Japan’s healthcare system is known for its efficiency and centralized regulation, which also extends into its medical device reimbursement process. For foreign and domestic manufacturers alike, understanding Japan medical device reimbursement framework is essential for successful market entry and sustained commercial success. Among the various reimbursement pathways, the C2 category stands out for devices that are novel and fall outside the standard classification and pricing mechanisms. This article will explore the foundational aspects of Japan’s reimbursement system for novel devices and delve deeply into the C2 category – its application requirements, data needs, and pricing considerations.

General Reimbursement Process in Japan

Before seeking reimbursement, medical devices must first receive regulatory approval in Japan. Importantly, a product cannot be reimbursed without this prior regulatory clearance. To maximize reimbursement, it is crucial to demonstrate medical necessity. If the Ministry of Health, Labour and Welfare (MHLW) and the Pharmaceuticals and Medical Devices Agency (PMDA) do not acknowledge this need, approval may be denied, stopping the reimbursement process before it is even considered.

Applicants are strongly encouraged to engage in pre-submission discussions with MHLW, particularly for novel products. Securing support from key opinion leaders (KOLs) and academic societies can be decisive in proving unmet medical needs and superior clinical utility.

DPC System Overview

Japan’s reimbursement system for inpatient care is heavily influenced by the Diagnosis Procedure Combination (DPC) model – a Japanese version of the diagnosis-related group (DRG) system. Under DPC, hospitals are paid a fixed per-diem fee based on disease classification and standard treatment pathways. This system includes:

A comprehensive evaluation portion, covering basic diagnostic tests and procedures (e.g., ECG, chest X-rays, NT-proBNP for heart failure).
An additional evaluation portion for specific procedures like surgery, anesthesia, and invasive diagnostic tests (e.g., FFR).

This means many diagnostic devices may not be reimbursed individually if they are included within the bundled DPC fee. Consequently, for reimbursement of novel devices not captured in these bundles, manufacturers must apply under a specific reimbursement category – such as C2.

Understanding the C2 Category

The C2 reimbursement category in Japan serves devices that:

Do not have an established reimbursement code.
Offer significant innovation or improvements over existing technologies.
Require individual assessment and justification for pricing.

While C1 applications are used for devices that fall within existing functional classifications, C2 is intended for devices that are outside existing frameworks and thus need more comprehensive justification. C2 applications are considerably more detailed and require an extensive data package to demonstrate the device’s value.

Key Components of a C2 Reimbursement Application

To succeed with a C2 application, manufacturers must provide a wide range of documentation and supporting data, including the following categories:

Device Information and Shonin Documentation

The reimbursement submission must include copies of the Shonin certificate, indicating approved:

Indication
Device shapes and sizes
Raw materials
Usage guidelines

The documentation must also show whether the device has been designated as a “highly needed medical device” by MHLW, which can expedite the process.

Market and Sales Data

Applicants need to submit detailed forecasts for:

Annual number of patients expected to use the novel device.
Peak patient numbers and when peak utilization is projected.
Sales projections annually and at peak, over a 10-year horizon.

Each estimate must be backed by clear rationale, ideally supported by clinical adoption trends, market research, and epidemiological data. Assumptions used must be justifiable.

Medical Economic Impact

One of the most crucial sections of the C2 application is the Medical Economic Discussion, which requires analysis of both:

Increased costs associated with the device (e.g., capital costs, training).
Cost savings, such as reductions in hospital stay, fewer complications, or decreased need for other medical treatments.

Applicants must build a clear case that the overall economic impact is justified or favorable, using health economics modeling and published studies when possible.

Premium Pricing Requests under C2

Devices submitted under the C2 category may also be eligible for premium pricing, subject to stringent criteria and documentation. There are several premium types that can be requested:

Epoch-making Premium

Granted to devices that represent a novel mechanism with significant clinical utility. The device must:

Demonstrate significantly better safety and efficacy than existing options.
Be supported by robust clinical data compliant with Japan’s Good Clinical Practice (GCP).
Provide improvement in the disease treatment.

Improvement Premium

Awarded to novel devices that are significantly improved versions of existing technologies. Improvements may include:

Better safety for healthcare workers
Reduced environmental impact
Enhanced patient safety or usability
Use in pediatric populations
Improved durability or ease of home use

Supporting clinical or technical data must be provided.

Economic Premium

Justified by showing that the new device lowers healthcare costs compared to existing options. Applicants must detail:

Current treatment/device costs
Cost of the proposed device
Projected frequency of use

The requested premium is calculated as:

(Total cost reduction / Average number of uses) × 0.5

Note: Even with valid justification, a “zero yen” premium is possible, meaning approval might be granted but at a baseline price level.

International Pricing and Benchmarking

To prevent price inflation, MHLW imposes strict formulas on foreign reference pricing comparisons. Some of the information for a C2 reimbursement application includes:

Device prices in key international markets: U.S., Germany, France, U.K., and Australia.
If the highest price among these is more than 2.5x the lowest, it is excluded.
After adjustment, if the remaining highest price is still 1.6x the average, it is capped at 1.6x.
The final Japanese price must be no more than 1.25x the adjusted average price.

This price benchmarking ensures that Japan does not overpay for technologies compared to other developed countries. Today, Japan’s reimbursement pricing closely follows the EU, not the higher prices found in the US.

Other C2 Attachments and Requirements

The C2 application must also include:

Maintenance requirements: Whether maintenance is needed, its frequency, and cost.
Product brochures, manuals, and images.
Clinical Practice Guidelines (Japanese and international) to support adoption.
Peer-reviewed literature showing medical usefulness and cost-effectiveness.
Documentation of similar categories for benchmarking and pricing comparisons.

Applicants must also confirm that the device is not solely for home, dental, or pharmaceutical use, as these may fall under separate reimbursement tracks.

Strategic Considerations

Pursuing C2 reimbursement in Japan requires early and thoughtful planning. Ideally, companies should begin preparing their reimbursement strategy while the product is still undergoing regulatory review, to ensure alignment between the device’s indication, clinical data, and market positioning. This coordination helps avoid delays and ensures that the necessary documentation is ready by the time the Shonin is granted.

Engaging local experts, such as reimbursement consultants or regulatory advisors familiar with Japanese procedures, can make a significant difference. These professionals can guide applicants through complex registration requirements, determine the best strategy for reimbursement and help anticipate concerns from the PMDA and MHLW reviewers. Additionally, support from key opinion leaders and academic societies within Japan is very much needed for novel devices. Their endorsements can help validate the clinical necessity and utility of the device, especially if it’s addressing an unmet medical need.

It’s also important to have strong, relevant clinical and economic data, ideally including studies that comply with Japanese Good Clinical Practice (GCP). If a premium price is requested, the justification must be solid and well-supported, as MHLW is cautious about granting such premiums without clear evidence.

Finally, companies should be prepared for potential follow-up after reimbursement approval, including post-marketing surveillance studies and possible price re-evaluation. A long-term strategy for maintaining data collection and stakeholder engagement is important to support sustained access in the Japanese market.

Conclusion

The C2 reimbursement category offers a viable path for medical devices that are novel. However, this pathway requires a substantial investment in data collection, economic modeling, and strategic documentation. With the right preparation and expert support, companies can successfully obtain reimbursement that reflects their device’s value and unlock access to the Japanese market.

If your company is preparing a C2 reimbursement application, it is advisable to begin with a gap analysis to identify which components of the application still need development—be it clinical data, cost models, or pricing strategy. Successfully navigating the C2 reimbursement process not only enables higher pricing but also helps build a compelling value story for your marketing effort in Japan.

Written by: Ames Gross – President and Founder, Pacific Bridge Medical (PBM)

Mr. Gross founded PBM in 1988 and has helped hundreds of medical companies with regulatory and business development issues in Asia. He is recognized nationally and internationally as a leader in the Asian medical markets. Mr. Gross has a BA degree, Phi Beta Kappa, from the University of Pennsylvania and an MBA from Columbia University.

Japan Medical Device Reimbursement: Focus on Novel Device Reimbursement Category C2