Japan has one of the largest medical devices markets in the world (after the US). The total value is approximately $40b (with an expected CAGR of 4-5%) of which 60% are imported products. The drivers are an aging population (it’s population is one of the oldest in the world. Close to 30% is 65 years or older with a median age of almost 50 years, compared to e.g. India where this number is just below 30) and the increasing number of patients with chronic and life-style diseases. As a result, the market is expected to show further growth.
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Medical devices segments
The Japanese healthcare infrastructure is very advanced and given the demographic challenges and lack of resources there is a strong focus on medical devices related to chronic diseases, aging-related health issues, and long-term care. Next to that, there are good opportunities for digital/AI and remote monitoring solutions that further increase the efficiency and reduce the costs of the healthcare system. The pandemic boosted (temporarily) demand for diagnostic devices, ventilators, and personal protective equipment (PPE).
The key market segments are diagnostic equipment (e.g. imaging systems, IVD and monitoring devices), orthopedic devices (especially given the elderly population), cardiovascular (there is a strong focus on managing heart diseases and hypertension which results in a demand for cardiovascular devices like pacemakers, stents, and heart valves) and surgical instruments (driven by an increase in minimally invasive surgeries).
Local production is well advanced producing cutting-edge technological products, such as robotic surgery systems, wearables for monitoring health, and AI-driven diagnostic tools. This technological edge has helped Japan maintain its leadership in the medical devices sector. Despite the strong local manufacturing capacity, Japan still relies heavily on foreign-made advanced technology, particularly in diagnostic imaging, therapeutics, and other specialized equipment. Companies focusing on AI, robotics, and remote healthcare technologies are likely to find significant opportunities in Japan's advanced market.
Reimbursement of medical devices
Japan has a universal healthcare system that seeks to control medical costs, which can put pressure on device prices. One of the challenges for medical device manufacturers is the government efforts to lower reimbursement pricing in an attempt to manage the increase in overall healthcare costs as a result of the aging population in combination with a low birth rate. The government is keen to cut healthcare spending and has implemented a so called Foreign Average Price (“FAP”) Rule (which is the average list price of specific medical devices in the US, the UK, France, Germany, and Australia) with the aim to effectively reduce medical device reimbursement prices.
Health insurance system
The health plans are categorized based on the individual's employment status, age, and place of residence. Almost the whole population has statutory insurance, whereby more than half is part of so-called employer based plans. The other part is member of so-called residence based insurance plans of which the majority are elderly and the remaining group has a citizens health insurance plan. Through its universal health insurance coverage system, Japan has achieved highest levels of life expectancy and healthcare standards.
Japanese individuals have full healthcare coverage from the government, leading them to use only reimbursed devices. The MHLW (Ministry of Health, Labor and Welfare of Japan) emphasizes that device reimbursement in Japan should be lower than in e.g. the US, indicating a trend towards more affordable pricing. The reimbursement procedure for manufacturers in case of a new medical devices is different for capital equipment compared to non-capital equipment. A reimbursement request dossier (in Japanese: HokenTekiyo Kibosho) has to be submitted to the MHLW.
Regulatory system
While Japan offers significant opportunities, navigating its regulatory and reimbursement systems can be complex for foreign companies.
The Japan Pharmaceuticals and Medical Devices Agency (PMDA) regulates the approval and market entry of medical devices. Japan has a stringent regulatory framework, but the PMDA is working to streamline approval processes, especially for innovative products. In recent years, Japan has also made efforts to expedite approval for devices with "breakthrough" status, especially those addressing significant unmet medical needs.
Classification and regulatory requirements
The process of regulatory approval varies according to the medical device class. Classification is according to the PMD Act and based on the risk associated with the device and the level of control necessary to ensure its safety and effectiveness. The classification is divided into four classes, each with different regulatory requirements for approval and market entry, whereby class 1 has the lowest risk and class 4 the highest.
For a class 1 device, the manufacturer needs to submit a notification of manufacture and be registered with the MHLW. In some cases, a self-declaration of conformity is required. Class 2 requires a demonstration of compliance with Japanese standards. For class 3 devices, the manufacturer must submit a Marketing Authorization Application (MAA) that includes clinical trial data, technical documentation, and evidence of the device's compliance with applicable standards. The PMDA may also require a domestic clinical trial for certain devices, depending on their novelty or complexity. For class 4 devices, the manufacturer must submit in-depth clinical trial data and the results of extensive risk assessments. The review process by the PMDA is detailed and can be time-consuming for class 4 devices.
Market Authorization Holder (MAH)
Non-Japanese manufacturers need to get certified as approved Non-Japanese Manufacturers followed by appointing a Marketing Authorization Holder (MAH) to sell products in Japan. For a Designated Marketing Authorization Holder (DMAH), the application is managed on behalf of the foreign manufacturer, and approval is directly granted to the foreign manufacturer. This process, known as foreign exceptional approval, allows the manufacturer to own the application approval without the need for a local marketing authorization holder.
The MAH has the responsibility for obtaining and maintaining the approval for a medical device or pharmaceutical product in the Japanese market. The MAH must ensure compliance to Japanese regulations, maintaining product safety, conducting post-market surveillance, and handling regulatory matters throughout the lifecycle of the device.
In summary, the Japanese medical device market presents considerable growth potential, driven by its aging population, advanced healthcare system, and innovation in medical technologies. However, foreign companies must navigate regulatory complexities and reimbursement challenges to succeed.
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