A mixed outlook for "Mixed Billing".

In the January/February issue, we looked at the impact of litigation brought forth by people infected with hepatitis C after receiving contaminated human-derived medicine (see "Recent Lawsuit Scandal Could Impact Device Sector in Japan"). Along with the ramifications of this suit, another recent litigation--referred to as "mixed billing"--has grabbed the spotlight as a major healthcare problem in Japan. Although the issues associated with mixed billing may not directly be a matter of life and death (as they were with the Hepatitis C scandal), this litigation also could have a wide-ranging impact on the medical device industry.

As is widely known, Japan has a unique universal coverage system for its healthcare insurance, through which citizens have the privilege of receiving equal healthcare opportunities regardless of income. However, the scope of coverage is limited only to medical services, drugs and devices that are authorized by the National Health Insurance (NHI). The Ministry of Health, Labor and Welfare (MHLW) traditionally had regulated that insured medical services, drugs and devices authorized by the NHI program should not be used simultaneously with non-insured services, drugs or devices. If non-insured services were used, the entire cost of treatment--including those associated with covered services-would become the responsibility of the patient, who would have to pay for all of it out of pocket. The prohibition on mixed billing was not without problems, though, as it prevented medical professionals from using non-insured new drugs or devices to treat patients-and if a patient chose to use such items anyway, 100% of the cost of all treatment would fall on him or her.

In 2004, the Deregulation Promotion Council, led by then-Prime Minister Jyunichiro Koizumi, argued that accepting mixed billing would help patients gain access to more cutting-edge medical technology. However, the MHLW and the Japan Medical Association strongly opposed this viewpoint, believing that mixed billing potentially could destroy the basic concept of universal coverage and equal opportunity for all beneficiaries, as they believed mixed billing only would benefit wealthy people.

In March 2006, a suit was filed in Tokyo's district court challenging this regulation and sought to reverse the status quo. In this case, a patient who had been taking a non-insured drug for cancer treatment together with insured treatments ended up having all related medical costs--both insured and uninsured services-rejected for coverage by the NHI. The patient argued that the prohibition of mixed billing has no legal basis and, therefore, the insured services must be covered by the NHI.

In November 2007, after reviewing the case, the court ruled in favor of the patient, with the judge stating that the NHI's interpretation of health insurance law was "not appropriate." As a result, the prohibition of mixed billing was deemed illegal by the court, and the MHLW was ordered to accept mixed billing without any restriction in the future.

Just because the judge made this ruling, however, doesn't mean that mixed billing has been 100% accepted. Even today, certain services or products (eg, extra bed fees, special dental implants, etc.) have been exempted from mixed billing, in spite of the prohibitions in place. Also, the MHLW has exempted very select procedures, drugs or devices for which certain qualified institutions could charge only actual costs to patients in addition to their NHI coverage. This is according to the Highly Advanced MedicalTechnology Exemption (HAMET). Although HAMET had been in effect since 1984, the MHLW reformed this exemption to develop a more comprehensive system, now known as just the Advanced Medical Technology Exemption (AMET), and is trying to make this AMET more encompassing for a wider range of products and services to a larger number of institutions, but progress has been slow and the practice is still quite restrictive for now.

Complicating the situation is that the MHLW may appeal the district court's ruling to a higher court, as regulators still are very defensive toward mixed billing; however, the MHLW may become more flexible with mixed billing due to the AMET and new allocation of reimbursement.

To make new devices reimbursable by the NHI, manufacturers should provide clinical data when they submit their application to provide proof of their products' economical benefits. As a result of the outcome from the court's decision, the MHLW made public its idea that truly useful and beneficial new medical services, drugs and devices shall be granted reimbursement as quickly as possible, enabling all beneficiaries to receive such new services, drugs or devices equally and quickly with less private burden. If this idea is turned into reality sooner than later, it should be good news for the device industry--and the wider scope of AMET also would be beneficial for the industry.

Repricing Toward April 2008

The speedier process for reimbursement certainly may be good news for the industry, but other more immediate concerns remain, particularly the upcoming price revision that is due in April. As this column reported in the last issue, medical device pricing shall be reduced 0.1% in the framework of national medical expenditure. For the new assessment, the MHLW made public its basic rules for the re-pricing as follows.

In the next revision of insured medical devices/materials, an appropriate evaluation to reward innovative medical technology shall be conducted by the MHLW continuously from the viewpoint of intensive and effective allocation of financial resources, while pre-authorized devices/materials shall be reviewed by conducting corrective measures to narrow the gap as "unreasonable domestic-overseas price disparity." The authorized reimbursement prices for existing devices/materials have been strongly criticized by the media, as these are much higher than US or European market prices. From the industry's point of view, those higher prices have certain reasonable ground such as the multiple distribution system, associated services to attend surgery and so on. The MHLW admits such ground, but the question remains regarding how big or small such disparity should be. Under the current rule, if a new product is applied more than two times the foreign average market price (FAP), the reimbursement price should be forced down less than two times; however, the MHLW will change it to 1.7 times the FAP from the next price assessment. In addition, reimbursement prices for preauthorized devices/materials shall be recalculated in such a manner that the reimbursement prices of the functional categories to which they belong are assessed more than 1.5 times than FAP, and the size of reduction was less than 15% by the last two revisions, reassessment shall be made and the prices shall be revalued. But the lower limit of the price down after revision is fixed at 75/100.

The objective of these changes is to narrow the price disparity with the FAP, but the problem centers around how to assess the FAP for fair comparison. Toward the end of March, negotiations between the MHLW and the industry undoubtedly will heat up, resulting in more back and forth between the two groups. Only time will tell.

Yoshio Mitsumori is the president and CEO for Tokyo-based ADMIS, a consultant specializing in the medical device industry. He has more than 25 years of experience in the medical industry, including positions with the Itochu Corp., U.S. Surgical, National Medical Enterprises and Century Medical. A member of RAPS, he has spoken at many industry events and worked extensively in international trade of medical products and technologies. He can be reached at [e-mail].