Boston Scientific is a global leader in less invasive medicine. With 14,000 employees worldwide, 15 technology centers and direct marketing and sales operations in 40 countries, Boston Scientific has product offerings that span multiple clinical specialties:

• Electrophysiology
• Endoscopy
• Endourology
• Interventional Cardiology
• Interventional Neuroradiology
• Interventional Radiology
• Oncology
• Vascular Surgery

As a global competitor in healthcare markets, Boston Scientific Corporation (BSC) strongly supports basic principles of free trade in medical devices. Tariff and non-tariff barriers to medical device imports increase the cost of products that save lives. Many countries in the world are facing fiscal pressures in their health care industries. BSC believes that a reduction in barriers to trade – with the corresponding effects of increasing efficiencies, reducing costs, and increasing quality of care – is a key component of reducing overall health care costs.

BSC is greatly appreciative of the ongoing efforts of the House Ways and Means Subcommittee on Trade to support free trade principles, and to identify and rectify barriers to free trade.

BSC is therefore concerned to find that in an era of economic growth and deregulation, some countries are effectively increasing barriers to trade. These barriers may take the form of tariffs, but in the modern trade context, many of these barriers are of the non-tariff variety. BSC increasingly finds that regulatory mechanisms of government are used in a manner that creates unnecessary obstacles to trade.

BSC would like to take this opportunity to draw the Subcommittee’s attention to Japan as an example of a country in which we have traditionally had significant market access problems, and where a new regulatory initiative in the healthcare system may undermine the progress that has been made by our trade negotiators in recent years.

As is the case with other countries, Japan is faced with managing the growth of their public budget for health care, a sluggish economy, an aging population, and coping with increased calls for restructuring a relatively inefficient care delivery system. The Japanese government has identified pharmaceutical and medical device components of the national health budget as significant budget growth areas that must be managed more aggressively. However, unlike the pharmaceutical industry, the medical device sector in Japan does not have a strong base of political support, making it a target for cost-cutting measures out of proportion to its share of total Japanese health care expenditures. We are especially concerned that any new regulatory pricing scheme will fail to properly distinguish between the pharmaceutical and medical device markets. The medical device market differs significantly from the pharmaceutical market, making reference pricing concepts, used occasionally for pricing pharmaceuticals, especially problematic. For instance, unlike pharmaceuticals, medical devices do not enjoy long-term patent protection, have a short product cycle marked by rapid obsolescence, and frequently target a niche market.

The United States and Japan have been discussing market access for medical equipment at a significant negotiation level since 1986, through the Market-Oriented, Sector-Selective (MOSS) Discussions. More recently, the United States and Japan have engaged in discussions on similar issues through the Enhanced Initiative on Deregulation and Competition Policy (Enhanced Initiative). While these talks have been productive in some aspects, market access in Japan remains replete with obstacles. For that reason, the U.S. industry in 1999 threatened to file for action under "Section 301" to seek a reduction of these barriers. The industry withdrew its request for the investigation when the United States and Japan reached an agreement that called for Japan to make significant changes to its approval, coverage, and payment policies for medical devices.

Regulatory reviews: First, regulatory review and approval of medical devices in Japan remains a thorny issue, and we urge the U.S. government to continue to press Japan for improvement. While these negotiations have produced some tangible benefits, including steps to reduce redundant medical device reviews, BSC is concerned that some of these changes have not gone far enough, and others may create new problems as well. It still takes over two years for break-through technology (C-2) products to be eligible for reimbursement in Japan. Moreover, under the new policy, some devices that have been approved under one category subject to a four-month review may be now be subject to a one-year review period.

Second, room for improvement also exists in the product safety review and classification system. Japan should clarify definitions and criteria, offer an improved "pre-submission consultations" process and a submissions "checklist," use harmonized international standards, and conduct regular "real time" reviews with applicants, as set forth under the 1999 agreement.

Transparency: Third, transparency has proven to be another source of concern, particularly in the area of reimbursement. Japan has already promised to reduce the excessive time it takes to cover and reimburse new technologies. Under this agreement, Japan should adopt appropriate policies for "next generation" and brand-new-to-Japan products. For "next generation" products, Japan should articulate the criteria and process for establishing new product reimbursement categories and establish a "final" price by the next biannual price revision. For "brand-new-to-Japan" products, Japan should establish a process and timeframe for granting provisional coverage, reimbursement, and access to new medical technology, and final prices should be set in a reasonable timeframe.

Proposed Pricing Changes: Last, and of immediate concern, a potential change in the government’s pricing of medical devices has become a major issue in Japan’s efforts to manage health care costs. The Japanese government has identified as a key issue price differences for the same or similar products between Japanese and non-Japanese markets. The government believes that higher prices in Japan for medical devices are an important driver of overall budgetary growth. Four medical device areas have been singled out for pricing readjustment: PTA and PTCA balloon catheters; thermodilution catheters; implantable cardiac rhythm management devices; and orthopedic implants. There is increasing evidence that the Japanese government may propose to price devices sold in Japan at levels derived from prices of those devices in other countries, without regard for the economics of significant underlying differences in the healthcare sectors that lead to legitimate price differentials across countries.

BSC considers Japan’s proposal to adopt "foreign reference pricing" to be a step backward. The exact methodology to be adopted is uncertain, but BSC expects that the final system will disadvantage these and potentially other product classes. Many Japanese devices are not sold in other markets, so that "foreign reference pricing" may ultimately discriminate against imports. The proposal may indeed violate the "national treatment" principle, a cornerstone of the General Agreement on Tariffs and Trade that seeks to prevent countries from discriminating against foreign products in favor of the like domestic product.

BSC also believes that the Japanese proposal should be evaluated in light of the World Trade Organization’s Agreement on Technical Barriers to Trade (TBT Agreement), which establishes the procedures that must be followed when regulatory decisions affecting goods such as medical devices are adopted. For example, the TBT Agreement requires that technical regulations not be "more trade-restrictive than necessary to fulfill a legitimate objective" and urges members to use relevant international standards where they exist, as well as to give positive consideration to accepting as equivalent technical regulations of other WTO members.

Recent information suggests that final recommendations on pricing methods will be made during the July to August 2001 timeframe, with a formal announcement by October 2001. Final implementation is expected in 2002. BSC urges the U.S. government to weigh in to ensure that any pricing regime that is adopted does not discriminate against imports.

One of the main achievements of the MOSS trade agreement was the Japanese government’s commitment to consult with the U.S. government and the U.S. industry whenever changes to the regulatory environment were set to have a substantial impact on U.S. industry. While Japan has generally honored this commitment, its recent policy to cut prices using arbitrary means, such as reducing the number of product reimbursement categories, and by slowing approval and reimbursement of innovative U.S.-made devices, is not consistent with its consultative commitment.

Historically, Japan has made promises during trade negotiations that have not always been implemented. Aside from petitioning for a Section 301 investigation when Japan obstructs market access for American products, the only way to ensure that Japan abides by the letter and spirit of its commitments is for the U.S. government to continue to press the government to implement its obligations.

BSC urges the Members of this Subcommittee, as well as key officials in the Administration, to impress upon Japan the full measure of our commitment to see to it that market access is improved in real terms in the medical device sector. This issue is an appropriate subject for discussion in all available trade fora, including the APEC Senior Officials’ meeting at the end of this month, the APEC trade ministers’ meeting next month, and the G-8 Summit. Further, if the Quad countries get together to discuss the next WTO round, this topic should be raised again.

In short, we must make it clear to Japan that a mere nod to deregulation and transparency is insufficient: Positive changes to create genuinely open and competitive markets must be implemented.

BSC thanks the Subcommittee again for the opportunity to present its views on trade and medical technology. We would be happy to follow-up with Subcommittee Members and staff if any further information is required: please contact Randel Richner, VP Reimbursement and Outcomes Planning, 508-647-2611