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The Japanese Health Care System

by Ryozo Matsuda, College of Social Sciences, Ritsumeikan University, Kyoto

What is the role of government?

Government regulates nearly all aspects of the universal public health insurance system (PHIS). The national and local governments are required by law to ensure a system that efficiently provides good-quality and well-suited medical care to the nation. National government sets the fee schedule and gives subsidies to local governments, insurers, and providers. It also establishes and enforces detailed regulations for insurers and providers. Japan’s 47 prefectures (regions) implement those regulations and develop regional health care delivery with funds allocated by the national government. More than 1,700 municipalities operate components of the PHIS and long-term care insurance and organize health promotion activities for their residents (Tatara and Okamoto, 2009).

Who is covered and how is insurance financed?

Publicly financed health insurance: The PHIS, comprising more than 3,400 insurers, provides universal primary coverage (National Institute of Population and Social Security Research, 2014). In 2013, estimated total health expenditure amounted to approximately 10 percent of GDP, 83 percent of which was publicly financed, mainly through the PHIS (OECD, 2015). Within the PHIS, premiums, tax-financed subsidies, and user charges accounted for about 49 percent, 38 percent, and 12 percent of the sum of health expenditures, respectively (MHLW, 2014b).

Citizens are mandated to enroll in one of the PHIS plans based on employment status and/or place of residence, as are resident noncitizens; undocumented immigrants and visitors are not covered. Insurance premiums and the basis upon which they are charged vary between types of insurance funds and municipalities. Government employees are covered by their own insurers (known as Mutual Aid Societies), as are some groups of professionals (e.g., doctors in private practice). Those who fail to keep up their enrollment must pay up to two years’ worth of premiums when they reenter the system. Means-tested public assistance covers health care for its recipients. Citizens and resident noncitizens enrolled in the PHIS age 40 and over are mandatorily enrolled in long-term care insurance.

Private health insurance: Private insurance plays only a minor supplementary or complementary role. It developed historically as a supplement to life insurance and provides additional income in case of sickness, mainly in the form of lump-sum payments when insured persons are hospitalized or diagnosed with cancer or another specified chronic disease, or through payment of daily amounts during hospitalization over a defined period. Since the early 2000s, the number of standalone medical insurance policies has increased (Japan Institute of Life Insurance, 2013; Life Insurance Association of Japan, 2014).

Part of an individual’s life insurance premium (up to JPY40,000, or USD380) can be deducted from taxable income. Small discounts can be applied to those employees whose employers have collective contracts with insurance companies. Both for-profit and nonprofit organizations operate private health insurance.

The provision of privately funded health care has been limited to services such as dental orthodontics, expensive artificial teeth, and treatment of traffic accident injuries (although treatment of these injuries is usually paid for by compulsory or voluntary automobile insurance.)

What is covered?

Services: All PHIS plans provide the same benefits package, which is determined by the national government, usually following a decision by the Central Social Insurance Medical Council, a governmental body. The package covers hospital, primary, and specialist ambulatory and mental health care, approved prescription drugs, home care services by medical institutions, hospice care, physiotherapy, and most dental care. It does not cover corrective lenses unless recommended by physicians for children under age 9, or optometry services provided by nonphysicians. Home care services by nonmedical institutions are covered by long-term care insurance. Preventive measures, including screening, health education, and counseling, are covered by health insurance plans, while cancer screenings are delivered by municipalities.

Cost-sharing and out-of-pocket spending: All enrollees have to pay a 30 percent coinsurance rate for services and goods received, except for children under age 3 (20%), adults between 70 and 74 with lower incomes (20%), and those 75 and over with lower incomes (10%). There are no deductibles. Annual expenditures on health services and goods, including copayments and payments for balance billing and over-the-counter drugs, between JPY100,000 (USD 950) and JPY2 million (USD19,000) can be deducted from taxable income. (All figures in USD were converted from JPY at a rate of about JPY105 per USD, the purchasing power parity conversion rate for GDP in 2014 reported by OECD, 2015b.) In 2012, out-of-pocket payments for cost-sharing accounted for 14 percent of total health expenditures (OECD, 2015). Some employer-based health insurance plans offer reduced cost-sharing. Providers are prohibited from charging extra fees except for some services specified by the Ministry of Health, Labor and Welfare, including amenity beds, experimental treatments, the outpatient services of large multispecialty hospitals, after-hours services, and hospitalizations of 180 days or more.

Safety net: Catastrophic coverage stipulates a monthly out-of-pocket threshold, which varies according to enrollee age and income—for example, JPY80,100 (USD761) for people under age 70 with an average income; above this threshold, 1 percent coinsurance applies. There is a ceiling for low-income people, who do not pay more than JPY35,400 (USD336) a month. Subsidies (mostly restricted to low-income households) reduce the burden of cost-sharing for people with disabilities, mental illness, and specified chronic conditions. There is an annual household health and long-term care out-of-pocket payments ceiling, which varies between JPY340,000 (USD3,230) and JPY1.26 million (USD11,970) per enrollee according to income and age, above which such payments can be reimbursed. Enrollees with employer-based insurance who are on parental leave are exempt from payment of premiums. Enrollees in Citizens Health Insurance (for the unemployed, self-employed, and retired, and those others under 75) with low income and those with moderate income who face sharp, unexpected income reductions are eligible for reduced premium payments. Reduced coinsurance rates apply to patients with 306 designated long-term diseases, varying by income, when using designated health care providers.

How is the delivery system organized and financed?

Primary care: Primary care is provided at most clinics and some hospital outpatient departments. Primary care and specialist care are not regarded as distinct disciplines, although it has been argued that they should be. Approximately one-third of physicians are salaried employees of clinics, and virtually all others are self-employed. Clinics are often owned by physicians or by medical corporations (special legal entities for health care management, usually controlled by physicians, that own hospitals as well as clinics), but sometimes by local governments or public agencies.

Primary care practices typically include teams with a physician and a few employed nurses. In 2011, the average clinic had 7.2 full-time-equivalent workers, including 1.2 physicians, 1.8 nurses, and 2.1 clerks. (The figures are calculated from statistics of the Ministry of Health, Labor and Welfare, 2012a.) Clinics can dispense medication (which doctors can provide directly to patients). Use of pharmacists, however, has been growing; 67 percent of prescriptions were filled at pharmacies in 2013 (Japan Pharmaceutical Association, 2014). Patients are not required to register with a practice, and there is no strict gatekeeping, although government encourages patients to choose their family doctors, and there are patient disincentives for self-referral including extra charges for initial consultations at some large hospitals with many specialties. Patients can choose and drop in at any clinic, except those requiring reservations. An entity managing many clinics can share their resources, but there is no cross-entity resource sharing.

Payments for primary care are based principally on a complex national fee-for-service schedule, which includes financial incentives for coordinating the care of patients with chronic diseases, and for team ambulatory and home care. The schedule, set by the government (explained below), includes both primary and specialist services, which have common prices for defined services such as consultations, examinations, laboratory tests, imaging tests, and defined chronic disease management. Per-case payments can be chosen by providers in select cases, such as daily payments for pediatrics care and monthly payments for treating patients with diabetes. Bundled payments are not used. Balance billing is prohibited, but providers can charge for designated services.

Outpatient specialist care: Most outpatient specialist care is provided in hospital outpatient departments, but some is also available at clinics, where patients can visit without referral. Fees are determined by the same schedule that applies to primary care, as they do not usually vary by provider type, although some services must be provided by specialists in order to be covered by the PHIS. There are no collective regulations on payments for specialists. At hospitals, specialists are usually salaried, with additional payments such as night duty allowance. Those working at public hospitals can work at other health care institutions and privately with the approval of their hospitals, but in such cases they usually provide services covered by the public system. The employment status of specialists at clinics varies similarly to that of primary care physicians.

Administrative mechanisms for paying primary care doctors and specialists: There are no direct payments to primary care doctors and specialists in the PHIS. Although in principle patients are liable for copayments at point of service, practically all fee transactions are mediated by statutory bodies. Self-employed clinic-based primary care physicians and specialists receive all payments for services through the fee schedule, pay for employees and other inputs, allocate funds for investments, and retain surpluses. Legal entities managing clinics and hospitals send insurance claims, mostly online, to insurers in the PHIS.

After-hours care: After-hours care is provided by hospital outpatient departments, where on-call physicians are available, and by some regular clinics and after-hours care clinics owned by local governments and staffed by physicians and nurses that local medical societies provide. Hospitals and clinics are paid “top-up” fees for after-hours care, including fees for telephone consultations. There is no strict formal requirement for clinics to provide such services, although physicians have a general obligation to consult with patients when requested. Patients can walk in at hospitals and clinics. National government grants subsidies to local governments for these clinics. Patient information from after-hours clinics is provided to family physicians if necessary (necessary information is often handed to patients to show to family physicians). There is a national pediatric medical advice telephone line available after hours.

Hospitals: As of 2013, 14 percent of hospitals are owned by national or local governments or closely related agencies (MHLW, 2014c); most of the rest are private and not-for-profit, some of which receive subsidies because they are designated as having partly public roles. More than 20 percent of beds are in public hospitals; the rest are in not-for-profit hospitals. The entry of private for-profit companies in the hospital sector is now prohibited, while existing hospitals established by for-profit companies for their employees (e.g., Toyota) are allowed to continue. Payments to hospitals from the PHIS include costs for physicians’ salaries.

Consultation fees for large hospitals and academic medical centers are lower than those for small hospitals and clinics. More than half of all acute-care hospital beds are paid for by the Diagnosis Procedure Combination (DPC) modification, a case-mix classification similar to diagnosis-related groups (DRGs) (Matsuda, et. al., 2008), and the rest are paid for solely on a fee-for-service basis. Hospitals choose whether to receive the DPC payments or to remain under fee-for-service. The DPC payment consists of a fee-for-service and a DPC component in the form of a per diem payment determined by the DPC grouping, which includes basic hospital services and less expensive treatments; the fee-for-service component includes surgical procedures, rehabilitative services, and other specified expensive services (OECD, 2009). DPC rates are multiplied by a hospital-specific coefficient that keeps them relatively in line with fee-for-service payments; it may also limit incentives for providers to contain cost, although the correlation has not yet been formally evaluated. Episode-based payments are not used.

Mental health care: Mental health care is provided in outpatient, inpatient, and home care settings, with patients charged the standard 30 percent coinsurance (although there is reduced cost-sharing and other financial protections for patients in the community). Covered services include psychological tests and therapies, pharmaceuticals, and rehabilitative activities. Specialized mental clinics and hospitals exist, but services for depression, dementia, and other common conditions are integrated with primary care. Most psychiatric beds are in private hospitals owned by medical corporations (MHLW, 2014c).

Long-term care and social supports: National compulsory long-term care insurance (LTCI), administered by the municipalities, covers those age 65 and older and some disabled people ages 40 to 64. It covers home care, respite care, domiciliary care, disability equipment, assistive devices, and home modification. Medical services are covered by the PHIS, as are palliative care and hospice care in hospitals and medical services provided in home palliative care, while nursing services are covered by LTCI. Long-term home care services can be considered a part of home hospice services as dying patients become eligible.

Roughly half of long-term care financing comes through taxation and half through premiums. Citizens age 40 and over pay income-related premiums along with PHIS premiums. Employers pay the same premium as that of their employees. Premiums for those age 65 and older, also income-based (including pensions), and set by municipalities based on estimated expenditures, are paid only by the beneficiaries. A 10 percent coinsurance rate applies to all covered services, up to an income-related ceiling. There is additional copayment for bed and board in institutional care, but it is waived or reduced for those with low income (all costs for those with means-tested social assistance are paid from local and national tax revenue).

Eligible people are entitled to use long-term services up to needs-based ceilings (called “care levels”) set by local LTCI boards, according to assessment of physical and mental conditions. People are not allowed to buy unlisted services or services from non-LTCI providers with the budget provided, but they can purchase such services with their own money. Care management—covered by LTCI and offered by public, not-for-profit, and for-profit providers—is available to help people arrange long-term care services.

The majority of home care providers are private; 64 percent were for-profit, 35 percent not-for-profit, and 0.4 percent public in 2013 (MHLW, 2014a). While for-profits are not allowed to provide institutional care under LTCI, there are private nursing homes for which residents pay full costs (MHLW, 2013).

Family care leave benefits (part of employment insurance) are paid for up to three months when employees take leave to care for their families. Additionally, more than half of the municipalities have established marginal financial supports, mostly limited to those with lower incomes, with their own financial capacities and legislations (Kwon, 2014).

What are the key entities for health system governance?

The Social Security Council, a statutory body within the Ministry of Health, Labor and Welfare, is in charge of developing national strategies on quality, safety, and cost control, and sets guidelines for determining provider fees. Within the Ministry, the Central Social Insurance Medical Council defines the benefit package and fee schedule. National government and prefectures devise cost-control plans (described below).

The Japan Council for Quality Health Care, a nonprofit organization, works to improve quality throughout the health system and develops clinical guidelines, although it does not have any regulatory power to penalize poorly performing providers. Specialist societies themselves also produce clinical guidelines.

Technology assessment of pharmaceuticals and medical devices is conducted by the Pharmaceutical and Medical Devices Agency, a governmental regulatory agency. It also sets the Public Health Insurance Drug Price List, which is a list of pharmaceuticals and their prices covered by the PHIS (English Regulatory Information Task Force: Japan Pharmaceutical Manufacturers Association 2012). The criteria for coverage include clinical effectiveness but not economic appraisal. Since 2012, the agency has been discussing the possible application of comparative cost-effectiveness studies in its decision-making (described below).

Nonprofit organizations work toward public engagement and patient advocacy, and every prefecture establishes a health care council to discuss the local health care plan. Under the Medical Care Law, these councils must have members representing patients.

The Japan Fair Trade Commission, an independent governmental administrative commission, promotes fair competition in health care as well as other sectors.

What are the major strategies to ensure quality of care?

By law, prefectures are responsible for making health care delivery “visions,” which include detailed plans on cancer, stroke, acute myocardial infarction, diabetes mellitus, psychiatric disease, pediatric, and home care, as well as emergency, prenatal, rural, and disaster medicine. These plans include structural, process, and outcome indicators, as well as strategies for effective and high-quality delivery. Prefectures promote collaboration between providers to achieve them, with or without subsidies as financial incentives.

Waiting times are generally not monitored by government, although there is cause for concern in some clinical areas, such as palliative care. Although there are structural health care delivery regulations, relatively few apply to process and outcomes.

Prefectures are in charge of the annual inspection of hospitals. Sanctions include reduced reimbursement rates if staffing per bed falls below a certain ratio. Hospital accreditation, on the other hand, is voluntary and undertaken largely as an improvement exercise; roughly one-third of hospitals are accredited by the Japan Council for Quality Health Care. However, there is no disclosure of names of hospitals that fail the accreditation process. The Ministry of Health, Labor and Welfare organizes and financially supports a voluntary benchmarking project, in which hospitals report quality indicators on their websites.

In order to practice, physicians are required to obtain a license by passing a national exam, but they are not subject to revalidation. However, specialist societies have introduced revalidation for qualified specialists. Clinical audits are voluntary. Public reporting on performance has been discussed but is not yet implemented.

Every prefecture has a medical safety support center for handling complaints and promoting safety. Since 2004, advanced academic and public hospitals have been required to report adverse events to the Japan Council for Quality Health Care.

Disease and medical device registries have been developed on a voluntary basis, possibly to be used for quality improvement in the future. Surveys of hospital patients’ experiences are conducted every three years.

What is being done to reduce disparities?

Reducing health disparities between population groups has been a general goal since 2012. The two explicit targets are a reduction of disparities in healthy life expectancies between prefectures and an increase in the number of local government entities that make efforts to solve health disparity issues (MHLW, 2012b). There is another plan to reduce disparities among prefectures in cancer treatment delivery, with each prefecture setting treatment targets. Health variations between regions are regularly reported by government. Health variations between socioeconomic groups and variations in health care access are occasionally measured and reported by researchers, some of them funded by the Ministry of Health, Labor and Welfare.

What is being done to promote delivery system integration and care coordination?

The national government prioritizes the general coordination of care, including coordination in mental health care, and has introduced financial incentives for hospitals and clinics, particularly in cancer, stroke, cardiac, and palliative care. Hospitals admitting stroke victims or patients with hip fractures can receive additional fees if they use post-discharge protocols and have contracts with clinic physicians to provide effective follow-up after discharge, for which those physicians also receive additional fees. The government also provides subsidies to leading providers in the community to facilitate care coordination.

There are more than 4,000 “community comprehensive support centers” to coordinate services, particularly for those with long-term conditions. Funded by LTCI, they employ care managers, social workers, and long-term care support specialists. No pooled funding of the PHIS and LTCI exists.

Regional and large-city governments are required to establish councils to promote integration of care and support for patients with 306 designated long-term diseases.

What is the status of electronic health records?

Electronic health record networks have been developed only as experiments in selected areas. Interoperability between providers has not been generally established. Currently, experiments are under way to make personal health information available to patients and providers via cloud computing. The Social Security and Tax Number System (SSTNS), a system of unique identifiers, will begin in 2016. It will be used for social security from its inception, and for health services, possibly including medical records, starting in 2018.

How are costs contained?

Price regulation for all services under the PHIS is a critical cost-containment mechanism (Ikegami and Anderson, 2012). The fee schedule is revised every two years by the government, following informal stakeholder negotiations, and is based on the estimated overall rate of change in public health care expenditures and expenditures in different health care sectors.

For medical, dental, and pharmacy services, the Central Social Insurance Medical Council revises fees on an item-by-item basis in order to meet overall spending targets set by the cabinet. Highly profitable categories see larger reductions. The revisions of prices of pharmaceuticals and devices are determined based on a market survey of actual current prices (which are often less than the listed prices). Drug prices can be revised downward for new drugs selling in greater volume than expected and for brand-name drugs when generic equivalents hit the market. Prices of medical devices in other countries are also considered in the revision.

Negotiations between stakeholders take place only for the purpose of revising the fee schedule and the rule for deciding pharmaceutical prices. Whether cost-sharing and the existing competition between providers contain costs is unclear.

The number of hospital beds is regulated by prefectures in accordance with national guidelines. The national medical student capacity, which is increasing since 2007 owing to physician shortages, is also regulated by the government.

The government’s Cost-Containment Plan for Health Care is intended to promote healthy behavior, shorten hospital stays through care coordination and home care development, and increase generic substitution. Each prefecture makes cost-control plans in accordance with the plan. Both financial incentives in the fee schedule and other incentives, including education and training, are used. Peer review committees in each prefecture also monitor claims and may deny payment for services deemed inappropriate.

Currently, some pharmaceuticals whose medical effectiveness is considered uncertain are not covered by the PHIS. A trial cost-effectiveness evaluation for coverage of selected pharmaceuticals and medical devices is scheduled for fiscal year 2016.

What major innovations and reforms have been introduced?

Community-based health insurance plans in the PHIS, operated by municipalities, usually insure residents who are sicker and less well-off than those covered by employment-based insurance plans. The plans vary significantly in the number they insure, from fewer than 100 to more than half a million. To mitigate financial risk in small plans, the national government has gradually expanded cross-subsidies between community-based plans while keeping its and local governments’ subsidies. With increasing financial pressures and the development of region-based governance, plans are being restructured under the 2015 Health Care Reform Act: from 2018, regions will take overall administrative responsibility for community-based plans and work together with municipalities, which will still be insurers of their residents, to set premium rates and to collect premiums. Meanwhile, subsidies from the national government to the regions are to be slightly increased to help plans, and those with low incomes, with excessive financial burdens.

A plan to strengthen the financial incentive for patients to use family physicians is intended to decrease demand on hospital outpatient departments. Although hospitals with 200 beds or more are currently allowed to charge additional fees to patients who have no referral for outpatient consultations, fewer than half of such hospitals have opted for this extra charge. Under the Health Care Reform Act of 2015, highly specialized large-scale hospitals with 500 beds or more will have an obligation to promote care coordination between providers in the community, as well as to charge additional fees to such patients.


The author would like to acknowledge David Squires as a contributing author to earlier versions of this profile.


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