Healthcare Funding & Provision in Japan

2018 marks the 60th anniversary of Japan's commitment to universal health insurance under the National Insurance Law of 1958. Citizens and residents of Japan enjoy a mandatory but carefully managed national insurance system which allows access to most newly approved technologies with generous caps on monthly out-of-pocket payments.  

Japan was once criticized for delays in its approval of new drugs and devices, but regulatory approval timings have fallen substantially over the past decade and - despite some frustration among manufacturers about mandatory pricing cuts - approval timings, reimbursement timings, and patient access has never been better. Legislative reforms implemented in 2014 also introduced a new regenerative medicine / cellular therapy category - perhaps the first country to do so - and to the surprise of many (myself included) we have already seen the approval and reimbursement of several new regenerative medicine products.

However, the universal health insurance system in Japan faces a pending demographic crisis whereby a limited supply of goods and services will need to be rationed for a rapidly aging population. This has led to growing calls for reform and innovation in the financing and provision of healthcare in Japan. In response, Japan has committed to including cost-effectiveness more directly in drug and device reimbursement and ramping up efforts to reward innovation, expand the usage of generics and biosimilars, and reign in the cost of long-listed agents.

We have yet to see how much these new initiatives will help improve the long-term sustainability of the national health insurance system or whether they may reduce access to new healthcare technologies in Japan. Regardless, we are likely to see additional changes to reimbursement moving forward  - which is the government's primary tool for implementing healthcare reform. This website was established to help me and others keep abreast of the ongoing changes in Japan.

In Japan, the majority of reimbursement for medical goods and services that are provided through healthcare facilities – including drugs, medical devices, and physician fees – is funded partly through a mandatory national health insurance system and partly through out-of-pocket payments. The national health insurance system covers up to 70% of the cost of reimbursed goods and services. The remaining 30% is paid either through out-of-pocket payments or other various support programs. Most children aged zero to six and seniors aged 70 to 74 pay only 20% out-of-pocket and seniors aged 75 or older pay only 10% out-of-pocket.

Reimbursement fees are established by the Ministry of Health, Labor, and Welfare (MHLW) and there is one reimbursement fee set for the entire country regardless of the insurance group (e.g. large company employee, self-employed, government employees, retired persons, etc.) or the facility. Please refer to the Reimbursement page for more details on how reimbursement fees are set for drugs, devices, and other technologies in Japan. Some alternative reimbursement programs described in more detail below provide additional coverage for out-of-pocket healthcare expenditures. 

“Mixed medical care" (referred to as kongo shinryou) – meaning medical care that combines private pay (beyond the normal copayment) and public pay – is prohibited in most cases in Japan. So using non-reimbursed treatments off-label, for example, can lead to a loss of coverage for all reimbursed treatment undergone for that condition during the period (normally one month). Because of this, many physicians / facilities are hesitant to recommend non-reimbursed products to patients.

There is no official gatekeeper system in Japan, although some hospitals require a referral or charge extra if a referral is not obtained in advance. Most office / clinic-based physicians specialize in a specific treatment area, but will often refer more severe patients to a hospital for more specialized treatment.

About 80% of hospitals in Japan operate under a fee-for-service system.  Like other aspects of care, hospital fees for procedures, surgery, etc. are set at the national level and are the same for all facilities. Most large facilities, however, and many medium-sized facilities operate under a prospective payment system for inpatient care referred to as the diagnosis procedure combination/per-diem payment system (DPC/PDPS). All national and university hospitals are part of that system - as well as many private hospitals. This system is similar to the DRG system used in other markets, but reimbursement is based on a per-diem rate instead of a per-case rate. A DPC/PDPS code is assigned for each inpatient based on a combination of illnesses or injuries which a doctor must invest time in during the patient’s stay and surgery/procedure/drug treatment which is conducted during their stay. There are many exemptions under the DPC/PDPS system though, so it is best to think of it as a mix of prospective payment and fee-for-service payment. 

As of April 2018 there were nearly 5,000 possible diagnostic group classification numbers under the DPC/PDPS system. However, only 2,500 or so codes were assigned points due to exemptions for some procedures that are done for very few patients or that are considered too expensive to be covered through the DPC/PDPS system fees. Per-diem rates have three possible levels depending on the average length of stay for each diagnosis group. The first period of hospitalization is at a 15% higher rate for the diagnosis group, and stays beyond the average stay are at a 15% lower rate which discourages prolonged hospitalization.

Coverage of preventative treatments such as vaccines are not included in the national health insurance system. However, subsidization of routine vaccines included in the national schedule by local authorities is mandated. Voluntary vaccines, however, are normally paid for by the patient.

There is private insurance in Japan, but it normally just involves one-time payments for being diagnosed with a condition and (as described above) usage of private healthcare insurance as a means of directly paying for treatment is not permitted.

There are several funding programs outside the national health insurance program that provide additional support for the coverage of out-of-pocket expenditures.  Below is a summary of some of those programs:

• High Cost Medical Care Program: Coverage of out-of-pocket costs that exceed a certain amount per month (typically about 80,100 yen to 100,000 yen per month depending on income)
• Specified Intractable Disease Research Program: Coverage of out-of-pocket costs (typically all but about 23,100 yen per month) for about 330 rare conditions
• Pediatric Chronic Specified Treatment Research Program: Coverage of out-of-pocket costs for about 815 chronic conditions affecting pediatric patients
• Prolonged Medical Cost Treatment Program: Coverage of out-of-pocket costs for hemophilia, CKD / dialysis, and HIV patients
• Hepatitis Treatment Support Program: Coverage of out-of-pocket costs for the treatment of hepatitis B and hepatitis C
• Disability Coverage: Coverage of out-of-pocket expenses associated with disabilities - including medical expenses