6. Medical Drugs/Medical Devices
Second edition

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Medical Drugs/Medical Devices｜Pharmaceuticals

Definition of New Drugs
New Drugs (Originator drugs) are medical drugs which are clearly differentiated in active ingredients, dosage,administration, indication and efficacy from drugs which have already been approved. New Drugs mainly consistof drugs containing new active ingredients, new ethical combination drugs, drugs with a new administration route,drugs with a new indication, drugs in new dosage forms, and new dosage drugs.

Pharmaceutical Product Approvals
To manufacture, distribute and sell new drugs, pharmaceutical companies must first obtain marketing approval
from the PMDA. Approvals are made by the PMDA based on an evaluation of the new drug’s efficacy and safety
information obtained via clinical trials. Clinical trial information and filing documents must conform to the quality,
GLP and GCP requirements defined by the MHLW.
In addition to the standard approval process, the MHLW has implemented to mechanisms for expedited reviews
and approvals of innovative pharmaceutical products.
To address the development lag between Japan and other major markets, the MHLW implemented the “Sakigake”
review policy in 2014 that awards prioritized reviews and expedited approvals for products that are developed for
and filed for first in Japan. To be eligible for “Sakigake” reviews, new drugs must meet all of the following criteria:
1) innovative new mechanism of action, 2) degree of severity of the target indication, 3) high degree ofeffectiveness, and 4) a desire to develop and file first in Japan.
Furthermore, In 2017, the MHLW implemented the “Conditional Expedited Approval” Policy for drugs that address
disease states with small patient populations with limited treatment options and large unmet medical needs forwhich the execution of confirmatory clinical trials are difficult. The policy enables pharmaceutical companies tofile for approval with efficacy and safety data generated from non-confirmatory trials, such as phase II trials, on
the condition that additional safety and surveillance measures, including the use of real world data, areimplemented. It is expected that this policy will support the development of novel treatments including iPS cellbased genetic therapies.

Pharmaceutical Reimbursement Pricing
Once marketing approval is obtained, manufacturers must apply for reimbursement pricing under the National
Health Insurance (NHI) system. The NHI reimbursement price is the price at which payors reimburse medical
institutions for pharmaceutical products used to treat patients.
Initial NHI Reimbursement prices that are set by the MHLW’s Central Medical Council based primarily on thecomparable based method when similar approved products already exist on the market, or the cost based method
for novel therapeutics with no similar approved products.
In addition, the MHLW has also implemented pricing premiums to both incentivize the development of innovative
products while constraining the reimbursement prices of products whose degree innovativeness are assessed tobe limited. Products with superior efficacy or usefulness compared to existing products, with orphan or pediatricindications, or for which Japan is the first country are eligible for additional price premiums, whether priced via
the comparator or the cost based methods
Once set, pharmaceutical reimbursement prices are revised biannually based on an assessment of the variance
between NHI reimbursement prices and actual market (wholesale) prices. While the price difference between
NHI reimbursement prices and actual market prices enable medical institutions and pharmacies to book revenue,
biannual price revisions are intended to limit discounting to within a reasonable range known as the “R-zone”
established by the MHLW, currently set at 2% of reimbursement prices. In practice, the biannual price revisions© 2019 Health and Global Policy Institutehave the effect of lowering drug prices, enabling the MHLW to control the natural growth in overall healthcare
spending.
In addition to the standard biennial reassessment of drug prices in Japan, additional adjustments have also been
implement to ensure products are profitable and to promote the development of new drugs while limiting overall
costs by reducing prices for drugs that have seen significant market expansion or that have lost patent protection.

Adjustment

Type

Description

Lack of profitability

Positiveadjustment•

Unprofitable drugs with high medical need are
eligible for an increase in NHI list price by MHLW orgenerics where all generic products are
unprofitable

Market size expansion

Negativeadjustment•

Added price cuts for increased market size or sales
due to indication expansion

Premium to promote thedevelopment of new drugs
and eliminate off-label use

Positiveadjustment•

Premiums for innovative products designed to slow
price reductions and promote new drug
development

Additional Cuts for Long
Listed Drugs

Negativeadjustment••

Additional cuts to long listed products
Used to fund premiums for new drug development

As healthcare costs continue to rise, it is expected that additional revisions to pharmaceutical reimbursement
pricing mechanism may be made going forward. While undetermined, to date, topics such as the introductionof health economics outcome considerations when setting reimbursement prices in addition to potential shift
towards annual price revisions have been discussed.

Pharmaceutical Product Quality and Safety
Similar to other major markets, the development, manufacture and distribution of pharmaceutical products inJapan are also governed by GXP regulations such as GLP, GCP, GMP and GVP standards. However, there are a few
notable differences in Japanese regulations and policies related to product quality and safety.
First, under the Pharmaceutical Affairs Law, to comply with Japan’s Good Quality Practices (GQP) and GVP
requirements, pharmaceutical companies must designate three individuals to take on the following roles uniqueto Japan to oversee and govern product quality and safety related activities:- General marketing compliance officer – Individual with overall responsibility for product quality and safety- Quality assurance manager – Individual responsible to ensure quality activities comply with GQP regulations- Safety manager – Individual responsible for ensure safety activites comply with GVP regulations
Second, upon approval of novel drugs, Japan requires pharmaceutical companies to conduct post marketingsurveillance activities to track and ensure patient safety. Surveillance activities are generally required to be
conducted during the 6 month period after launch and are intended to identify track any adverse events in thereal world setting that may not have been observed during clinical trials. These activities are governed by Japan’s
Good Post-marketing Surveillance Practice (GPSP) regulations.
Third, to further ensure patient safety, new pharmaceutical products are generally restricted to 14 dayprescriptions for one year from the first day of the month pricing is listed. Exceptions to the 14 day prescription
restriction for specific new drugs can be awarded by the Central Medical Council for products that meet either ofthe following two criteria:- New drugs (e.g. compound drugs) with APIs that have the same effect, efficacy, dosing and administration as
approved products with over one year of clinical experience- New drugs where, based on its characteristics or the disease state, only over 14 day formulations exist andthe safety of over 14 day administration has been confirmed© 2019 Health and Global Policy Institute6.2

Medical Drugs/Medical Devices｜Generic Drugs

Definition of Generic Drugs
Medical drugs have a period when the pharmaceutical company which first developed it has the exclusive rights
for manufacturing and marketing them (period during which patent is in effect and reevaluation period forverifying efficacy and safety), and the drugs manufactured and marketed during this period are called original
drugs.
Once this period expires, based on the publicized patent information, other pharmaceutical companies canmanufacturer/market drugs which contain the same active ingredients. These drugs thus launched which containthe same active ingredients as the original drug are called generic drugs.
The characteristics of generic drugs are that while they have the same active ingredients and as a general rule thesame efficacy, effect, dosage and administration as the original drug, their prices are lower. Also, while the original
drugs are exclusive to the pharmaceutical company which developed it first, in many cases, generic drugs are
manufactured and marketed by several
Perspective: MHLW’s position on generic drugs
pharmaceuticals. In the Western market, as
In Japan, thanks to the universal national health insurance
these drugs are often prescribed using thesystem, every citizen has equal access to a necessary and highgeneric names of the active ingredients (asquality medical treatment by paying only a certain percentage
opposed to original drugs which are often
of the medical cost from his/her own pocket. On the othercalled by their brand names), they have been
hand, with the advancement of medical technology and fastcalled generic drugs, and this term has become
aging society, Japan’s healthcare cost keeps on rising
popular in Japan as well.
increasingly jeopardizing the sustainability of the national
healthcare system. To maintain this universal healthcare

Efficacy and Safety of Generic Drugs
system, sustain the quality of medical care and to drive
To manufacture and market generic drugs,
efficiency improvement in the healthcare service, Japanese
government has adopted a policy to encourage the usage ofunlike the original drug, there is no need togeneric drugs.
conduct clinical trials to verify efficacy andIn the cabinet decision in June 2015, it has set a target tosafety of the active ingredients, as efficacy andachievethe share of generic drugs of 70% by 2017and 80% by
safety have already been established in the
September 2020, with an ambition to achieve these targets asapproval process of the original drug.
soon as feasible.
However, even if the drug has the same active
ingredients, if it is made by a different
manufacturing process, it may not have the same mode of action. Therefore, in the manufacturing and marketingof generic drugs, they are examined to see if the efficacy and safety are equivalent to those of the original drug.
Evaluation criteria consist of “Test Procedures and Acceptance Criteria”, “Stability Test”, “Bioequivalence Studies”.
If, based on these criteria, the generic drug is proved to be the same as the original drug, its efficacy and safety
are cleared of any issues and the generic drug is eligible to get approval.

Prescription and Dispensing of Generic Drugs
In Japan’s National Health Insurance System, when physicians prescribe medical drugs, it is a common rule to use
the generic name of the active ingredient. However, a physician can choose to put his signature on his prescription
to specifically request the pharmacist to dispense original drug and not to change to generic drugs. Pharmacies,
unless there are specific instructions from the physician, are encouraged to dispense generic drugs upon briefing
to the patient and getting his/her consent. Incentives are set to make sure pharmacies will proactively choose todispense generic drugs.
France is another market which adopts a similar mechanism of prescription and dispensing of generic drugs. In
France, if a pharmacy refuses to dispense generic drugs in substitution to the original drug, the patient has to pay© 2019 Health and Global Policy Institute100% out-of-pocket at the pharmacy and apply for reimbursement later. This system is a strong incentive to drive
penetration of generic drugs.
USA is an example of a market which adopts a different system than Japan. In the USA, the insurance policy heldby the patient dictates which medical drugs he can use, giving limited freedom of choice to the physician or thepharmacist. The decision of which drug is to be adopted is made by the HMO, the insurer, in negotiation with thepharmaceutical company.

Drug Price of Generic Drugs
As generic drugs don’t require clinical trials and relieves the pharmaceutical company of large chunks of R&D
expenses compared to an original drug, pharmaceutical companies can remain profitable even if the drugs prices
are set lower than the original drugs. For this reason, in Japan’s National Health Insurance System, it is a common
practice that the reimbursement price of generic drugs is set significantly lower than that of the original drug,
generally at 50% or less.
Furthermore, in Japan’s NHI system, reimbursement prices are determined by taking actual market prices into
consideration. Therefore, if several generic drugs which contain the same active ingredient exist in the market andprice competition occurs in the market, cheaper reimbursement price will be set reflecting those circumstances.

Rules for Determining NHI Listed Price of Generic Drugs
Twice in a year (June and December), generic drugs have opportunities to get screening for approval and inclusionin the NHI reimbursement list.
If generic drugs are to be included in the NHI list for the first time, the basic rule is to set its price at 50% of theoriginal drug, with two exceptions: the price of internal medicine is set at 40% of the price of the original drug if
the number of items proposed for inclusion in the NHI list exceeds 10 items; and price of biosimilar is to be set at
70% of the original drug.
Furthermore, after the initial inclusion in the NHI list, drug prices will be gradually reduced at each of the biannual
drug price revision which target all listed products in the NHI list, according to the changes in the actual market
price. In cases where several generic drugs exist, a policy is implemented for setting one price per each price range,
as described below:
Generic drugs whose price is estimated to be less than 30% of the highest price are included in the list at
single price (weighted average)
Generic drugs whose price is estimated to be 30% or higher but less than 50% of the highest price are includedin the list at single price (weighted average)
Generic drugs whose price is estimated to be 50% or higher of the highest price are included in the list at
single price (weighted average)© 2019 Health and Global Policy Institute6.3

Medical Drugs/Medical Devices ｜ Non-prescrition Drug

Segmentation of prescription drugs and non-prescription drugs
Apart from prescription drugs which are dispensed by the pharmacist and taken by the patient according to theprescription issued by a physician/dentist, drugs requiring guidance and non-prescription drugs exist which
general public may purchase directly at pharmacies and drugstores and use at one’s own discretion.
As non-prescription drugs can be purchased/taken by the general consumer at his/her own discretion, sellers are
required to provide information to the buyer, and they are divided into Class 1, Class 2 and Class 3 based on risk
level, each category with a defined degree of necessity of providing information.
Class 1 Drugs : Drugs for which pharmacists are required to provide information and only under a pharmacist’s
management and guidance can be sold/handed overClass 2 Drugs :Drugs which can only be sold and handed over at stores where pharmacists/registered sellers
are working full time, and providing information has to be done on best effort basis.
Class 3 Drugs ：Drugs whose risk level is the lowest. Unless the buyer directly requests for it, they can be soldwithout any legal obligation to provide explanation in particular.
Drugs requiring guidance are, distinct from non-prescription drugs, categorized as “quasi-prescription drugs”, andSwitch OTC Drugs, which have just been switched from prescription to non-prescription drug and thus haven’t
been certified risks as non-description drug, as well as Direct OTC Non-prescription Drugs, which have never beenused as prescription drugs, fall into that category.

OTC Drug
Categorization

ExpertBehind-the-Counter
Drug
Pharmacist

Response to
Customer
Request for
Consultation

Provide written information
face-to-face(Obligation)

Distribution ontheInternet/MailorderNot permitted

Provide written information(Obligation)

Category1
Nonprescription
Drug

Explanation from
Salesperson to Customer

Obligatory
Category2

Category3

Pharmacist
orregisteredsales person

Best efforts

Permitted

Not stipulated in law

The term "OTC pharmaceutical" refers to pharmaceuticals without any significant action on the human body in terms of its efficacy and effect, intended foruse with options selected by a consumer based on information provided from a pharmacist and other medical professionals.

© 2019 Health and Global Policy Institute6.4

Medical Drugs/Medical Devices｜Medical Devices

Medical Device Classification and Approval
In Japan, medical devices are defined as approved medical products with clearly defined structure, method of use,
effect and performance to be used with objective of either “diagnosing, treating or preventing disease” or “impacting
the structure or function of the human body.”1
Medical devices, in Japan, are classified into the following four categories based on their intended use and safety risk.
Approval requirements for medical devices vary by category
In particular, category III and IV medical devices with the largest risks require PMDA approval.

Approval
Requirement

Category

Type of Medical Device

General
Medical
DevicesClass I

Medical devices with extremely low risk in the event ofdefect / failure:• Enteral infusion sets, nebulizer, x ray film, blood gas
analyzer, surgical non-woven products, etc.

 Selfdeclaration

 Third Party
Certification

Class II

Medical devices with relatively low risk in the event ofdefect / failure:• X-ray imaging device, electrocardiograph, ultrasonicdiagnostic device, injection needle, blood collectionneedle, vacuum blood collection tube, infusion set
for infusion pump, Foley catheter, hearing aid,
household massager, etc.

Class III

Medical devices with relatively high risk in the event ofdefect / failure:• Particle beam therapy equipment, artificial dialyzer,
epidural catheter, infusion pump, automatic
peritoneal perfusion device, artificial bone, artificial
heart-lung machine, artificial respirator, etc.

 Minister’s
Approval Third Party
Certification

Class IV

Invasive medical devices with life threatening risk in theevent of defect / failure:• Pacemaker, coronary stent, artificial blood vessel,
PTCA catheter, central venous catheter, etc.

 Minister’s
Approval

Controlled
Medical
DevicesSpecially
Controlled
Medical
Devices

1The Japan Federation of Medical Devices Association "On Medical Equipment" http://www.jfmda.gr.jp/device/about/ (Accessed 2018, Apr. 30)© 2019 Health and Global Policy InstituteMedical Device Reimbursement Assessment Categories
Under Japan’s insurance scheme, the manner in which medical devices are reimbursed and priced depends on its
reimbursement assessment category2
 Medical devices within the A1, A2, and A3 categories covered within the technical fee for specific proceedures
and cannot be reimbursed separately
 Medical devices within the B1, B2 and B3 categories are refered to as Specialty Treatment Materials that are
directly reimbursed separately from technical fees based on reimbursement prices set by technical category
 Medical devices within the C1 and C2 categories are, similar to B category devices, directly reimbursed
separate from any technical fees. However, as they do not fit existing technical categories upon approval,
the creation of a new technical category is required. Furthermore, C2 medical devices also require thecreation of a new technical category as well
 B3, C1 and C2 medical devices require approval by the Chuikyo
Assessment Category

Reimbursement Method

A1

Comprehensive

Items covered by the technical fee

A2SpecificallyComprehensive

Items that are covered by existing, specific technical categories

A3

Exiting Technology
w/revision

Items that are covered by existing, specific technical categories (Requirechanges to consideration items)

B1

Existing Technical
Category

Specialty Treatment Material that is directly reimbursed based on existing
technical category separately from technical fees

B2

Existing Technical
Category w/ revision

Specialty Treatment Material that is directly reimbursed based on existing
technical category separately from technical fees (Requires revision ofexisting technical category)

B3

Fixed Period
Enhancement
Premium

Specialty Treatment Material that is evaluated by awarding temporary
premiums based on existing technical category

C1

New Function
Product

Products that need a new function classification and have alreadybeen evaluated for technical fee

C2

New Function /Technology ProductProducts that need a new function classification and have notyet been evaluated for technical fee

F

Not suitable for NHI
reimbursement

Reimbursement Prices for New Medical Devices
Unlike pharmaceutical products which are reimbursed by produc, medical devices are reimbursed based on thetechnical category.
New medical devices are priced either via the ”comparable technical category method” if there is an existing
technical category exists for similar products, or via the ”cost based method” when there is no exsiting technicalcategory. Medical device reimbursement prices are revised concurrently with the periodic reimbursement

2

Ministry of Health, Labour and Welfare "Outline of the 2018 Revision of the Medical Products and Equipment Insurance System"
https://www.jdta.org/pdf/20180404-3.pdf (Accessed 2018, May. 1)© 2019 Health and Global Policy Instituterevisions.3 Similar to pharmacutical products, medical device price revisions are decided primarily on the variance
between the reimbursement price and actual market prices based on an acceptable margin including consumption
tax of 4%.
In addition, the MHLW has also implemented medical device reimbursement pricing policies to promote
innovation.
 Challenge Filing: Mechanism to subsequently file for a new technical category post approval based on realworld data Fixed Period Enhacement Premium: Additional price premium awarded for 2 reimbursement periods to
products able to replace an existing technical category Technical Category Exception: Mechanism applied to highly innovative or Sakigake productsin which
prices are maintained at a higher level for 2 reimbursement periods separately from other follow on
products within same technical category
Going forward, similar to pharmaceutical products, to control reimbursement prices, it is expected that healtheconomics outcome considerations may also be considered when deciding medical device pricing.4

3 Ministry of Health, Labour and Welfare "2016 Revision of the Medical Products and Equipment Insurance System" http://www.mhlw.go.jp/file/06-

Seisakujouhou-12400000-Hokenkyoku/0000114377.pdf (Accessed 2018, Apr. 30)
4Ministry of Health, Labour and Welfare "Outline of the 2018 Revision of the Medical Products and Equipment Insurance System"
https://www.jdta.org/pdf/20180404-3.pdf (Accessed 2018, May. 1)© 2019 Health and Global Policy Institute