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Deregulation of the Medical Equipment Industry in Japan

-Expansion of Market Access-


Monterey Institute of International Studies

Tomoko Endo
Advisor: Professor Keith Bovetti  

 

April, 2000

 

This paper was researched and written to fulfill the M.A. project requirement for completing the Monterey Institute of International Studies’ Master of Arts in Commercial Diplomacy. It was not commissioned by any government or other organization. The views and analysis presented are those of the student alone. Names of people, corporations, businesses and governments are used only as examples in fictitious sample correspondence, statements, etc. in order to depict a realistic, albeit fictional, scenario.  This does not represent any knowledge of these examples, nor does it in any way represent an endorsement by an individual, corporation, business or government.

For more information about the Commercial Diplomacy program and the M.A. project requirement, please visit www.commercialdiplomacy.org.



PREFACE

    

This project was completed to fulfill the M.A. project requirement of the Monterey Institute of International Studies’ Master’s in Commercial Diplomacy program. For the purposes of the project, I assume the fictitious role of independent consultant to a ficticious industry association, the Japan Medical Equipment Association (JMEA). JMEA is a trade association that represents over 15 other medical associations that specialize in everything from medical equipment manufacturing to distribution.

The project first describes current problems in Japan’s medical equipment market—problems such as unnecessary bureaucratic procedures that slow approval of new products, complex distribution systems that add to the cost of health care, and the health insurance reimbursement system, which effectively negates cost competition for medical equipment. The project also provides economic, commercial, political and legal analyses of each of these problems.  Finally, it offers recommendations for improving access to Japan’s medical equipment market, as well as a strategy for how JMEA can implement these recommendations.

I would like to thank all my professors and friends who helped me in completing this project. I am especially grateful to Mr. Kimura, Mr. Nagao and Mr. Ishii who took time to meet with me in Japan.



ACRONYMS

          

ACCJ              American Chamber of Commerce of Japan
CPAC              Central Pharmaceutical Affairs Councils
CS Japan        Commerce Service in Japan
EBC                European Business Community of Japan
EPA                 Economic Planning Agency of Japan
FDA                U.S Food and Drug Administration
GATS             General Agreement on Trade in Services
GATT             General Agreement on Tariffs and Trade
GHTF             Global Harmonization Task Force
HIMA             Health Industry Manufacturers Association
ISO                 International Standards Organization
ITA                 International Trade Administration of the U.S. Department of Commerce
JAAME          Japan Association for the Advancement of Medical Equipment
JETRO           Japan External Trade Organization
JMEA             Japan Medical Equipment Association
JIS                  Japanese Industrial Standards
JMA               Japan Medical Association
MHW             Ministry of Heath and Welfare of Japan
MITI              Ministry of International Trade and Industry of Japan
MOSS            Market-Oriented Sector-Selective
PMDEC         Pharmaceutical and Medical Devices Evaluation Center
PMDSB         Pharmaceutical and Medical Devices Safety Bureau
USTR             Office of the United States Trade Representative
WTO              World Trade Organization


EXECUTIVE SUMMARY
               

It is extremely difficult to introduce new, cost-effective medical equipment products into the Japanese market. There are four main reasons for this difficulty:

1)      Japan’s Pharmaceutical Affairs Law is redundant and cumbersome and makes timely approval of new medical equipment impossible. Currently, Japan’s approval process is longer than that of any other major developed country. This is particularly troublesome in an era when technology changes rapidly and, therefore, product life-cycles are increasingly short.

2)      Complex distribution channels impede newcomers entry to the market and raise the price of medical equipment by 15-25 percent.  By simplifying the distribution system, the industry could lower prices and potentially increase its annual sales by over US$ 849 million—more than five percent.

3)      The Ministry of Health and Welfare’s (MHW’s) reimbursement system negates price competition so there is no incentive for hospitals to purchase more cost-effective products.

4)      MHW has been too cautious in approving new products, especially high-risk products. Its reluctance to approve products that are already in use in other countries causes a significant opportunity loss for the medical industry, as well as patients who could benefit from the new equipment.

 

Solving these problems is important not only for the medical equipment industry, but also for the Japanese government. Reducing the cost of health care will be crucial to the government’s efforts to reduce its budget deficit and pull Japan out of its prolonged recession. Reducing costs is all the more important because Japan’s population is aging and, accordingly, demanding more and better health care.

International forces are also putting pressure on the government to deregulate the medical sector. Foreign medical equipment suppliers are lured to Japan because its medical equipment market is the second largest in the world, but they face the same non-trade barriers to market access that Japanese companies do. Since 1986, Japan and the United States have conducted bilateral negotiations regarding deregulation of Japan’s medical system. Although some progress was made in the so called “MOSS talks,” the United States is still asking for further deregulation; it surely will raise this issue at the G-8 summit this July (a meeting at which Japan is eager to succeed as host country).

It is time for Japan to start taking action to reduce obstacles to increased business in the medical equipment market. The Japan Medical Equipment Association (JMEA) can and should help jump-start this process by putting pressure on the government to act quickly. On behalf of its member companies, JMEA should take the following actions.
  

Long-run actions:

Ø      Launch a reform of the distribution channel system.

Ø      Support reform of the reimbursement system.

Ø      Persuade MHW to change its policies regarding approval of new medical equipment.

 

Short-run actions:

Ø      Ask MHW to change the Pharmaceutical Affairs Law in order to:   

  • shorten the time required to gain MHW safety approval for new products from one year to six months;     

  • stop redundant examination of “me-too products conducted by both JAAME and PMDEC; and     

  • increase the number of items that do not require MHW approval before being put on the market.

Ø      Ask MHW to increase the number of JAAME and PMDEC personnel who review new and “me-too” product applications.

 

JMEA’s short run domestic strategy should include research on the impact of current regulations on JMEA member companies. It should also include coalition building, legislative and media strategies. In order to gain support of foreign companies, JMEA can work with the Japanese subsidiaries of foreign companies in order to avoid undertaking a comprehensive and costly strategy abroad.

The long-run strategy is very similar to the short-run strategy. However the long-run strategy includes a public awareness campaign designed to support reform of the entire health care system. The long-run strategy also calls for efforts to persuade medical equipment distributors, most of which are JMEA members, to embrace reform of the distribution system. 

Cooperation with MITI will be important to achieving the latter objective. JMEA should also use its relationship with MITI to explore measures for boosting the international competitiveness of the Japanese medical industry, which will likely lose business when, after deregulation, it is exposed to increased international competition.

 


TABLE OF CONTENTS
     

Preamble
Acronyms
Executive Summary

 

I.          INTRODUCTION

 

II.                BACKGROUND
                1.       Overview of the Japanese Market for Medical Equipment
                2.       Market Profile
                3.       Legislation
                       
(1)    Approval and Licensing
           
§         Regulations on manufacture and imports
           
§         Medical equipment requiring no approval
                                (2)    Application of Medical Insurance
            4.       Bilateral Negotiations between Japan and the US
            5.       The International Trend over Medical Equipment
                                (1)    The US and Other Developed Countries’ Regulatory System
                        (2)    The movement of International Harmonization

 

III.             ECONOMIC ANALYSIS
               1.       The Sluggish Recession      
            2.       Increase of the Health Care Expenditure
            3.    The Status of the Medical Equipment Industry in the Japanese Economy
            4.       Estimation of Market and Labor

 

IV.              COMMERCIAL ANALYSIS
                1.       Unnecessary Bureaucratic Procedures to Approve New Equipment
                 2.       Business Practices

 

V.                 POLICY ANALYSIS
 
              1.       MHW’s Policy
            2.       Medical Equipment Reimbursement
            3.       Hospital System
            4.       Weak Relationship with MITI
            5.       MITI’s Millennium Project

 

VI.              LEGAL ANALYSIS
            1.       International Harmonization: the Global Harmonization Task Force (GHTF)

 

VII.           POLITICAL ANALYSIS
             
               
1.       Two Governmental Concerns
                                    (1)    Recover from Sluggish Recession
                                    (2)    Preparation for the Upcoming Aging Society
            2.      Election of the House Representatives
            3.       The Success of the G-8 Summit

 
VIII.       
INSTITUTIONAL ANALYSIS

  
         1.       MHW and MITI
                              (1)    MHW
  
         §         The Council on Health Insurance
                               (2)    MITI
                2.       The Advisory Council on Social Security
             3.       JMEA’s Position
             4.       Business Associations in Japan
             5.       The International Institutions

 

IX.              RECOMMENDATIONS
  
     1.       Long-run Goal
               2.       Short-run Goal

 

X.                 SHORT-RUN STRATEGY
  
    1.       Domestic Strategy
                        (1)    Research
                        (2)    Coalition Building Strategy
                        (3)    Legislative Strategy
                        (4)    Media Strategy
  
     2.       International Strategy

XI.              LONG-RUN STRATEGY
        1.       Domestic Strategy
                       (1)   Research
                       (2)    Coalition Building Strategy
                       (3)    Neutralize Opposition
                       (4)    Media Strategy
  
        §         Opposite editorial page / and opinion paper to magazines
                                  
§         TV special program
       
   §         Posters and pamphlets

              2.       International Strategy

 

XII.           CONCLUSION

Appendices
Exhibits
References

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