What is Medical Device Reimbursement Listing? | Fundamentals of C1, C2, and New Functional Category Applications

Table of Contents

1. What is Reimbursement Listing: Position of the System
2. Two Forms of Medical Device Reimbursement
3. 10 Determination Categories: From A1 to R
4. Differences Between C1 and C2: The Core of New Functional Categories
5. Structure and Key Points for Preparing the Reimbursement Application Form
6. Schedule from Application to Reimbursement Approval
7. Price Calculation Methods: Comparison with Similar Functional Categories and Cost Calculation Method
8. Foreign Average Price Adjustment
9. Challenge Application and Re-evaluation
10. Summary

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Even with PMDA approval, revenue generation in the Japanese market does not commence solely based on this. For medical devices to be utilized in medical institutions and for manufacturers/distributors to receive compensation, the procedure for reimbursement listing (insurance coverage under the health insurance system) is required. This article systematically organizes the overall framework of the medical device reimbursement listing system, the 10 determination categories from A1 to R, the differences between C1 New Function and C2 New Function/New Technology, application schedules, key points for preparing application forms, and the mechanism of foreign average price adjustment, all based on the latest official documents.

1. What is Reimbursement Listing: Position of the System

Japanese healthcare is provided under a public health insurance system based on the Health Insurance Act. For the cost of a medical device to be covered by health insurance when used in a medical institution, the device must be assigned to a reimbursement determination category. This procedure is referred to as "reimbursement listing."

The reimbursement listing procedure is overseen by the Medical Economics Division, Health Insurance Bureau, Ministry of Health, Labour and Welfare (MHLW). The final decision is made by the Minister of Health, Labour and Welfare through a public notice, following deliberation by the Central Social Insurance Medical Council (Chuikyo). Practical reviews are conducted by the Specialized Organization for Medical Materials, etc., a subordinate body of Chuikyo.

The relationship with PMDA approval can be summarized as follows:

PMDA approval is a procedure for products to be distributed in the market, while reimbursement listing is a procedure for generating economic value under insurance-covered medical care. These are distinct systems, each requiring separate applications.

2. Two Forms of Medical Device Reimbursement

When medical devices are used under insurance-covered medical care, there are two primary forms of cost payment.

Included in Technical Fees

This form includes the price of the medical device within the medical fee points for a medical procedure. For example, the fee for an endoscopic examination includes a certain cost for the endoscopy-related equipment used. In this case, medical device manufacturers negotiate sales prices with medical institutions in the market.

Specific Medical Materials (Tokuzai)

This form involves setting a specific reimbursement price for the medical device itself. Costs are paid by insurance for each use of the medical device, separate from technical fees. Examples include pacemakers, artificial joints, and stents.

Specific Medical Materials are categorized by functional division with prices set by the MHLW public notice "Specific Medical Materials and Their Material Prices (Material Price Standard)". These prices are revised every two years, similar to medical fee revisions.

For medical device manufacturers, whether their product falls under technical fee inclusion or specific medical materials is a crucial point that significantly impacts their revenue structure.

3. 10 Determination Categories: From A1 to R

Currently, there are 10 types of determination categories for medical device reimbursement (according to the MHLW Health Insurance Bureau Medical Economics Division administrative notice dated February 14, Reiwa 6 (2024), "Handling of Medical Device Reimbursement, etc.").

• A1 Inclusion: Included in existing technical fees (separate billing not allowed)
• A2 Specific Inclusion: Included in specific technical fees
• A3 Existing Technology, with Changes: Involves changes to existing technical fee notes, etc.
• B1 Existing Functional Category: Falls under an existing specific medical material functional category
• B2 Existing Functional Category, with Changes: Involves changes to the definition of an existing functional category
• B3 Time-limited Improvement Addition, Provisional Functional Category: Time-limited addition to an existing functional category
• C1 New Function: Requires setting a new functional category (technical fees are existing)
• C2 New Function, New Technology: Requires both a new functional category and new technical fees
• R Remanufactured: Remanufactured Single-Use Device (R-SUD)
• F Not Suitable for Reimbursement: Not eligible for reimbursement

Medical device manufacturers determine which category their product belongs to and submit the corresponding Reimbursement Application Form. The choice of category directly impacts price, application process, and review period, thus requiring strategic judgment.

4. Differences Between C1 and C2: The Core of New Functional Categories

Among the 10 categories, C1 (New Function) and C2 (New Function, New Technology) require particularly specialized consideration. Both involve the establishment of a new specific medical material functional category, but they differ in how technical fees are handled.

C1 (New Function): Only New Functional Category Established

This applies when the technology itself using the medical device is evaluated under existing medical fee items, but there is no specific medical material functional category corresponding to that medical device. A new functional category is established, and a price is determined.

Example: A novel stent used in an existing surgical procedure, but its structure and performance are innovative and do not fit into existing functional categories.

C2 (New Function, New Technology): New Functional Category + New Technical Fees

This applies when not only the medical device itself is new, but the technology itself using the medical device does not fall under existing medical fee items. In addition to establishing a new functional category, new technical fees (medical fee items) are deliberated and established by Chuikyo.

Example: An innovative medical device that enables a surgical procedure that did not previously exist. Since the procedure itself is new, new technical fees also need to be established.

Rarity of C2 Category

According to data from the Japan Federation of Medical Devices Associations (JFMDA), medical devices approved under the C2 category averaged only about 18 cases per year over the five-year period from FY2018 to FY2022. While many new products fit within existing functional categories or technical fee frameworks, C2 is a rare category limited to truly innovative medical devices.

When applying for C2, it is particularly important to demonstrate two points: 1. the grounds for evaluation as a new function/new technology, and 2. the medical utility of clinical outcomes compared to conventional medical technologies.

5. Structure and Key Points for Preparing the Reimbursement Application Form

Manufacturers/distributors wishing for reimbursement listing submit a Reimbursement Application Form to the Medical Industry Promotion and Medical Information Planning Division, Health Policy Bureau, MHLW (commonly known as "Sanjo-ka"). Submission can be via email ([email protected]) or electronic media.

Main Attached Documents for B3, C1, C2 Applications

When requesting the establishment of a new functional category (B3, C1, C2), the following documents are attached to the application form:

• Copy of the pharmaceutical approval/certification application form
• Draft package insert
• Instruction manual, brochure
• Copy of the pharmaceutical approval review report (if prepared)
• List of domestic and international literature, including comparative study results, clarifying medical efficacy/effects and medical economic utility
• Comparison table with medical devices in existing functional categories
• Documents demonstrating the appropriateness of selecting similar functional categories

Key Points for Preparing the Application Form

Selection of Similar Functional Categories Among existing functional categories, the closest one is selected as the "similar functional category," and differences/improvements compared to it are indicated. The selection of a similar functional category is strategically important as it serves as the basis for price calculation.

Claiming Adjustment Additions If the product has superior performance or utility compared to existing similar functional categories, innovativeness additions, utility additions, or improvement additions can be claimed. Evidence meeting the addition requirements must be prepared.

Comparison with Foreign Average Prices If the product has been sold overseas, submission of overseas price data is required. This is crucial information directly linked to the foreign average price adjustment described later.

Organization of Academic Evidence Systematically organize peer-reviewed papers, guidelines, case reports, etc., to demonstrate the clinical positioning of the medical device.

6. Schedule from Application to Reimbursement Approval

The timing of reimbursement approval is set for each determination category.

Since C1 and C2 have only four opportunities for reimbursement approval per year, strategic planning that links the timing of PMDA approval with reimbursement listing is necessary.

Standard Review Schedule for C1 and C2

After submission, following review by the Specialized Organization for Medical Materials, etc., and approval at the Chuikyo General Meeting, the product is formally listed at the next reimbursement approval opportunity (March, June, September, December).

Notably, manufacturers/distributors may, only once, attend the Specialized Organization for Medical Materials, etc., to directly express their opinions before the proposed category determination is finalized. This is effectively an opportunity for an in-person review, and thorough preparation is key to success.

7. Price Calculation Methods: Comparison with Similar Functional Categories and Cost Calculation Method

For the price determination of new functional categories (C1, C2), there are principally two methods.

Comparison with Similar Functional Categories Method

This method calculates the price by starting from the price of an existing similar functional category and adding adjustment additions. Many C1 and C2 products are priced using this method.

Calculation flow:

1. Selection of a similar functional category
2. Setting the price of the similar functional category as the base price
3. Consideration of innovativeness additions, utility additions, improvement additions, etc.
4. Application of foreign average price adjustment
5. Determination of the final reimbursement price

Cost Calculation Method

This method is applied when no similar functional category exists. The price is calculated by accumulating manufacturing costs, selling expenses, general and administrative expenses, operating profit, distribution costs, and consumption tax equivalent.

When applying the cost calculation method, documents detailing manufacturing costs (manufacturing cost calculation sheet) must be attached to the reimbursement application form. The submission of sensitive information such as cost data requires a robust internal system.

Types of Adjustment Additions

The following additions are stipulated:

• Innovativeness Addition: For products with a novel mechanism of action that is clinically useful (50 to 100 percent)
• Utility Addition: For products with recognized clinical utility (5 to 30 percent)
• Improvement Addition: For pediatric use, intractable diseases, or recognized improvements (1 to 20 percent)
• Marketability Addition: Type 1 applicable to orphan medical devices, etc. (10 percent); Type 2 applicable to those with a small estimated patient population, etc. (1 to 5 percent)

Claims for additions require objective evidence such as comparative study results, guideline descriptions, and academic society recommendations.

8. Foreign Average Price Adjustment

Foreign average price adjustment is a mechanism to prevent Japanese reimbursement prices from significantly deviating from overseas prices. For medical devices sold overseas, adjustments are made based on prices in target countries (USA, UK, Germany, France, Australia).

Adjustment Logic

• If the calculated price exceeds 1.25 times the foreign average price (or 1.5 times if special requirements are met) → Downward adjustment
• If the calculated price falls below 0.5 times the foreign average price (or 0.8 times for some medical devices such as those for pediatric use) → Application for price calculation using the cost calculation method is possible (special measure for upward adjustment)

Submitted Documents

When declaring foreign prices, documents such as the following are required:

• Supporting documents for reimbursement prices/market prices in each country
• Basis for exchange rate conversion
• Explanation of price structure (breakdown of local selling expenses, transportation costs, customs duties, etc.)

When introducing medical devices sold at high prices overseas into the Japanese market, a pricing strategy that incorporates downward adjustment due to foreign average price adjustment is necessary.

9. Challenge Application and Re-evaluation

Even if sufficient evidence is not available at the time of initial listing, the challenge application system allows for re-evaluation by accumulating data after market release.

Overview of Challenge Application

Manufacturers/distributors indicate their desire for a re-evaluation application based on post-market performance (challenge application) at the time of initial listing. They submit a plan document concerning the desired re-evaluation content, data collection methods, and evaluation methods either at the time of submitting the reimbursement application form or within one year from the date of reimbursement approval.

Subsequently, data is collected post-market based on the plan, and a re-evaluation application is submitted based on the collected data. If utility, etc., is recognized through re-evaluation, a review of the functional category or the addition of adjustment additions may be possible.

Benefits of Challenge Application

• Can compensate for insufficient evidence at the time of initial listing
• Allows for price re-evaluation based on post-market data
• Can achieve both early market launch of innovative medical devices and appropriate pricing

For manufacturers of innovative medical devices, the challenge application is a strategic option to consider.

10. Summary

Key points to understand regarding medical device reimbursement listing are as follows:

1. Reimbursement listing is a separate system from PMDA approval: Obtaining approval alone does not mean the product will be used under insurance-covered medical care. Both need to be designed as separate strategies.
2. Understanding the 10 determination categories: Understand the characteristics of each category from A1 to R and apply under the optimal category for your product. Category determination significantly influences pricing and the application process.
3. Distinguishing between C1 and C2: C1 involves only a new functional category, while C2 involves both a new functional category and new technical fees. C2 has a higher bar for innovation evaluation and is a rare category, with fewer than 20 cases annually.
4. Quality of the Reimbursement Application Form: The selection of similar functional categories, claiming adjustment additions, and organizing evidence determine success.
5. Schedule Strategy: B3, C1, and C2 have reimbursement approval opportunities only four times a year (March, June, September, December). Linking this with PMDA approval is crucial.
6. Preparation for Foreign Average Price Adjustment: Preparation of overseas price data and prior consideration of pricing strategies based on the latest adjustment criteria (e.g., generally 1.25 times).
7. Utilization of Challenge Application: A mechanism to compensate for insufficient evidence at the time of initial listing with post-market data.

Reimbursement listing is a critical procedure that determines the revenue generation phase after PMDA approval. By integrally designing approval strategies and reimbursement listing strategies, the business value in the Japanese market can be maximized. As the system is complex and revised every two years, confirming the latest notifications and public notices, and utilizing specialized support, are practical options.