BBI Contributing Writer

Since 1992, the Ministry of Health and Welfare (MHW) has been promoting the allotment of responsibilities between hospitals and clinics. The objective was to group approximately 9,000 hospitals in Japan by specialties, with the aim of managing costs by avoiding duplication of capital equipment among hospitals. In line with that policy, MHW has named 82 teaching hospitals, most of which are hospitals attached to universities, as special functioning hospitals.

While about 80% of national hospitals and about 50% of private hospitals are believed to be operating in deficits, a sense of crisis appears to be lacking among the hospitals, with the exception of private hospitals. Low reimbursement rates for medical performance compared to other industrial nations and separation of dispensing from medical practice mandated by the government are cited by providers as reasons for them operating at a deficit. Pharmaceutical companies, too, are suffering from declining profits, resulting from a series of cutbacks of the drug tariff. Insurance groups also are suffering from deficit financing because of ever-increasing costs for medication for the aged – the severity of the deficit with the insurance group gave rise to the introduction of a public nursing care insurance program in April.

Thus, all three sectors of the health care delivery system in Japan have come to a three-cornered deadlock. Under such a circumstance, raising the reimbursement rate is deemed out of the question. MHW, as a gesture of token payback for drug tariff cutbacks, has raised the medical treatment fee for the physicians by 0.2% on average, but this is facing strong opposition from insurance groups.

Hospitals capable of performing procedures requiring techniques such as PTCA or CABG are not limited to specialized hospitals but are increasing, now reaching about 400 hospitals – even exceeding 700 hospitals if hospitals that are capable of treating abdomenal aneurysms are included. More hospitals are taking on advanced medical technologies while cognizant of the difficult financial environment and the need to suppress expenses. With the aging of the population, cardiovascular medicine is thriving in the surgical departments of Japanese hospitals. With increasing general awareness of lifestyle-related diseases, dietary habits of the Japanese – once swung excessively toward westernization – now are gradually tending to reverse course to traditional Japanese dietary habits. Cardiovascular disease incidence per 100,000 population is roughly estimated as one-third of that in the U.S.

Considering the low pay of physicians working at teaching hospitals, the basis of the high-operating-costs problem in Japanese hospitals appears to lie in the area of the high cost of special treatment materials, such as artificial blood vessels and other high-tech medical products. Some are three to four times higher than those paid by U.S. hospitals. MHW is planning to introduce before year-end upper limits of prices the hospitals are allowed to pay for those high-priced products, as well as specifying reimbursement rates for them. MHW has been investigating ways to determine appropriate levels of reimbursements for special treatment materials in an effort to reduce costs to hospitals. That is the motive for MHW's support and emphasis on domestic developments, as seen in the development project for artificial blood vessels, etc.

According to the "Statistics of Production by Pharmaceutical Industry" report released by MHW, domestic shipments of artificial blood vessels in 1998 totaled about 34,000 pieces and cost about $81.4 million. Deduced from these figures, the average prices of imported artificial blood vessels is about $1,480 vs. about $540 for the domestic products; the difference clearly supports MHW's incentive for promoting domestic production. Shipments of domestic products in 1998 in dollar base were a mere 2.2%, leaving the rest, 97.8% of all shipments, to the imported products. The current market potential for artificial blood vessels is estimated as about $100 million. In terms of unit base, about 94% of all artificial blood vessels sold were imported products.

Domestic producers of artificial blood vessels are Ube Kosan and Sumitomo Electric, the latter products sold by Daiichi Pharmaceutical. Ube Kosan's artificial graft, made of Dacron coated by gelatin, requires no pre-clotting. Ube Kosan has about a 10% share in the Dacron graft market. The Dacron graft market is led, in order of market share, by Hemashield (sold by Boston Scientific), Gelseal from Vascutek (sold by Nihon Lifeline) and Intravascular (sold by Getz Brothers). After losing Hemashield in the home market, Getz Brothers has strongly promoted Intravascular products and is about to change the above ranking from its long experience in marketing artificial blood vessels. In the E-PTFE graft sector, Japan Goretex still holds approximately 60% of the market. Sumitomo Electric supplies E-PTFE grafts in sizes ranging between 4 mm and 10 mm in 1 mm increments. Thoratec (sold by Goodman; Nagoya, Japan) began marketing polyurethane grafts two years ago. The Thoratec graft, with superior hemostatic performance due to its three-layer construction, already has a 30% market share in dialysis and second in ranking. It is followed by Bard and Sumitomo Electric. For just the E-PTFE market, the industry estimates the market size to be around $20 million.

The ranking of the present contenders in the market, however, is expected to be drastically changed once Terumo completes its development of polyester grafts. With the inside wall of the graft coated with fibrin, the polyester surface gets coated by blood cells; therefore, the material no longer renders itself as a foreign matter. Since the graft is foldable into a small size, it can be inserted by using a catheter and expanded at the aorta aneurism in the same manner as the balloon catheter. Being minimally invasive, it can be even used for elderly patients. Terumo expects to complete an assortment of graft products, including dialysis shunts, as a major product line of the company in about three to four years and is vying for a world market position.

Researchers at Tokyo Women's Medical College (Tokyo) have developed an artificial blood vessel by making a scaffolding using biodegradable thread which is then seeded with epidermis cells of the blood vessel to proliferate. The resultant reproduced blood vessel, a few centimeters long, was successfully implanted in a 4-year-old girl suffering from congenital heart disease with narrow blood vessels. The blood vessel grows as the host grows, so that future surgeries will not be necessary.

Terumo started selling PTCA catheters in Japan a few years ago and has about a 20% share of the market. Its PTCA catheters comprise four kinds: a non-compliant balloon catheter that stops expanding upon reaching a certain diameter, a semi-compliant balloon catheter that continues to expand as the pressure is applied, an over-the-wire guide catheter with a guide wire that extends from proximal end all the way to the distal end, and a rapid-exchange type that begins from mid-way to the distal end. About half of them consist of a combination of rapid exchange type and semi-compliant balloon catheter, sold at $2,600 ($2,760 prior to April). The company began exporting the products to Asian countries and Europe (mainly to France and Germany). The current ratio of domestic shipments to export is about 10:1. About 100,000 PTCA procedures are performed in Japan annually, and since 1.4 catheters are used per procedure, annual consumption of PTCA catheters in Japan is estimated at about 140,000. Terumo expects PTCA catheter sales to grow at an annual rate of about 7% to 8%, while overall sales growth will be a few percent less as a result of drug tariff cutbacks every two years by MHW. Additional entrants into the PTCA market in the future are expected to be Getz Brothers and Japan Lifeline.

Stents are used in about half of all PTCA procedures. Stents are increasingly used for aneurysms in the abdomen, chest and neck – already about 200 cases of stent implantations in those sites including clinical trials are reported. Unique to requirements in Japan, indicative of the deftness of Japanese surgeons, are the bifurcated artificial blood vessels for use in treating aneurysms in the neck. Those bifurcated blood vessels often are specially ordered from U.S. manufacturers. In the area of intraluminal ultrasound devices, CVIS (products sold by Boston Scientific) leads in the Japanese market, which is hotly pursued by EndoSonics (whose products are sold by Fukuda Denshi). While Aloka entered the market a few years ago, the company's products currently are only approved for use in large arteries of the chest and abdomen. Its latest new product, SSD-560, is priced at about $160,000 for the unit and about $3,000 for the probe. The probe is reusable only when it is used in body cavities as inserted through a forceps channel in the endoscope. However, for use in arteries, the probe is only approved for single use. The approval for use in coronary arteries is expected to be granted in the distant future.

Flat or even declining death rates despite the sharp increase of the older population are attributed to the spread of advanced medical technologies. Deaths from cardiovascular diseases are significantly declining compared to cerebral diseases.

Kokura Memorial Hospital (Kitakyushu, Japan), operated by a social insurance group, performs 3,000 PTCA procedures and more than 600 heart surgeries a year. The top physician in those areas is Dr. Masakiyo Nobuyosi, who has performed about 27,000 PTCA procedures so far. In central Japan, the Toyohashi Heart Center (Toyohashi, Japan), opened about a year ago, has performed close to 1,000 cases of PTCA and about 250 cases of heart surgeries. Use of stents with PTCA by those hospitals offering advanced medical technologies is relatively low, occurring only in about 30% to 40% of them. The number of hospitals capable of performing PTCA procedures now stands at about 380. Stents are used in about half of PTCA procedures.

Hospitals challenging advanced medical technologies are capable of doing so because of forward thinking that breeds pragmatism in the operation of those institutions. Those are the hospitals that are successfully challenging day surgeries or overnight stay PTCA procedures, reduction of hospital stay, patient record tracking and record management. About half of diagnostic cardiac catheterizations performed by those hospitals are done on a same-day basis. These will be the hospitals that will be the forerunners in operating neurosurgery centers and performing cerebral surgeries.

There are about 200,000 diabetic patients under dialysis treatment, of whom about 10,000 receive peritoneal dialysis. Terumo has developed a dialysis solution of around pH7 with minimal burden to patients because of its closeness to body fluid. The company is planning to launch the product as soon as the drug price is designated. Once the product is launched, it is expected that Terumo's share in the market of approximately $360 million, will rise.

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