Reimbursement of Medical Devices and In Vitro Diagnostics

This guide is intended to help life science startups and academia gain a general understanding of the reimbursement system for medical devices and in vitro diagnostics and how to navigate it.

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Quick Summary of Japan's Medical Insurance System and Reimbursement for Medical Devices

• Japan has adopted a universal health insurance system, which mandates that all citizens enroll in public medical insurance. 
• The prices of medical services provided at medical institutions are determined by the government according to the "Medical Service Fee Schedule," and patients are typically responsible for a portion of the cost (usually 10-30%) as an out-of-pocket payment.
• The reimbursement system for medical devices in Japan is broadly divided into two main categories: "Fee-for-service inclusive" (Category A), where the cost of medical devices and materials used during a procedure is included in the technical fee, and "Specified Medical Materials" (Categories B and C), where the price of the device itself is set individually and can be billed separately.
• Many medical devices fall under Category A ("Fee-for-service inclusive"), meaning their cost is included in the technical fee and not reimbursed individually. Some devices are designated as "Specified Medical Materials" with a separate material price (Category B), while Category C, which offers high reimbursement, is reserved for only a very small number of highly innovative devices.

Reference Materials:

• Medical Insurance - Ministry of Health, Labour and Welfare
• Information Related to Medical Service Fees - Ministry of Health, Labour and Welfare
• About the Insurance Application of Medical Devices and In Vitro Diagnostics - Ministry of Health, Labour and Welfare

Marketing Approval and Insurance Reimbursement
To launch a product, it is necessary to clear two processes with different purposes and jurisdictions in order: marketing approval and insurance reimbursement. Only after obtaining marketing approval can you proceed to the insurance reimbursement process.

• STEP 1: Marketing Approval
  • Purpose: A process to review the "quality, efficacy, and safety" of a product and obtain permission for its manufacturing and marketing.
  • Jurisdiction: Pharmaceuticals and Medical Devices Agency (PMDA）​
• STEP 2: Insurance Reimbursement
  • Purpose: A process to evaluate the "clinical usefulness and cost-effectiveness" of a product and determine the appropriateness of insurance coverage and its price.
  • Jurisdiction: Ministry of Health, Labour and Welfare (MHLW)

For reimbursement, you can refer to the MHLW's "About the Insurance Application of Medical Devices and In Vitro Diagnostics," especially the guidebook published on the same page.

• About the Insurance Application of Medical Devices and In Vitro Diagnostics - Ministry of Health, Labour and Welfare

The Insurance Reimbursement Process
The insurance reimbursement process consists of multiple steps. However, not all products follow the same path, and the process is simplified for categories A and B (which is often the case).

• Obtain Marketing Approval
  • Obtain manufacturing and marketing approval for the product from the PMDA. This is a prerequisite for applying for insurance reimbursement. The "intended use or effects" stated in the marketing approval application directly affects the discussion for insurance reimbursement, so the marketing and insurance processes must be advanced as an integrated strategy.
• Pre-consultation and Strategy Development
  • The preparatory stage before the official application procedure is arguably more important than the application itself. Pre-consultation can be utilized even before marketing approval.
  • In this phase, you will check which category your product is likely to fall into and examine the differences from existing medical service fee items and existing products.
  • If you have any questions, you should make use of the MHLW's pre-consultation system after thoroughly preparing consultation materials. Basically, it is advisable to consult with the MHLW's Industrial Affairs Division once before conducting clinical trials. The guidebook also includes information on where to consult and the format of the consultation request form.
• Submit an Application for Insurance Coverage
  • After marketing approval, submit an "Application for Insurance Coverage," which includes a product overview, clinical trial results, the desired reimbursement price, and the basis for its calculation, to the Medical Economics Division of the Health Insurance Bureau of the Ministry of Health, Labour and Welfare.
• Deliberation by Expert Panels and Committees
  • The submitted application is reviewed in detail by the "Expert Panel on Medical Materials," which is composed of clinical and technical experts.
• Final Decision and Notification at the Chuikyo General Meeting
  • The Central Social Insurance Medical Council (Chuikyo) makes the final decision on the appropriateness of insurance coverage and the specific price, and it becomes officially covered by insurance upon notification in the official gazette.

Insurance Application Categories for Medical Devices

Category A (Included in Technical Fees)
A category where the cost of the product is included in the technical fee for the medical procedure using it.

• (A1) Inclusive: Comprehensively evaluated under existing medical service fee items.
• (A2) Specific Inclusive: Comprehensively evaluated under specific medical service fee items.
• (A3) Existing Technology with Changes: Products that fall under A1 or A2 and involve changes to billing-related notes, etc.

Category B (Specified Insurance Medical Materials - Existing Functional Category)
A category that falls under an existing "functional category," and the price of the product (material cost) is evaluated separately from the technical fee.

• (B1) Existing Functional Category: When the product falls directly into an existing functional category.
• (B2) Existing Functional Category with Changes: Products that fall under B1 and involve changes to the definition of the functional category, etc.
• (B3) Limited-Time Improvement Premium: A premium is added to the price for a limited time to evaluate improvements in clinical usefulness for an existing functional category.
• Reference:
  • ​Regarding the Calculation Standards for Reimbursement Prices of Specified Insurance Medical Materials - Ministry of Health, Labour and Welfare
  • ​​

Category C (Specified Insurance Medical Materials - New Function)
A category that innovative medical devices that do not fit into the existing framework aim for. A new functional category itself is created.

• (C1) New Function: A new functional category is necessary, and the technology using it has already been evaluated.
• (C2) New Function, New Technology: The technology using the product has not yet been evaluated.

What is a "Functional Category"?
In a nutshell, it is a "group" or "category" for determining the price of a medical device.
Major Difference from Pharmaceuticals

• For Pharmaceuticals: The price of a drug (drug price) is determined for each product (by brand name), such as "Loxonin Tablets" or "Calonal Tablets."
• For Medical Devices: The price is not determined for each product, such as Company A's pacemaker "X-1" or Company B's pacemaker "Y-2," but for a functional category (group) called "cardiac pacemaker."

Why do "Functional Categories" Exist?
There are a vast number of types of medical devices, and minor improvements are made frequently. It is very difficult to set a price for each of these individual products. Therefore, by grouping products with similar structures, intended uses, and functions, and setting a single price for that group, fair and efficient pricing is achieved.


B or C?

• When it falls into an existing functional category (Category B):
  • Since it enters the same group as similar products already on the market, the price will be the standard price for that group.
• When creating a new functional category (Category C):
  • If your product is so innovative that it does not fit into any existing group, you can apply to the government to create a "new functional category (new category)." This is a difficult challenge, but if successful, there is a possibility that a completely new price (reimbursement point) commensurate with the innovative value of the product can be set.

Insurance Application Categories for In Vitro Diagnostics

Category E (Testing Fees)
A category where the value of the testing procedure is evaluated, and points are set as a testing fee.

• (E1) Existing Item: When both the measurement item and measurement method are existing.
• (E2) Existing Item with Changes: Applied when the measurement item is existing, but the measurement method is new.
• (E3) New Item, Improved Item: Applied when the measurement item is completely new, or when the clinical significance is significantly improved due to technological improvements even for an existing item.

Category D (Interpretation Fees)
A category for complex tests that require specialized medical judgment to interpret the test results. Gene-related tests and companion diagnostics aim for this category.


Common Misconceptions

• Not all devices get an individual price.
  • The cost of many medical technologies is included in the "technical fee" for the procedure that uses them. Only pre-designated devices or those deemed highly innovative are evaluated with an individual price. Therefore, for medical devices included in the technical fee, there is little incentive for medical institutions or doctors to use a specific medical device.
• The price is set for the "functional category," not the "product."
  • For devices for which a functional category has been set, unlike pharmaceuticals, the price of a medical device is set for the "functional category," not for individual products. In other words, products in the same functional category will have the same evaluation, so it is not possible to differentiate from competing products based on reimbursement points.
• These points also become factors to consider in advance regarding the necessity of making it a medical device in the first place, and the business advantages and disadvantages.

Aiming for C2 Category with a New Medical Device
For a new medical device with innovative technology for which there is no corresponding existing procedure, there is a possibility of obtaining a high reimbursement point in the C2 category.
The following tasks are useful even for other categories.

• Information Gathering and Organization:
  • Thoroughly research and organize marketing and insurance information regarding your product and existing products (technologies). Try to organize it by referring to this site and guidelines. For marketing, it is useful to use the PMDA's generic name search page and package insert search page. For insurance, it is advisable to look at the medical service fee items that seem to correspond to existing products and technologies.
• Clarify the Differences:
  • This task is very important when aiming for the C2 category.
  • When aiming for the C2 category, you will almost inevitably aim for a new medical device, and what is common to both marketing and insurance is the process of proving to the regulatory authorities that "our product (and the procedure using it) is different from existing products/generic names (and the procedures using them) in terms of its innovation and superiority, so please approve it."
  • Therefore, to explain it clearly, I think it is a good idea to create a table of new, old (existing), and differences from the perspectives of product, technology, generic name, clinical workflow, etc., based on the collected information, and objectively show the innovation and superiority.
• Pre-consultation with the Ministry of Health, Labour and Welfare:
  • Based on the differences clarified through the comparison, consult with the MHLW's Industrial Affairs Division about the validity of the target reimbursement category at least before starting clinical trials.

Points to Note:

• Approval for the C2 category is very difficult, with an annual average of about 25 cases.
• It is recommended to collect and analyze information in advance and carefully consider whether the costs and time invested are worth the benefits gained.
• When aiming for Category C, it is necessary to systematically acquire data demonstrating clinical and cost-effectiveness from the clinical trial stage. Developing marketing approval and insurance reimbursement as an integrated strategy from the early stages of development is the key to success.
• In both marketing approval and insurance reimbursement, the regulatory authorities do not care about the involvement of regulatory consultants at all, and they only evaluate the quality, efficacy, and safety of the product for regulatory approval, and the clinical and cost-effectiveness for reimbursement approval. In addition, there are systems for direct consultation with regulatory authorities, such as the PMDA's RS consultation for regulatory, and the MHLW's pre-consultation for reimbursement.​