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The Japanese Health Care System

by Ryozo Matsuda, College of Social Sciences, Ritsumeikan University

What is the role of government?

Government regulates nearly all aspects of the universal Statutory Health Insurance System (SHIS). The national and local governments are required by law to ensure a system that efficiently provides good-quality medical care. National government sets the SHIS 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 their own budgets and funds allocated by the national government. More than 1,700 municipalities operate components of the SHIS and organize health promotion activities for their residents.1

Who is covered and how is insurance financed?

Publicly financed health insurance: The SHIS, comprising more than 3,400 insurers, provides universal primary coverage.2 In 2013, estimated total health expenditure amounted to approximately 11 percent of GDP, 84.3 percent of which was publicly financed, mainly through the SHIS.3 Taxes, premiums, and user charges accounted for about 42 percent, 42 percent, and 13 percent of the current health expenditures, respectively.4

Citizens are mandated to enroll in one of the SHIS plans based on age, employment status, and/or place of residence as are resident non-citizens; undocumented immigrants and visitors are not covered. Insurance premiums 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 non-citizens enrolled in the SHIS age 40 and over are mandatorily enrolled in long-term care insurance.

Private health insurance: Although the majority of the population holds some form of private health insurance, it plays only a 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.5

Part of an individual’s life insurance premium and medical and long-term care insurance premiums can be deducted from taxable income.6 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 orthodontics. Treatment of traffic accident injuries is not covered by the SHIS, but by compulsory and, usually, voluntary automobile insurance.

What is covered?

Services: All SHIS 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, specialty, and mental health care as well as 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 non-physicians. 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 for services and goods received, except for children up to around age 6 (20%), adults ages 70 to 74 with lower incomes (20%), and those age 75 and older with lower incomes (10%). There are no deductibles. Copayments for children's health care are often subsidized by local governments. Annual expenditures on health services and goods can be deducted from taxable income, including copayments and payments between JPY100,000 (USD952) and JPY2 million (USD19,000) for balance billing and over-the-counter drugs.7 In 2013, out-of-pocket payments for cost-sharing accounted for 13 percent of current health expenditures.8 Providers are prohibited from charging extra fees except for some services specified by the Ministry of Health, Labor and Welfare (MHLW), 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 (USD763) for people under age 70 with a modest income; above this threshold, a 1 percent coinsurance rate applies. There is a ceiling for low-income people, who do not pay more than JPY35,400 (USD337) a month. Subsidies (mostly restricted to low-income households) reduce the burden of cost-sharing for people with disabilities, mental illnesses, and specified chronic conditions. There is an annual household health and long-term care out-of-pocket payments ceiling, which varies between JPY340,000 (USD3,238) and JPY2.12 million (USD20,190) 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, the self-employed, and retirees) who have low incomes, and those with moderate incomes 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. Some providers are allowed to reduce coinsurance for low-income people through the Free/Lower Medical Care Program. Means-tested public assistance covers health services for their beneficiaries.9

How is the delivery system organized and financed?

Primary care: Primary care is provided at most clinics and some hospital outpatient departments. Approximately one-third of physicians are salaried employees of clinics, and nearly 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 medical institutions), but sometimes by local governments or public agencies.

Primary care practices typically include teams with a physician and a few employed nurses. In 2014, the average clinic had 6.8 full-time-equivalent workers, including 1.3 physicians, 2.0 nurses, and 1.8 clerks.10 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 2013.11 Patients are not required to register with a practice, and there is no strict gatekeeping, although government encourages patients to choose their preferred doctors, and there are patient disincentives for self-referral including extra charges for initial consultations at 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. A scheme for cross-entity resource sharing will start in 2017 as described below.

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 (described 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. Providers can charge for designated services as exceptions to the rule of prohibiting balance billing.

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 SHIS. 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 employers, 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: Legal entities managing clinics and hospitals send insurance claims, mostly online, to financing bodies in the SHIS, which pay a major part of the fees directly to providers; patients pay liable copayments at the point of service. Using the payments they receive for services, self-employed, clinic-based primary care physicians and specialists pay for employees and other inputs, allocate funds for investments, and retain surpluses. There are no direct payments from the SHIS financing bodies to salaried physicians.

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 most hospitals and clinics. The national government gives subsidies to local governments for these clinics. Patient information from after-hours clinics is provided to family physicians if necessary (such 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 2014, 15 percent of hospitals are owned by national or local governments or closely related agencies; most of the rest are private and nonprofit, some of which receive subsidies because they are designated as having partly public roles.12 More than 20 percent of all beds are in government hospitals; the rest are mostly in nonprofit hospitals. Some of them are designated as public-interest medical institutions.13 The private sector has not been allowed to manage a hospital, except in the case of existing hospitals established by for-profit companies for their own employees (e.g., Toyota). Payments to hospitals from the SHIS 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 using the Diagnosis Procedure Combination (DPC) system, a case-mix classification similar to diagnosis-related groups.14 The rest are paid for solely on a fee-for-service basis. Hospitals choose whether to receive the DPC payments or to remain under traditional 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.15 Episode-based payments involving both inpatient and outpatient care 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 also provided by primary care. Most psychiatric beds are in private hospitals owned by medical corporations.

Long-term care and social supports: National compulsory long-term care insurance (LTCI), administered by 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. Palliative care and hospice care in hospitals and medical services provided in home palliative care are covered by the SHIS, while nursing services and home help services are covered by the 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 SHIS premiums. Employers and employees each contribute 50 percent of the premium. Premiums for those age 65 and older are also income-based (including pensions) and set by municipalities based on estimated expenditures; they are paid only by the beneficiaries. A 20 percent coinsurance rate applies to all covered services, up to an income-related ceiling. For low-income people age 65 and older, the coinsurance rate is reduced to 10 percent. There is an 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 with the budget provided, but they can purchase such services with their own money. Care management—covered by the LTCI and offered by public, nonprofit, and for-profit providers—is available to help people arrange long-term care services.

The majority of LTCI home care providers are private. In 2014, 64 percent of home help providers, 40 percent of home nursing providers, and 58 percent of elderly day care service providers were for-profit, while most of the rest were nonprofit. Meanwhile, LTCI nursing homes, whose services are nearly fully covered, are either public or nonprofit. Costs for long-term care services in non-LTCI private nursing homes and group homes are partly covered by LTCI.16

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.17

diagram of health care system

What are the key entities for health system governance?

The Social Security Council, a statutory body within the MHLW, 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).

Pharmaceuticals and medical devices are reviewed for quality, efficacy, and safety by the Pharmaceutical and Medical Devices Agency, a governmental regulatory agency. The Central Social Insurance Medical Council sets the SHIS Drug Price List, which is a list of pharmaceuticals and their prices covered by the SHIS.18 The criteria for coverage include clinical effectiveness but not costs. Recently the agency has been implementing trials to use comparative cost-effectiveness studies in its decision-making.

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 are structural health care delivery regulations, relatively few apply to process and outcomes. Some fees are paid on the conditions that physicians in charge have certification of stipulated trainings.

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 is voluntary; as of 2015, 26.7 percent of hospitals were accredited by the Japan Council for Quality Health Care, a nonprofit organization.19 However, there is no disclosure of names of hospitals that fail the accreditation process. Public reporting on performance is not obligatory, but the MHLW organizes and financially promotes a voluntary benchmarking project in which hospitals report quality indicators on their websites.

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 not been mandatorily conducted but voluntarily.

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. The council 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.

The Japanese Medical Specialty Board, a physician-led nonprofit body, is developing a new framework for standards and requirements of medical specialty certification. The system is to be implemented in the coming years.

The government promotes the development of disease and medical device registries mostly for research and development. 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 goal of the national health promotion strategy since 2012. The strategy sets two objectives: the reduction of disparities in healthy life expectancies between prefectures and the increase in the number of local governments organizing activities to reduce health disparities.20 Health disparities between regions are regularly reported by government; disparities between socioeconomic groups and in health care access are occasionally measured and reported by researchers.

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

National government prioritizes care coordination and develops financial incentives for providers, particularly in cancer, stroke, cardiac, and palliative care. For example, 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 care after discharge (the clinic physicians also receive additional fees). The government also provides subsidies to leading providers in the community to facilitate care coordination. Highly specialized large-scale hospitals with 500 beds or more have an obligation to promote care coordination between providers in the community, as well as to charge additional fees to patients who have no referral for outpatient consultations.

There are more than 4,000 “community comprehensive support centers” to coordinate services, particularly for those with long-term conditions. Funded by the LTCI, they employ care managers, social workers, and long-term care support specialists. Currently, there is no pooled funding between the SHIS and the LTCI.

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, a system of unique identifiers implemented in 2016, will be phased-in for health care services, including medical records, starting in 2018.

How are costs contained?

Patients pay 30 percent for most services, as described above. But price regulation for all services under the SHIS is a critical cost-containment mechanism. The fee schedule is revised every other year by the government, following formal and informal stakeholder negotiations. The revision involves three levels of decision-making: the overall rate of increase or decrease of benefit prices, drug and device prices, and prices of services on an item-by-item basis.21

For medical, dental, and pharmacy services, the Central Social Insurance Medical Council revises fees on an item-by-item basis to meet overall spending targets set by the cabinet. Highly profitable categories usually see larger reductions.

The revisions of prices of pharmaceuticals and medical devices are determined based on a market survey of actual current prices (which are usually 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. Prices of generic drugs have been gradually decreased.

A trial cost-effectiveness evaluation for coverage of selected pharmaceuticals and medical devices was conducted in fiscal year 2016. Price reduction for highly expensive pharmaceuticals with large markets has been discussed.

The fee schedule includes financial incentives to improve clinical decision-making. For example, if a physician prescribes more than six drugs to a patient on a regular basis, fees for writing the prescription are reduced. Insurers’ peer review committees monitor claims and may deny payment for services deemed inappropriate.

Prefectures develop their strategic plans and health care delivery plans for regulating the number of hospital beds with consideration to national guidelines. The national medical student capacity, which has been 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 control costs by promoting healthy behavior, shortening hospital stays through care coordination and home care development, and prevailing efficient usage of pharmaceuticals. Prefectures also make middle-term cost containment plans, including health expenditure targets in coming years with planned policy measures in accordance with national guidelines.

What major innovations and reforms have been introduced?

The Social Security Council set priorities on the following four objectives for the 2016 revision of the fee schedule:

  • developing an efficient comprehensive community care system;
  • improving the quality and safety of patient care;
  • developing high-priority services (e.g., cancer and dementia care); and
  • making the health care system more efficient and sustainable.22

The government has been promoting the idea of “preferred physicians” for the purpose of improving care coordination and continuity. The 2014 revision of the fee schedule introduced Continuous Care Fees (CCFs), which are monthly payments for providing continuous care (including referrals to other providers, if necessary) to outpatients with chronic diseases. A provider and a patient can opt for the CCF for services provided if they agree with the providers' preferred status. A top-up to the CCF in the case of patients with dementia was introduced by the 2016 revision.

With the 2015 amendment of the Medical Care Law, providers will be able to establish umbrella organizations to promote collaboration, for example, through partnership agreements, copurchasing of pharmaceuticals and medical devices, or sharing of resources.

Acknowledgements

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

References

1K. Tatara, and E. Okamoto, “Japan: Health system review,” Health Systems in Transition, 2009 11(5).

2National Institute of Population and Social Security Research, Social Security in Japan 2014 (Tokyo: NIPSSR); accessed Aug. 20, 2014.

3OECD, OECD.Stat (database). DOI: 10.1787/data-00285-en; accessed Sept. 3, 2016.

4Ibid.

5See Japan Institute of Life Insurance, FY2013 Survey on Life Protection, Quick Report Version (Tokyo: JILI, 2013), and Life Insurance Association of Japan, Life Insurance Fact Book 2014 (Tokyo: LIAJ, 2014).

6The rule for deduction explained here is applied for contracts after 2012.

7Please note that, throughout this profile, 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 2015 for Japan, reported by OECD, “Prices: Purchasing Power Parities for GDP and Related Indicators,” Main Economic Indicators (database). DOI; accessed Sept. 3, 2016.

8OECD, OECD.Stat (database). DOI: 10.1787/data-00285-en; accessed Sep. 3, 2016.

9R. Matsuda, “Public/Private Health Care Delivery in Japan: And Some Gaps in ‘Universal’ Coverage,” Global Social Welfare, 2016 3: 201–12.

10The figures are calculated from statistics of the Ministry of Health, Labour and Welfare, 2014 Survey of Medical Institutions (MHLW, 2016).

11Japan Pharmaceutical Association, Annual Report of JPA (Tokyo: JPA, 2014); accessed Sept. 3, 2016.

12The figure is calculated from statistics of the MHLW, 2014 Survey of Medical Institutions, 2016.

13R. Matsuda, “Public/Private Health Care Delivery in Japan,” 2016.

14S. Matsuda, K. B. Ishikawa, K. Kuwabara et al., “Development and Use of the Japanese Case-Mix System,” Eurohealth, 2008 14(3):25–30.

15OECD, “Health-Care Reform in Japan: Controlling Costs, Improving Quality and Ensuring Equity,” OECD Economic Surveys: Japan 2009 (OECD Publishing, 2009).

16MHLW, “What the Health and Welfare Bureau for the Elderly Bureau Do,” (in Japanese); accessed Aug. 26, 2016.

17S. Kwon, Research on Income Security of In-Home Caregivers. Unpublished thesis (in Japanese) (Ryukoku University, 2014).

18Regulatory Information Task Force, Japan Pharmaceutical Manufacturers Association, Pharmaceutical Administration and Regulations in Japan (JPMA, 2015); accessed Oct. 8, 2016.

19Japan Council for Quality Health Care, Hospital Accreditation Data Book FY2014, (JCQHC, 2016); accessed Oct.17, 2016.

20MHLW, “A Basic Direction for Comprehensive Implementation of National Health Promotion” (Ministerial Notification no. 430) (tentative English translation); accessed Oct. 15, 2014.

21N. Ikegami and G. F. Anderson, “In Japan, All-Payer Rate Setting Under Tight Government Control Has Proved to Be an Effective Approach to Containing Costs,” Health Affairs 2012 31(5):1049–56.

22Committee on Health Insurance and Committee on Health Care of the Social Security Council, Principles for the 2016 Revision of the Fee Schedule (CHI and CHC, 2015).