appendices1

Appendix 7. Distribution Practices in the Japanese Medical Industry

The Japanese medical industry’s distribution system often works on a consignment basis.[1] Under this system, distributors supply products to hospitals and then collect payment only for the products that the hospitals actually use. Distributors collect products that are not used. This system benefits hospitals by making it easier to purchase new products without risking the cost of unused inventories. Distributors, however, assume all the risk and have to dispose of obsolete products they collected from hospitals.[2]

Additionally, technical services are often tied to equipment sales in Japan. At a doctor’s request, manufacturers and distributors will make emergency deliveries of equipment and technical assistance. Manufacturers, for example, send technical staff to hospitals during implant surgeries to answer doctors’ questions and to fix malfunctioning products.[3]

Level of Technical Support Services Received form Dealers

	Pacemaker	PTCA catheter	Oxygenetor	Intraocular lens	Indwelling cannulas with needle for hemodialysis
Support for operation	83.1%	53.7%	57.3%	11.8%	-
Round-the-clock backup	58.9%	48.4%	53.1%	11.9%	15.9%
Support for postoperative periodic examination	52.4%	-	-	-	-
Borrowing measuring instrument free of charge	36.3%	9.6%	4.5%	6.7%	5.5%

(Source: "Research Report on the Price Differences of Medical Equipment," Institute for Health Economics and Policy, 1997)

These services help develop strong relationships between hospitals and distributors. On the other hand, these distribution practices make new market entry difficult because newcomers have to start by building good relationships with hospitals, doctors, and distributors.

Appendix 8. Case Study: The Implantable Cardioverter Defibrillator (ICD)

Product Description: ICDs are used to treat patients with ventricular arrhythmias who are at risk of sudden cardiac death. The latest ICD is the size of a small pager and can be implanted pectorally, similarly to a pacemaker. It monitors the heart and, when a very rapid heart rhythm is detected, sends either a series of electrical impulses or an electrical shock to return the heart to normal rhythm.
Proven Clinical Value: On April 14, 1997, the National Institutes of Health prematurely terminated a clinical study of more than 1,000 patients because the risk of death among those receiving implantable defibrillators was nearly 38 percent less than those receiving drugs in the first year of their therapies. The study was terminated because it was considered unethical to continue to randomize patients to the drug regimen.

Proven Cost-Effectiveness: ICDs have been shown to be superior to drug therapy in terms of both clinical and cost effectiveness. A recent European study shows that costs associated with treatment of patients on ICDs are about 70 percent less per patient per day than costs associated with drug therapy only. When quality-of-life aspects were taken into account, cost-effectiveness of early ICD implantation was even more favorable. Recurrent cardiac arrest and cardiac transplantation occurred in the group treated with drugs, whereas better exercise tolerance, shorter total hospital stays, and fewer invasive procedures were all significantly in favor of early ICD implantation.

Japan’s Delays in Patient Access to the Latest, Most Effective Technology: While patients in other countries have had access to ICD therapy for up to ten years, the therapy was only recently made available to patients in Japan. Delays due to additional, costly clinical data requirements and the insurance system’s hesitancy to reimburse for the technology—even after the product had received import approval by the Ministry of Health and Welfare—prevented Japanese patients from gaining access to the technology until April 1996. Moreover, because of the hurdles and resulting delays that new technologies face in Japan, the device approved in 1996 is generations behind the device currently being implanted in other countries. The impact of these delays on the quality and cost of care is dramatic. Patients in Japan still receive devices so large that they have to be implanted in the abdomen, although smaller, pectoral devices are available but have not yet been approved in Japan. Not only are the newer devices smaller, they last almost twice as long, which means fewer replacement procedures are necessary. Improvements in diagnostic capabilities of the device enable physicians to get a more complete picture of the underlying heart disease for better patient management.

(Source: Health Industry Manufacturers Association, Washington D.C., 1997) http://wwwhimanet.com/publicdocs/icd.htm

Appendix 9. Examples of Cost Efficient Technologies as Cited in the Bain Study

PTCA balloon catheters and coronary stent procedures. PTCA techniques are 70 percent less expensive to perform than the coronary bypass surgery procedures they replace. Used in conjunction with coronary stents, PTCA procedures dramatically reduce the need for future expensive interventions.
Potential Savings to Japan’s Health Care System: 200 billion yen/year

Laparoscopic (minimally invasive) equipment, if used for gall bladder removal, is 40 percent less expensive than celiotomy, the traditional method, and reduces hospital stay from one month to one week.
Potential Savings to Japan’s Health Care System: 33 billion yen/year

Microbiology testing equipment could reduce the unnecessary administration of pharmaceuticals by 20 to 30 percent by enabling speedier—and more accurate—identification of patient illness. Such testing helps to prevent tentative and often improper judgments concerning initial treatment.
Potential Savings to Japan’s Health Care System: 50 billion yen/year

Esophageal stents. Patients suffering from cancer of the esophagus who have difficulty swallowing must be hospitalized for approximately three to five weeks when bypass operations are performed and the esophagus is removed. In contrast, patients can be discharged from the hospital in approximately one week when esophageal stents are inserted and the esophagus is conserved.
Potential Savings to Japan’s Health Care System: 900 million yen/year

Blood sugar self-testing equipment. As diabetics learn to properly manage their own blood sugar levels using self-testing equipment, the occurrence of complications declines. Proper blood sugar management has been shown to reduce the risk of complications, such as renal failure, that might require dialysis treatment.
Potential Savings to Japan’s Health Care System: 10 million yen/patient life cycle

ICD (Implantable Cardioverter Defibrillator). ICDs are being used to replace traditional drug therapy for tachyarrhythmia, or racing of the heart, which can cause sudden cardiac death. Moreover, ICD therapy liberates patients on drug therapy from endless hospital stays during which drug therapy is monitored and external defibrillators are used. A European study reveals that ICD therapy is 70 percent less expensive per patient per day than therapy using antiarrhythmic drugs. A recent U.S. study showed there were 38 percent fewer deaths after the first year of treatment of ICD therapy as compared to drug therapy.
Potential Savings to Japan’s Health Care System: 5.3 million yen/patient life cycle

Pacemakers. New pacemaker batteries last significantly longer than previous batteries, reducing the need for costly repeat surgeries. Battery life has expanded from two to seven years.
Potential Savings to Japan’s Health Care System: 30 billion yen/year

(Source: Health Industry Manufacturers Association, Washington D.C., 1999) http://www.himanet.com/publicdocs/bainexamples.html

Appendix 10. Ministry of Health and Welfare—Organizational Chart

Appendix 11. Ministry of International Trade and Industry—Organization Chart