Comparison of medical device reimbursement policy between Korea and Japan, and future challenges for sustainable innovation, presented at the 4th AMCHAM Health Care Innovation Seminar, which is held in Seoul, Korea, on June 28, 2013. Speaker: Bae, Sung Yoon (Professor, Inje University)

1. Korea and Japan’s New Government Growth Strategy in the Medical Device Industry
- Creating National Competitiveness and Sustainable Healthcare through Innovation
Comparison of Medical Device Reimbursement
Policy between Korea and Japan, and
Future Challenges for Sustainable Innovation
June 28, 2013
Bae, Sung Yoon
PhD, MPH, MBA
Assistant Professor of Healthcare Management

2.  Medical Device Reimbursement Policy in Korea
 Medical Device Reimbursement Policy in Japan
 Comparison of Korea and Japan
 Future Challenges for Sustainable Innovation

3. Medical Device Reimbursement
Policy in Korea

4. Inform the review result
Working with
NECA1) (Korea)
for HTA Process
Reimbursement
application
Notify
Claim
Premium
Payment
(Ceiling Price2))
Out-of-pocket
payment
Payment
(Actual Transaction Price)
Medical Device
Company
Medical service
Product/service
Provider
Monetary flow
Info/Service flow
1)
2)
Patient
National Evidence-based Healthcare Collaborating Agency
Reimbursed at Actual Transaction Price (ATP) under published ceiling price.

5. Category
Payment
Example
NHI-Covered
• Co-payment
•80% from Insurance and
20%(or 10%) patient’s out of
pocket payment
Implants, sutures, staplers,
catheters, stents, etc.
(Hip & Knee replacement devices,
Spine fixation devices, etc.)
NHI-Non-Covered
• Listed, but prices are not
controlled
• 100% paid by patients
Cosmetic and not essential lifesustaining products; Not costeffective items
Bundled with
Procedure Fee
• Included in procedure fee
• Cannot charge to patient
Instruments, syringes, etc
(Usually reusable)
Separate
Payment
No
Separate
Payment

6.  18,043 medical products are listed as of 2012
• 15,927 items covered (88.3%), 1,731 not-covered (9.6%), 385 included in
procedure fee (2.1%)
 About 1,000 products are added to the list every year
 35% of listed products are those without NHI claims history over the past two
consecutive years
Year
Total Benefit Payment
Medical Product Payment
% of Medical
Product
Amount
% Growth vs.
Amount
% Growth vs.
(Billion KRW)
Previous Year
(Billion KRW)
Previous Year
2006
28,558
15.2
1,218
45.8
4.27
2007
32,259
13.0
1,350
10.8
4.18
2008
35,036
8.6
1,523
12.8
4.34
2009
39,430
12.5
1,690
11.0
4.29
2010
43,657
10.7
1,972
16.7
4.52
2011
46,076
5.5
2,045
3.7
4.44
Source: HIRA, 2012

7. By KFDA
Medical Device Regulatory Approval
- Official lead time : 6~12 months
Fast-Track Review Option
Standard Lead Time : within 150 days
By Company
Reimbursement Request Submission
- Within 30 days after KFDA approval
Near-Parallel Review
by KFDA and HIRA
(for limited items only)
Documents Review
Under
HIRA
2~3 months
- Consult to experts & make preliminary decision
Medical Device Expert Committee
- Deliberation of reimbursement type & price
(every month)
Health Insurance Policy
Deliberation Committee
Under
MOHW
1~2 months
- Final deliberation (every month)
Announcement by MOHW
- Listing the items on the reimbursement schedule
Independent Review
- HIRA decision released upon the
completion of HIRA review
process (within 15 days).
- Application made within 30 days
after HIRA notice.
- Independent review completed
within 100 days, reported to
HIRA within 7 days upon the
completion of review.

8.  Applied to …
Similar products as
existing items on the
reimbursement list upon
company request.
 Impact:
Shortening 2~3months
of HIRA staff review time
 Limitation:
Not applicable for New
& Innovative products
which usually take more
than official lead time
Reimbursement
Review by HIRA Staff
Regulatory Review by
KFDA Official
Regulatory Approval
Submission of Regulatory Clearance
Certificate by company
Medical Device Expert Committee
-Deliberation of reimbursement price and type
Health Insurance Policy Deliberation Committee
-Final deliberation
Announcement by Minister of MOHW
-Listing the items on the reimbursement schedule
Lead Time : within 70 days
 Effective date:
June 15, 2009
Companies request Regulatory & Reimbursement process
at the same time (Near-parallel review process)

9. Same or Similar in
function, cost, or effect
Innovative
technology &
New indication
Value Appraisal 1
100% of the highest-priced
product within the category
Value Appraisal 2
Higher price than existing
similar product possible
(Up to 10-50% premium)
Deteriorated in
function, cost, or effect
New
Medical
Products
Moderately Improved in
either (1) function, cost or effect,
or
(2) material, shape, or structure
Substantially Improved in
function, cost or effect only
Same intended
use as existing
materials
90% or the lowest price
within the category
Less than 90% or below the
lowest price
within the category
Unstructured Process
• Hard to predict the expected
reimbursement price
• Historically based on the cost
plus method
(2) Improvements in material, shape or structure are also considered.
Other Pricing & Reimbursement Policy
•10% automatic price cut of existing products listed over 3 years when new product listed at 100% price (twice a year)
• Introduction of triennial re-evaluation on listed products in 2010, resulting in price cut after ATP investigation
• Implementation of HTA Process for new health technology, effective from July 25, 2008 (HIRA & NECA)

10. 1. Evaluation Criteria
Evaluation
Category
Procedural Aspect
Functional Aspect
Cost
Aspect
Patient
Aspect
Other
Considering Factors
1
None
Degree of Improvement
2
3
4
Minor
Moderate Significant
5
Full
Minimal invasion
Ease of procedure (deliverability)
Reduced time of procedure
Increased precision of procedure
Improved functionality (adhesion)
Biocompatibility
Cost reduction compared to
alternative treatment options
Increased product life (durability)
Reduction of pain and discomfort
Patient safety
 Mark the corresponding cell based on the degree of improvement which specific product
under evaluation has achieved.
2. Scoring and Decision on the Product Improvement
 Determined as “Improved” are products that obtained “moderate or higher (significant
or full-fledged) degree” of improvement in more than one category.

11. 1. Evaluation Criteria
Evaluation
Category
Considering Factors
1
None
Degree of Improvement
2
3
4
Minor
Moderate Significant
 Improved clinical performance
• Reduction in complication, infection and
Clinical
adverse events
Efficacy
• Reduction in disease recurrence and
need for additional operations
 Increased product life (durability)
 Reduced consumption of medications and
Cost
other therapeutics
Effectiveness  Reduction in length of hospital stay and
duration of treatment
 Reduced duration of operation
 Reduction of patient pain and discomfort
Quality of Life  Improved patient benefits
Improvement  Improved patient independence in doing
activities of daily life (ADL)
 Fill the corresponding score in each relevant cell based on the degree of improvement
which specific product under evaluation has achieved.
5
Full

12. 2. Scoring Method
Evaluation Category (Weights)
Clinical Efficacy (25)
Cost Effectiveness (15)
Quality of Life Improvement (10)
Score Assignment based on the degree of improvement
1
2
3
4
None
Minor
Moderate
Significant
0
6.25
12.50
18.75
0
3.75
7.50
11.25
0
2.50
5.00
7.50
5
Full
25
15
10
3. Decision on the Reimbursement Level
 Multiplying factors to calculate additional premium for improved medical products are
determined by the sum of individual scores as evaluated in each category.
 Multiplying factors are price percentages added to the reference price (the highest price
currently available in each category).
Multiplying Factors by Sum of Score Group
Sum of Individual Scores
10 – below 20
20 – below 30
30 – below 40
40 – below 50
50
Multiplying Factor (%)
10
20
30
40
50

13. Medical Device Reimbursement
Policy in Japan

14. Employers/Companies
Local Government
Monthly Fee
Shared
Payment
Employee/Workers
Self-employed
Monthly Fee
Patients
Health
Insurance
Unions
(Payers)
Patient
Co-Payment
0% to 30%
Provide
Medical
Service
Healthcare
Fun
ding
Payment
Central
Government
Hospitals/
Clinics
Reimbursement
(Tech fee, Drug, Device, etc)
$100B
Pharmaceutical &
Medical Device
Companies
*Numbers are rough estimates
Device/
Drug
$110B
Payment
$390B
Government is filling
the deficit of Insurance
Unions
Payment
Device/Drug
Dealers

15.  Overall Reimbursement Category
•
•
•
•
•
Hospital Fee (Hospitalization, First visit fee, etc.)
Technical Fee (Diagnostics, Treatment, Procedures, etc.)
Pharmaceuticals (New drugs, Generics)
Medical Materials (Specially Treated Medical Materials)
Dental Materials

16. Category
Joints, Stents, Coils, etc.
(High priced, single use device)
Separate Reimbursement for device by
Functional Category
Price List of
Functional Categories
Device price is
included in the
technical fee
Specially Treated Medical
Materials (STM)
Price
Price List of
Technical Fee
Low Priced Devices
Re-usable Devices
Threads, Needles, Sutures, etc
Medical Equipments
CT, MRI, Generator, etc
(Re-usable)

17. A1 : General Inclusive
Equipment,
Low priced
MD,
Reusable
MD
Devices included in the general procedures
→ No specific pricing for devices (Thread, Needle, etc.)
A2 : Specific Inclusive
Devicse included in the specific procedures
→ No specific pricing for devicse (Ultrasoundgraph, Endoscope, etc)
B : Specific Pricing per Functional Category (STM)
Devices are reimbursed separately
→ Specific reimbursement price is defined for each functional category
STM
C1 : Creation of New Functional Category
Devices are reimbursed separately, and the creation of new functional
category is needed. (Joint with new surface coating, etc.)
C2 : Creation of New Functional Category & New Technical Fee
Device are reimbursed separately, and the creation of new functional
category and new technical fee is needed. (Capsule Endoscopy, etc.)
(C2 products are subject to HTA)
* In some occasions, C2 is used for specific medical equipment application (i.e. DaVinci)

18. Reimbursement
Application
A2
B
Category
not exists
Regulatory Approval
A1
Category
exists
Existing
Tech
Fee
General
Inclusive
Specific
Inclusive
CEC
Reusable
Low
priced
C1
There are always
some exceptions
in the process !
STM
Need to
create
new
Tech
Fee
CEC
Reusable
Low
Priced
STM
Physician
oriented
Device
oriented
Create new
Tech Fee
Create new
category
A2
C2
Create new
tech fee
C2
Create
new
category
Create new
tech fee

19. Company
⑥Report
①Application/Hearing
⑦Objection
Iseikyoku-keizaika
Chuikyo
(Economic Affairs division)
Pricing
committee
②Report
⑤Report
③Original plan
MHLW
Hokenkyoku-iryouka
⑧Report
(Medical Economic Division)
④Draft
Assembly
④Acknowledgment
Within 60 days as a rule,
or 90 days at the longest
⑩Official gazette
Hearing
Academia

20. Japan
Korea
Reimbursement
Scheme
Fixed Fee for each functional category
with Cap of 1.5x of Foreign average
price
Actual Transaction Price with Ceiling set
for each functional category
Functional Review
Body
Chuikyo
(12 full-time MDs per Specialty & 50
non-residential reviewers)
NHI Expert Review Committee
(Sampling without replacement from a
pool of 300 external experts)
Hospitals’ Incentive
to Purchase at
Lower Price
Yes
(Margins Officially Allowed)
No
(ATP Should be Claimed)
Foreign Price
Reference
Yes (US, UK, France, Germany, &
Australia included in Apr.2012)
Not Yet
Time to NHI
Coverage Decision
Varied (In 2009, 8~21 months
Within 150 days (Official Lead Time)
depending on the degree of innovation)
Value Premium
10-50% for Improved STMs
Additional 5% for Innovative STMs
(Two-year Conditional)
10-50% depending on the item’s value
added
Price Revision
Measures
•Biennial Price Revision to reflect actual
market price
•Sales Volume-adjusted Price Cut
•Foreign Average Price Cut
•Triennial Value Reappraisal
•Irregular Investigation of Mftg Cost or
Import Price
•Foreign Exchange Rate-based Revision
•Automatic Price Cut for old items

21.  Different principle should be employed for medical
device regulations and its value appraisal
• Devices are different from drugs in many ways
 Limited or delayed access to innovative medical
devices
• Heavy workload of HIRA officials & MMBC for product
review  Introduction of Independent review process
 More staffing for product review in HIRA
 “Parallel independent review” option for fast market launch
• Rigid decision for NHI coverage
 Conditional coverage for better monitoring & fast market launch
(Examples in other countries)
Coverage with Evidence Development (USA), 5-year conditional LPPR
coverage with post-listing study requirement (France), NUB application for
individual hospital (Germany)

22.  Arbitrary and/or biased appraisal of product value
• Due to inadequate review staffing & inappropriate
composition of MMBC members
 More staffing & improved composition of MMBC member
• Lack of objective & systematic appraisal formula
 More specific, measurable & predictable checklist
in value appraisal formula
 Conditional coverage for innovative products
• Reasonable decision process required for timely coverage
and adequate pricing for innovative product, especially
under the bundled payment
 Partial payment or Balance billing (Taiwan) to allow timely
coverage and ensure patient’s right to choose innovative products

23. THANK YOU
Bae, Sung Yoon
| PhD, MPH, MBA
Assistant Professor of Healthcare Management, Inje University
baesungyoon@gmail.com