in Japan are similar to those used for the reimbursement for new drugs but have some distinct differences. Below is an overview of the major similarities and differences:

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Unlike new drugs, new STMDs may also be eligible for an Improvement premium. This is a somewhat smaller premium in terms of the range (1-20%) compared to the Innovative premium (50-100%) and Usefulness premium (5-30%) and is awarded for improvements such as better safety for healthcare professionals, less impact on the environment, less invasive care and fewer complications for the patient, it can be used for children based on an improvement leading to smaller size, amount, and/or design, it offers a safer and simpler design relative to existing devices, it is more long-lasting relative to existing devices, and/or it offers improved operability.


Others points to note are that foreign average reference price adjustment takes place even after the initial reimbursement for new devices yet there is no "premium for new drug creation...". Moreover, an upward adjustment based on foreign average reference pricing is not allowed. However, re-pricing based on market expansion is not a explicit consideration for new devices.


Like new drugs, manufacturers may also be required to submit evidence showing cost-effectiveness as a part of reimbursement discussions for new devices. Please visit the Value Assessment page and review my Updates for more information on the use of cost-effectiveness in reimbursement in Japan.

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Regenerative Medicine / Cellular Therapy Reimbursement

Japan implemented two laws in 2014 - the Act on the Safety of Regenerative Medicine and the Pharmaceuticals, Medical Devices, and other Therapeutic Products Act - which effectively established regenerative medicines and cellular therapies as a separate category for regulatory submission in Japan. More specifically, the following kinds of products (A or B) are reviewed by the regulatory bodies in Japan as regenerative medicines or cellular therapies:


A. Products that involve processes such as the culturing of human or animal cells and:


1. Allow for the regeneration, restoration, and/or reformation of the structure or functionality of the body OR

2. Are meant to be used for prevention or treatment of a condition


B. Products that introduce human cells to the body as gene therapy


Since 2014, the Pharmaceuticals and Medical Devices Agency (PMDA), Japan's primary review organization for regulatory approval, has conducted about 15-30 formal consultations per year for new regenerative medicine products and as of December 2018 four new regenerative products have been approved for marketing and reimbursed in Japan and 8 products have been designated a orphan regenerative medicine products.  Below is a brief list of the regenerative medicine products that have thus far been reimbursed in Japan.


  • J-TEC's autologous cultured epidermis (JACE®)
  • J-TEC's autologous cultured epidermis (JACK®)
  • JCR's TEMCELL 
  • Terumo's Heart Sheet

 

Reimbursement of regenerative medicines in Japan is determined based on whether it is considered closer to a drug agent or a medical device. JCR's TEMCELL was reimbursed as a drug in Japan and Terumo's Heart Sheet was reimbursed as a medical device. Both products were reimbursed using the Cost Accounting Method.  


Nipro's Stemirac (STR01) also received conditional marketing approval in late December 2018 for treatment of patients with spinal cord injury.


Whether or not a separate reimbursement process for regenerative medicines and cellular therapies should be introduced is still under consideration. There is currently no system for risk sharing in Japan and how to reimburse (or whether to reimburse) high cost medications such as gene therapies is also still being debated in Japan. 

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Diagnostics Kit Reimbursement

Similar to other large medical device systems that can be used across multiple patients, diagnostic systems themselves (e.g. cobas, ARCHITECT, Ventana, ROTEM, etc.) are not reimbursed directly in Japan. Those systems are purchased by individual departments or may be a capital purchase for the hospital as a whole and would need to be covered through technical (procedure) fees. However, one-time diagnostic kits are typically reimbursed based on the type of test. There are essentially two routes through which new diagnostics test may be added for reimbursement: direct application by the manufacturer or an application initiated by clinical societies. The process for reimbursement differs somewhat depending which of these two routes are used.


As with devices, manufacturers that have obtained marketing approval for their diagnostic test in Japan may submit their diagnostic test for reimbursement directly and the Chuikyo's Special Organisation for Insured Medical Materials reviews new diagnostic tests for reimbursement. As a rule, new diagnostic tests are reviewed within 5 months of the month following the reimbursement submission. However, as of 2018 only new diagnostic tests that introduce a new test approach and function are reviewed by the Chuikyo (referred to as E3 submissions).  All other less novel new submissions are only reviewed by the Special Organisation for Insured Medical Materials or are listed without deliberation.


New diagnostic tests that are not approved for marketing in Japan may be reimbursed through an application initiated by one or more of the various clinical societies in Japan that are members of the Social Insurance Union of Societies related to Internal Medicine (“Naihoren”). These reviews, however, take place only during the biennial price revisions in Japan.


The government generally encourages that diagnostic tests that may be used as companion diagnostic (CDx) tests for new drugs be submitted together with the new drug. While there is no formal premium associated with a CDx being part of a submission the Chuikyo generally looks favorably on reimbursement when a CDx test and a new drug are submitted at the same time rather than a later submission for the CDx test, for example, which sometimes happens.


There is still debate about the reimbursement of comprehensive gene panel tests in Japan, but the first gene panel test was approved for marketing in Japan on December 25 with the approval of Sysmex's OncoGuide NCC Oncopanel System and it is expected to launch in February of this year.  Chugai also received regulatory approval for its FoundationOne® CDx Cancer Genomic Profile on December 27.  It will be interesting to see how reimbursement is handled for these products in the coming months. Please visit my Update page for news as it becomes available.

Other Useful Info

MHLW / PMDA Drug Reimbursement Overview

You will find a relatively recent overview of the drug reimbursement system from the MHLW in English here

Device Reimbursement Overview

This is slightly dated now since some big revisions were introduced in 2018 (detailed above), but the attached is a basic English overview of device reimbursement

Orphan Designations

You may need to Google translate the top page, but here is a listing of orphan designations provided by the National Institutes of Biomedical Innovation, Health and Nutrition 

Disclaimer: All opinions expressed on this site are my own and not necessarily those of my department or employer.