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As the environment for importing medical devices into Japan changes, it is important for U.S. firms selling in Japan to understand the implications of the new rules and regulations for their products. Companies should include in their foreign market strategies regular and careful tracking and analysis of these changes, which will allow them to continually reassess product competitiveness and viability, as well as immediately identify new opportunities in the Japanese medical device market. Boasting the second-largest economy in the world, Japan for some time now has been a market too important for American companies to ignore. As Japan begins to pull out of its recession, U.S. firms can continue to find ways to take advantage of the country’s high individual and corporate spending.
Several U.S. medical device manufacturers have enjoyed strong sales growth in Japan by catering to the country’s demand for innovative and high-tech products. Although Japan exports many medical devices, especially in the electrometrical field, it depends largely on imports in several other areas, such as implantable products, including artificial joints, pacemakers, and heart valves. The revenues of the Japanese medical device market have grown fourfold in the last eight years, from $3.9 billion in 1985 to $16.7 billion in 1993. Although American firms find such rapid development both inviting and promising, Japanese companies still possess 71% of their domestic medical device market. In fact, the U.S. medical device market share in Japan only grew from 20 to 21% between 1985 and 1993, even though American medical device companies typically capture 40-50% of other foreign markets. Although
there are few formal trade barriers to Japan’s medical device market,
the fact that the American market share in Japan is only half the size of the
U.S. market share in other foreign markets has raised some concern among industry
experts and government agencies in the United States. This discrepancy indicates
that other obstacles exist.
The most significant barrier to entering Japan’s medical device market may be safety regulations, which many American firms find complicated, especially when combined with Japan’s confusing distribution systems and cultural differences. Although Japan’s regulatory system remains complex, it has significantly improved over the past 10 years. Furthermore, the Ministry of Health and Welfare (MHW), Japan’s equivalent to FDA, is currently implementing various regulatory and reimbursement initiatives, which will be highly influential on the medical device industry and could provide American manufacturers with broadened opportunities.
MHW requires two forms of approval, termed kyoka and shonin, for medical products to be imported and sold in Japan. The Japanese government grants a kyoka, or license to import, based on a relatively simple evaluation of the importer’s place of business and of the personnel involved. A shonin, the approval to market in Japan, is granted based on evidence of testing and clinical trials that prove that product’s safety and efficacy. American manufacturers must be very careful in choosing their shonin strategies to avoid hurting current sales and losing credibility among the doctors and hospitals that use their products. In the past, a shonin could not be granted in the name of a foreign manufacturer because the Japanese government required a physical presence within the country to be able to respond immediately to any serious safety problems resulting from product use. Due to the large financial investment required to create and maintain their own distribution systems in Japan, many foreign firms use local distributors, in whose names the shonins are placed. In recent years, however, MHW instituted an in-country caretaker system, which allows foreign manufacturers to acquire direct-manufacturing shonins in their own names. Under this new system, a foreign company can employ an in-country caretaker, who applies for the shonin in the name of the foreign manufacturer and serves as the MHW liaison for as long as the shonin is in effect. A direct-manufacturing shonin provides an American or foreign company with various advantages over having the shonin granted in the importer’s or distributor’s name. Placing the shonin in the manufacturer’s name allows for flexibility in choosing, working with, and changing Japanese distributors. Because distributors must be more responsive to the American firm or risk losing its business, a direct-manufacturing shonin often ultimately leads to improved sales. The manufacturer is also assured more control over its Japanese marketing strategies, permitting greater leverage. For products with shonins already in the name of Japanese distributors, changing to a direct-manufacturing shonin can be tricky, because if the products are selling well in Japan, the Japanese firms are unlikely to let go of such control very easily. Even if an American firm is successfully able to buy the shonin from its distributor, the change will not occur automatically. If the manufacturer cannot provide the paperwork for the original testing and clinical trials of the product (for example, if that paperwork is with the distributor), MHW will require the firm to apply for a new shonin. In that case, the product must be retested and reregistered, during which time it cannot be sold in Japan. To avoid such a situation, HIMA has advised device manufacturers to keep copies of all their documentation. Of the thousands
of shonin applications submitted each year, only 100-150 currently are for direct-manufacturing
shonins. American medical device manufacturers applying are for shonins should
recognize the advantages of obtaining them in their own names. Firms that already
have a shonin in the name of their distributor need to weigh the benefits of
the direct-manufacturing shonin against the difficulties of changing registration
in order to determine the most cost-effective shonin strategies for their companies. MEDICAL DEVICE RECLASSIFICATION In 1991, MHW’s Pharmaceutical Affairs Bureau (PAB) created a task force to evaluate Japan’s medical device policy and to consider strategies to promote the industry. The major duty of the task force is to propose changes in the classification system for product approval. In general, reclassification prevents the overregulation of products, promotes the correct use of medical devices, provides safety and efficacy standards regarding the impact of products on the body, and streamlines the application process. American manufacturers need to understand where their products will stand in the Japanese medical device reclassification and how to expedite new product approval reviews. In July 1994, the Japanese Diet passed a bill authorizing the reclassification of medical devices. MHW has since been working on guidelines to implement the reclassification. Those guidelines are expected to be available for public comment in January 1995, and implementation is anticipated to occur on July 1, 1995. The old classification system was based solely on product function. The proposed reclassification will divide medical devices into three classes according to patient risk factors, in a structure similar to that of the U.S. system. Class I products, such as x-ray film, require no bodily contact and are unlikely to cause serious harm to the body in the event of failure. Although a marketing license would be required for these devices, no pre-market approval would be necessary except in the case of new types of products. Class II products, such as ultrasonic diagnostic devices, are likely to cause serious bodily harm if failure occurs. These devices would require both a marketing license and premarket approval. Class III products, including life sustaining implants such as artificial cardiac valves, would also need both a marketing license and premarket approval, although the basis for these approvals may not be identical to the basis for the Class II approvals. In addition, a device tracking system, which maintains and updates relevant information about product recipients, would be necessary for some Class III life-supporting devices such as implantable pacemakers. The proposed
reclassification will be good news for U.S. medical device manufacturers. The
new system will avoid overregulation of devices by placing products in the lowest
possible regulatory category. In an environment of sometimes confusing regulations,
the relative clarity of the proposed system would also make it easier for companies
to determine whether their products meet the relevant standards. Furthermore,
MHW would rely more on third-party entities to carry out some review activities,
potentially expediting the process. CHANGING REIMBURSEMENT ISSUES Almost all of Japan’s population has health coverage. The private sector provides health care and is reimbursed by the government. Under this universal health insurance system, MHW determines reimbursement prices for medical fees, prescription drugs, and medical devices to attain high quality health care while containing costs. The Japanese government is trying to revise the insurance-reimbursement system to accommodate the growing diversity of increasingly sophisticated medical devices and to expedite the reimbursement-pricing process, so new products can quickly be listed as reimbursable upon shonin approval. Pricing is reviewed every two years and was most recently revised in April 1994. At present, however, various bureaucratic delays are causing much confusion over the listing of newly approved products. After shonin approval, some new products must enter the highly advanced medical technology (HAMT) system before they may be listed as reimbursable under national insurance. Such devices are involved in unusually highly technical medical treatment and are quite costly, such as the lithotripter, which uses ultrasound to destroy kidney stones. Under the HAMT system, Japanese doctors and hospitals are reimbursed for costs related to treatment procedures but not for the device itself. As a result, the manufacturer can only be reimbursed if it receives direct payment from the patient, doctor, hospital, or some their party with a vested interest in seeing the technology spread throughout the country. Although an HAMT trial lasts two years on average, there is no defined schedule for how long trials will last and when reimbursement will be approved. This system has resulted in much criticism from the United States and has discouraged producers of these highly advanced technologies, who are mostly foreign, from bringing them to Japan. In short, introducing HAMT devices to Japan can often prove to be excessively time-consuming and expensive for American medical manufacturers. Surgical products and implants that have a one-time, one-patient use are labeled as special treatment materials (STMs) for reimbursement purposes. MHW is revising its pricing policy for STMs so that products will be grouped into functional categories and all products within the same category will receive the same price. This system is likely to make it impossible for companies to negotiate reimbursement prices for individual products. In 1993,
STMs accounted for about 23% of annual U.S. sales to Japan although they constituted
only 4% of Japan’s total device market. Because STM classification primarily
covers foreign products, industry experts question whether STM controls are
cost-containment measures or actually a form of foreign discrimination. Although
some devices, such as pacemakers, are priced by brand, U.S. industry leaders
would like to see a system in which reimbursement prices take brands and differences
in features and efficacies into greater consideration, thereby providing fairer
pricing and encouraging the development of higher-quality products. GOOD MANUFACTURING PRACTICES CHANGES In recent
years, PAB has been actively attempting to raise quality standards in the manufacture
of medical devices through reexamining its good manufacturing practices (GMP)
system. Additionally, the Japanese government is studying comments from industry
experts and foreign governments to align its GMP standards with international
levels. Any changes in the GMP system will significantly affect American medical
device companies manufacturing in Japan. In general,
GMP requirements for medical devices will vary according to product characteristics.
All regulations are likely to apply to implantable products (for example, artificial
joints and pacemaker) and life-sustaining products (for example, resuscitators).
Most other medical devices would have to follow GMP requirements in all aspects
except design control. Certain GMP controls would be unnecessary for simple
steel products, such as knives, whose quality can be easily determined by practitioners.
CONCLUSION Although
understanding and responding to the rapid changes in Japan’s medical device
industry can be complicated and confusing, U.S. firms must be patient and committed
to their Japanese activities in order to identify and benefit from the many
opportunities in this market. Product acceptance in Japan is based on quality,
after-sales service, and price. U.S. companies should continuously analyze these
three aspects of their products in the context of Japan’s changing medical
device regulations.
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