Economic Survey of Japan 2009: Health-care reform in Japan: controlling costs, improving quality


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The following OECD assessment and recommendations summarise chapter 4 of the Economic Survey of Japan published on 30 September 2009.





Reform of the health-care system is important…

Reform of the pension system should be accompanied by changes in the health and long-term care systems. Japan’s health-care system is outstanding in a number of respects, contributing to the excellent health status of the Japanese, which is near the top of the OECD in a variety of indicators, while holding spending as a share of GDP below the OECD average. In addition, it provides universal access in principle to all medical institutions in the country. Nevertheless, it faces a number of important challenges. First, despite a 7½ per cent cut in medical fees and prices since 2000, health spending has risen significantly in recent years, which has weakened the fiscal position as more than 86% of health care is publicly financed. Under the current framework and utilisation patterns, health-care spending is projected to rise by around 2% of GDP by 2025, owing to rapid population ageing. Second, there is growing dissatisfaction with the quality of health care, which culminated in the 2008 decision to upgrade social welfare programmes. Third, the system faces a number of imbalances by region and by type of care. Fourth, universal coverage requires improving compliance in paying premiums.

The level of health-care spending as a share of GDP in Japan
is below the OECD average

1. Except for Slovak Republic and Hungary, for which data are not available.
2. Except for Norway (2003), New Zealand (2004) and Turkey (2005).
Source: OECD Health Database (2008).

…to increase efficiency, thereby limiting the future rise in health spending,…

The current strategy of cutting fees for physicians and hospitals and the prices of drugs and equipment is unsustainable, making it important to increase efficiency. One key area for reform is the length of hospitals stays, which is four times the OECD average, reflecting in part the important role of hospitals in providing long-term care for the elderly. The introduction of long-term care insurance in 2000 has led to an expansion in long-term care facilities, but the shift of long-term care from hospitals to these lower-cost facilities and to home-based care needs to be accelerated by adjusting the fee schedule and improving the monitoring of patient classification. Reforms are also needed to reduce the length of hospital stays for acute care, which is about three times higher than the OECD average. In particular, it is essential to move away from a per diem payment scheme and toward a “diagnostic-related group” approach, which sets an overall fee according to the illness, while promoting the standardisation of treatment and length of hospitals stay. Efficiency in the hospital sector should be promoted by abolishing the rule limiting the direction of hospitals and clinics to medical doctors and relaxing restrictions on equity finance. Encouraging the use of generic drugs, for example by moving towards making them the standard for reimbursement, would also reduce health spending. The government initiative to promote healthy ageing through medical check-ups and the provision of information should be supplemented by economic incentives, notably higher taxes on cigarettes.

Japan has relatively long hospital stays, a low number of physicians
and high drug consumption(1)

1. In 2006 or the latest year available.

2. Per 1 000 persons.

3. In hospitals.

4. Per 1 000 hospital beds.

5. Per capita in US$ PPP.

Source: OECD Health Database (2008).

…to upgrade the quality of health care,…

Concerns about quality have become more prominent as medical fees and prices have declined. One major issue is the “drug lag”; one-quarter of the world’s top-selling drugs in 2006 had not been introduced in Japan and half had become available on average six years after their global launch. The situation is similar for medical devices. It is necessary to shorten the drug and medical device lags by implementing the action plan for their speedy review by the relevant authority. This involves accelerating the review process by greater use of scientific measures, encouraging manufacturers’ efforts by reducing the cost of clinical trials in Japan and ensuring that reimbursement levels are appropriate. A second issue is the ban on “mixed billing”. Patients wishing to combine a new medicine or treatment that is not included in the prescribed treatment in the health insurance package with services that are included must pay not only the cost of the additional treatment but also the cost of services that would normally be covered by health insurance, although some treatments that are deemed to be safe and effective are exceptions to the ban on mixed billing. In effect, this regulation discourages patients from choosing new drugs and treatments that are not listed in public health insurance.  Allowing more mixed billing would increase patient satisfaction by facilitating their access to new health services, while potentially easing the burden on public finances. However, an increase in the use of drugs and treatments that are not covered by health insurance should not be allowed to erode the quality of the health insurance package, which should include all essential treatments.

The delays in the introduction of new drugs in Japan after their global launch is one of the longest among OECD countries

1. The time lag between a drug’s global launch and its introduction in other countries. The survey covers 33 drugs in 1994 and 88 in 2004.

Source: Office of Pharmaceutical Industry Research (2006).

…to address imbalances by improving the fee-setting mechanism…

The health-care system faces shortages in some areas, notably for emergency care and paediatricians, reflecting problems in setting prices. The fees for the thousands of medical treatments covered by insurance and the prices of more than 10 000 drugs are revised every two years by the government, in line with the basic policy set by an advisory board and the result of discussions between the health insurers and health-care providers, subject to a constraint on total spending imposed by the government. A more rigorous approach should be adopted that sets prices based on cost studies showing, for example, the time required for medical personnel to perform each treatment.

…and to ensure universal insurance coverage

Another concern is the share of the population that does not pay health insurance premiums. By 2008, about 21% of households (8% of the total) that were covered by National Health Insurance (which includes primarily the self-employed, economically inactive and elderly) failed to pay the premium. Of this group, some (amounting to around 1.5% of total households) have to pay health costs out-of-pocket (these costs can be reimbursed but overdue premiums can be subtracted). It is important to reduce this share by improving compliance, as well as to include more non-regular workers in employer-based insurance. Another equity problem is that a significant portion of households limit their use of health care for financial reasons according to a 2007 poll. It is important to reduce the monthly ceiling on co-payments to ensure adequate health care, particularly for those with serious or chronic illnesses.  



How to obtain this publication


The complete edition of the Economic Survey of Japan is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations. For the Japanese version please click here.


Additional information

For further information please contact the Japan Desk at the OECD Economics Department at

The OECD Secretariat's report was prepared by Randall Jones, Byungseo Yoo and Masahiko Tsutsumi under the supervision of Vincent Koen. Research assistance was provided by Lutécia Daniel.




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