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Ikegami N Japan, Health System of. In: Kris Heggenhougen and Stella Quah,
editors International Encyclopedia of Public Health, Vol 4. San Diego:
Academic Press; 2008. pp. 1-8.
 Author's personal copy
J
Japan, Health System of
N Ikegami, Keio University School of Medicine, Tokyo, Japan
2008 Elsevier Inc. All rights reserved.
With a population of 127 million, Japan has the second
largest economy in the world. Its macro health indices
of life expectation at birth and infant mortality are among
the best, while the percentage of the gross domestic product
(GDP) consumed by health expenditures at 8.0% is 18th
among the OECD countries (OECD, 2005). This impressive
record could partly be explained by the fact that less
demand is placed on the system in the way of crime, illicit
drug use, traffic accidents, and human immunodeficiency
virus (HIV) prevalence compared with most developed
countries (Ikegami and Campbell, 1995; Campbell and
Ikegami, 1998). However, the health-care system should
deserve some credit for providing universal coverage and
egalitarian access to care without the existence of long
waiting lists that have plagued other countries with socia-
lized medicine (Ikegami, 2005).
Japans health-care system has evolved to its present
state by incremental adjustments rather than by radical
restructuring. Thus, to better understand the present sys-
tem, the three sections on delivery, financing, and reim-
bursement will begin with their historical background.
The reimbursement system has been the principal mech-
anism for containing costs by controlling the flow of
money from the financing system to the delivery system.
This article will conclude by briefly reviewing the possi-
ble scenarios for the future.
Delivery System
Historical Background
Japan already had a well-established network of practi-
tioners mainly in traditional Chinese medicine (TCM) by
the middle of the eighteenth century. Medication was the
main treatment, to the extent that these practitioners were
often known as apothecaries. Payment was theoretically
made only for the cost of medication since it was regarded
as morally unacceptable to charge fees for performing a
humane service. However, the unstated quid pro quo was
International Encyclopedia of Public Health, First Edition (2008), vol. 4, pp. 1-8
that patients were expected to pay according to their
ability, and therefore munificently if they had the means.
This norm served a useful purpose for the government. It
was absolved of the responsibility of providing public
assistance for medical care because the practitioners
duty to provide services and the patients obligation to
pay were not directly connected.
Medical practice was an exception to the rigidly divided
society of that time because it was open to all classes
and there was competition based on skill. Practitioners
recognized a hierarchy among themselves, with those
appointed as personal physicians to the feudal lord
being ranked the highest. Compared with Western
nations, there was little development of guilds and pro-
fessional identity among traditional practitioners in Japan.
Another distinguishing aspect was the lack of institutional
care for the sick and indigent by religious organizations or
by the government. The selfless practice of philanthropy
was not a religious duty for the popular Buddhist and Shinto
sects, which promised the granting of secular wishes, nor
was it a secular duty under the Confucian ideology favored
by the rulers, which emphasized practical ethics. Care of the
ill, disabled, and elderly, was regarded as the responsibility
of the family (Ikegami, 1995).
With the inauguration of the Emperor Meiji in 1868,
the government embarked on a policy of rapid Westerni-
zation. However, little could be allocated to health care
because the country was facing foreign aggression and
internal discord: The limited resources had to be invested
in defense and building the industrial infrastructure.
Thus, the government decided to target their resources
in establishing a state of the art medical school at Tokyo
University, to which German physicians were invited as
professors. Its graduates went on to become the faculty
of other national universities as they later came to be
established. The general population continued to receive
care from the preexisting traditional practitioners, who
together with their sons as their successors, were uncon-
ditionally given a license to practice. However, new
1
 Author's personal copy

2 Japan, Health System of

entrants had to graduate either from a university medical The Present System
school or from a vocational school and then sit for the
One-third of physicians practice in clinics that are almost
license examination. Unlike other East Asian nations,
always solo practices and have no access to hospital facil-
official recognition of TCM was limited to granting a
ities, while two-thirds are hospital-based. Approximately
license to practice acupuncture and moxa.
80% of the hospitals are in the private sector, usually
Following the policy decision to adopt Western medi-
owned and operated by physicians. Investors are prohibited
cine, the government established hospitals for teaching
from opening for-profit hospitals in Japan. The remaining
purposes and for treating infectious diseases, but most
20% are in the public sector, which includes those owned
hospitals were opened and managed by physicians as an
by quasi-public organizations such as the Red Cross. How-
extension of their private clinics. Hospitals were not asso-
ever, since the public-sector hospitals are subsidized by the
ciated with care for the indigent; in fact, hospitals were the
central or local governments, they tend to provide most of
first to introduce regular fees because they were not
the high-tech care. The delivery system is still weighted
constrained by the old rule of not demanding payment
toward outpatient care, so that Japan has one of the highest
from patients. The hospital was regarded as very much the
rates of physician visits and the lowest rates of hospital
doctors workplace, and a medical doctor as the director
admissions among advanced industrialized countries
carried both clinical and administrative responsibilities.
(OECD, 2005). Waiting lists for inpatient care are limited
Nurses were trained almost solely for the purpose of
to a few prestigious hospitals, and patients who cannot
assisting physicians since the family continued to provide
wait are referred to their affiliated hospitals (Ikegami and
care even after the patient had been admitted to a
Ikeda, 1996).
hospital.
The biomedical healthcare system is characterized by
Because of the lack of trained physicians and well-
the following features (Ikegami, 2005). First is the lack of
equipped hospitals, a close and long-standing relationship
standardization and quality control. Most hospital physi-
developed between the professor and chair of the univer-
cians have been appointed to their positions within the
sity clinical departments and their affiliated hospitals.
closed network of hospitals affiliated with the university
Physicians tended to remain attached to their university
clinical department. Although two-thirds of the physi-
clinical departments and to practice in the hospitals that
cians are now certified as specialists, only about half
were affiliated with each department. The hierarchical
have undergone a formal postgraduate training process,
and closed structure of physicians retarded the develop-
and the rest have been grandfathered in based on their
ment of professional specialist organizations. Since career
experience. Regarding hospitals, an accrediting organization
advancement depended on the evaluation by their profes-
was created in 1997 with funds provided by the Ministry of
sors, young physicians tended to focus more on research
Health and Welfare (MHW; the MHW merged with the
than on acquiring clinical skills. Their objective lay in
Ministry of Labor to become the Ministry of Health, Labor
obtaining the research degree of Doctor of Medical Sci-
and Welfare, MHLW, in 2001), the Japan Medical Associa-
ence, which came to be regarded as a mark of professional
tion ( JMA), and other provider and payer organizations.
competence by the public because there was no formal
Although roughly one-quarter of all hospitals are now
system of certification as specialists. Most physicians went
accredited and the survey results have become available
into private practice in mid-life, upon which they would
on the web ( JCQHC, 2006), accreditation has not conferred
lose their access to hospital facilities. Thus, physicians in
tangible advantages to the hospital in the way of more
clinics usually focused on primary care, but those trained
reimbursement or waiving of government inspections.
in ENT, ophthalmology, etc., continued to practice within
Second is the lack of differentiation between general-
their specialties; also, not a few physicians later expanded
ists and specialists, and between acute-care and long-
their clinics to hospitals.
term-care (LTC) facilities. As noted, certification as a
After the defeat in World War II, the occupying forces
specialist has been slow to develop. Physicians may pro-
tried to reform the system based on the American model
fess and practice in any specialty they may choose, while
with some limited success. The two-tiered system of
patients can directly access any physician they wish,
medical education was abolished by upgrading or closing
including those in tertiary hospitals. LTC came to be
vocational schools and a national licensure examination
provided by the health-care system because of the slow
was made mandatory for all upon graduation. Nurses took
development of social services and by the decision to
on the responsibility of caring from the families and were
provide free (no coinsurance) care to elders in 1973.
made more independent from physicians. The post-war
The expensive and inefficient medicalization of LTC
economic growth led to a major expansion of the delivery
was one factor contributing to the establishment of the
system, with the number of hospital beds increasing by
public LTC insurance in 2000 (Campbell and Ikegami,
threefold from 1954 to its peak in 1993. However, the
2000; Ikegami, 2007). However, the transfer of LTC to the
hierarchical yet competitive system has remained resis-
new program has remained incomplete, with a majority of
tant to change (Ikegami, 2005).

International Encyclopedia of Public Health, First Edition (2008), vol. 4, pp. 1-8

the hospital LTC beds still being covered by health insur-
ance and functioning as de facto nursing homes.
Third is the high level of hospital beds at 14.3 per 1000
population, while the staffing level of nurses remains low
at one nurse for two inpatients. These factors, together
with the lack of differentiation between acute care and
LTC, have contributed to the long average length of stay,
36 days (if LTC hospital beds are excluded, this would still
be 20 days) (MHLW, 2006a).
Financing System
Development of Social Health Insurance
Health insurance in Japan began with coverage of govern-
ment personnel and employees in a few paternalistic
private companies from late in the nineteenth century.
Social health insurance (SHI) was formally legislated in
1922, with the objectives of preempting labor unrest and
improving the productivity of workers. Initially, coverage
was restricted to only blue-collar workers, representing
only 3% of the population, but, unlike other countries, it
included those working in small firms. The reason was not
political demand, but probably administrative conve-
nience because small-firm employees were also covered
by the same workmans compensation system. In any case,
since small firms did not have the management capability
or large enough pools to manage their own systems, the
government had to take on the responsibility. This role of
the government as the largest insurer, rather than just as a
coordinator of insurance plans, is one reason that MHW
has played a dominant and direct role in negotiating with
providers (Ikegami and Campbell, 1995; Campbell and
Ikegami, 1998).
The development of SHI could be divided into four
periods: In the first and second, the population covered
expanded, and, in the third and fourth, the differences in
100%
80%
Percent of population
None
60%
40%
20%
0%
'27 '31
Figure 1 Growth in the percentage of population covered by health insurance in Japan. Reproduced with permission from
Campbell JC and Ikegami N (1998) The Art of Balance in Health Policy Maintaining Japans Low-cost Egalitarian System. Cambridge,
UK: Cambridge University Press.
International Encyclopedia of Public Health, First Edition (2008), vol. 4, pp. 1-8
Author's personal copy
Japan, Health System of 3
benefits gradually decreased. In the first period, the
driving force came from the military, which was
concerned about the physical condition of the draftees,
and by extension, of their potential mothers, as the war
with China intensified in the 1930s. In particular, they
wished to improve the health status in rural villages where
the majority of the population lived by extending cover-
age and by developing health-care facilities. Their efforts
were successful to the extent that, at its peak in 1943, 70%
of the population was covered. The second period was
from 1945 to 1961, when after the post-World War II
chaos had subsided, the major political parties vied to
establish a welfare state. The MHW increased subsidies
to the Citizens Health Insurance (CHI) for the self-
employed, who were managed by the municipalities. In
1961, when the last municipalities established their CHI,
universal coverage was achieved (Figure 1).
The third stage was from 1961 to 1982 when differences
in benefits were decreased by increasing subsidies to the
CHI. It culminated in 1973, when the coinsurance rate
came to be waived entirely for the elderly (70 and over),
and lowered from 50% to 30% in the CHI and dependants
of the employee-based plans. In the same year, the coin-
surance came to be waived when the amount exceeded
30 000 Yen per month in all the plans. However, 1973 was
the year when the economic growth slowed down as a
result of the oil crisis. At the same time, expenditures,
especially for the elderly, increased more than predicted
and had doubled by 1980, as many hospitals became de facto
nursing homes providing LTC, an unforeseen result of
providing free medical care for the elderly.
This set the stage for the last period from 1982 to the
present, with benefits becoming more equal by making
them less generous to those who had previously been
favored. Legislation passed in 1982 led to the introduction
of a 10% coinsurance for employees, and a small token
payment for every visit made and for every day of
CHI
GMHI
SMHI
MAA
'39 '40 '43 '49 '53 '58 '61 '70 '80 '90
Year
 Author's personal copy

4 Japan, Health System of

hospitalization for the elderly. For employees, the rate was
increased to 20% in 1997, and later to 30% in 2003. These
increases did not impact the utilization rate for outpatient
care, but they did decrease benefit expenditures (Cabinet
Office, 2005). For the elderly, the flat rate was gradually
increased, and in 2003, was changed to an across-the-
board 10% coinsurance rate. In 2003, the coinsurance
rate for the elderly with incomes above that of the average
employee was increased to 20%, and in 2006 to 30%
(Ikegami, 2006).
The Present System
Virtually all residents in Japan have compulsory coverage
either by the health plan provided by their employer or
by the municipality where they reside if self-employed
or pensioners. Dependants are covered by the plan of
the household head. There is virtually no choice
of plans, either by the employer or the employee, and
all plans provide essentially the same benefits that
include unrestricted access to virtually all providers,
drugs, dental care, and some preventive services (Campbell
and Ikegami, 1998). The coinsurance rate is 30%, with
the exception of most elderly (70 years old or older who
pay 10%), children (3 years old or under who pay 20%),
and those with designated chronic diseases. However, if
the monthly coinsurance amount exceeds on average
80 100 Yen ($720, the ceiling amount is higher if the
individual has a high income and lower if in the
low-income bracket or the individual has chronic dis-
eases), then the coinsurance rate above this amount is
reduced to 1%.
The insurance plans could be grouped into three tiers,
each enrolling approximately one-third of the population,
according to the degree they rely on subsidies from the
national government (Figure 2). The first tier consists of
plans established by the public sector, Mutual Aid Asso-
ciation (MAA), and by large companies, the Society of
Managed Health Insurance (SMHI). These plans do not
receive any subsidies. The second tier is a single plan
managed by the MHLW, the Government Managed
Health Insurance (GMHI), for those employed in small
to medium-size companies. The GMHI is subsidized at
14% of its benefit expenditures. The third tier consists of
plans established by the municipalities, the Citizens
Health Insurance (CHI), for the self-employed and pen-
sioners. The CHI plans are subsidized on average for half
of their benefit expenditures by the national government
(40% if the average income of the enrollees in the plan is
high, up to 80% if the average income is low). Most
municipalities also provide subsidies from their general
expenditure budget to decrease the premium rate on
those with low income. Another measure to narrow the
differences in the premium rate among the plans is the
pooling fund that finances the health expenditures of
the elderly. All SHI plans must contribute to this fund
on an equal basis, regardless of the percentage of elderly
they have actually enrolled.

Employers Employees Non-employees

Taxes

Co-pays Government

SMHI GMHI CHI

MAA
Fee schedule

Physicians
Clinics Public sector
hospitals
Private
sector
hospitals
Figure 2 Flow of money in the Japanese health-care system. CHI, Citizens Health Insurance; GMHI, Government-Managed Health
Insurance; SMHI, Society-Managed Health Insurance; MAA, Mutual Aid Association. Reproduced with permission from Campbell JC
and Ikegami N (1998) The Art of Balance in Health Policy Maintaining Japans Low-cost Egalitarian System. Cambridge, UK:
Cambridge University Press.

International Encyclopedia of Public Health, First Edition (2008), vol. 4, pp. 1-8
 Author's personal copy
However, the financing system is under pressure from
two factors. The first is the rapid aging of society. The
proportion of the population 65 and over has doubled from
10% in 1985 to 20% in 2005 and is projected to be 28% in
2025 (NIPSSR, 2003). In the employment-based SMHI
plans, contributions to the pooling fund have increased to
the extent that they made up 37% of expenditures in 2004
(Kenporen, 2006). The second is from the governments
austerity measures. Beginning in 1991, Japan entered into
a long period of economic depression. The decline in tax
revenue and the tax cuts made to heat the economy have
resulted in government debts that have accumulated to
1.8 times the GDP in 2006 (MOF, 2006; Nikkei BP, 2006).
Since one-quarter of the National Medical Expenditure
(NME) is financed by central government taxes, there has
been a strong pressure to contain the NME, and, in parti-
cular, the amount that is publicly financed. The govern-
ment has pledged that every effort will be made to reduce
all expenditures before taxes will be increased, which
was why the coinsurance rates have been increased, even
though expenditures have been relatively contained. Par-
enthetically, the average premium rate for the SMHI has
actually declined from 7.547% in 2003 to 7.484% of
annual income in 2004 (Kenporen, 2006).
Reimbursement System
Basic Structure of the Fee Schedule
The present fee schedule ultimately derives from the
fee-for-service payment designed for clinical physicians
when the Health Insurance Act was implemented in 1926.
Dispensing was the most important component, so much
so that the basic unit of payment was based on the fee for a
days dosage. To this day, many physicians offices and
hospitals still dispense drugs. Another legacy is that the
fee schedule does not distinguish between payment made
to physicians and that to hospitals so that both services are
listed together in the fee schedule. Hospitals are paid on
the same basis as clinics with no explicit mechanisms for
reimbursing capital expenditures or administrative costs.
Hospital-based physicians, who are all employees except
the owner, receive fixed salaries and are treated in a
similar way to the staff employed by solo practitioners in
their clinics for reimbursement purposes.
The fee schedule plays a key role in linking the
financing and delivery systems by serving as the valve
that controls the money flowing from all insurance plans
to all providers (Figure 2). It has maintained equity by
making the benefit package essentially the same for all
insurance plans, contained costs by restricting other
sources of revenue to the providers, and reduced admin-
istrative costs. The fees and prices are uniform throughout
Japan and, in principle, are the same for university hospi-
tals and clinics, and do not adjust for differences in the
International Encyclopedia of Public Health, First Edition (2008), vol. 4, pp. 1-8
Japan, Health System of 5
local level of wages or cost of living. While this may
seem to be unfair, it has contributed to a more equitable
geographical distribution because the higher wages that
the health-care workers demand in large, urban medical
centers is compensated by the fact that their physicians
are willing to accept lower remunerations for the profes-
sional satisfaction of practicing in these settings. On the
other hand, workers in a rural or small hospital, or clinic,
are willing to work at lower wages, but the physicians
would only do so if offered more payment. The only
major exception to this nationally uniform reimburse-
ment is in the case-mixed-based payment which was
introduced in a limited way for acute inpatient care in
2003 for hospitals meeting prescribed standards. In this
case, the per-diem reimbursement rate is adjusted by a
conversion factor specific to each hospital that reflects the
amount it would have received if reimbursed by the
former fee-for-service form of payment.
Services, drugs, and devices not listed in the fee sched-
ule cannot be provided in combination with those that are
covered during the course of the same treatment. Should
they be provided, then all costs, and not just that of the
uncovered services, must be paid out of pocket, with the
exceptions of the services listed in the Specified Medical
Costs. These mainly consist of extra charges for hospital
rooms with more amenities and new technology still under
development. Thus, the only other sources of revenue for
providers are the subsidies to public-sector hospitals and
services provided outside the SHI. However, the latter
services are confined to the normal delivery of babies
(for which a lump cash payment is made to the enrollee),
preventive measures (covered either by the local govern-
ment public health program or as part of occupational
health), and cosmetic surgeries (Ikegami, 2006). Paren-
thetically, extracts of Chinese herbal medicine are covered
if listed in the SHI formulary and prescribed by a physician
for patients meeting the designated conditions.
Revising the Fee Schedule
There are three steps in the revision of the fee schedule
made every 2 years. First, at the macro level, the cabinet
decides on the global rate of revision, with the Ministry of
Finance demanding a decrease, the JMA lobbying for an
increase, and the MHLW playing a key role by providing
the data and technical expertise. Since one-quarter of the
National Medical Expenditure (NME, excludes subsidies
to public-sector hospitals, OTC drugs, etc., included in the
OECD data) is funded from the national governments tax
revenue, this rate must be set so that the allocated amount
will remain within the general expenditure budget.
Second, the price of drugs set by the payment system is
revised primarily according to the results of a market-
price survey. The government researches the current
price of each drug through a survey of providers and
 Author's personal copy
6 Japan, Health System of
on-site inspections of the wholesale distributors books. It
normally finds their prices are lower than that set by the
SHI because of the competition among the distributors.
Accordingly, the fee schedule price of each drug is revised
to reflect its volume-weighted average market price. The
margin allowed between the latter and the revised price
has been progressively decreased from 15% in 1990 to the
present level of 2%. Since dispensing has become less
profitable, the percentage of prescriptions dispensed by
outside pharmacies declined to 53% in 2005 (MHLW,
2006b). Independent of this survey, the price of new
drugs that had sales greater than the amount estimated
by the manufacturers and the price of brands that have
had generics introduced since the previous revision are
unilaterally decreased. These factors have led to a contin-
uous downward spiral of prices and to a decrease in the
ratio of health expenditures consumed by drugs from 39%
of the NME in 1981 to 20% in 2003 (Iryo Hoken Seido
Kenkyukai, 2005). The savings made from these decreases
in drug prices have been allocated to increases in service
fees. However, drug expenditures have been contained
less than one would expect because of the introduction
of new drugs. The price of a new drug is set by evaluating
the degree of innovativeness and effectiveness with a
comparator, and its price in the United States, Germany,
France, and the United Kingdom. The price of devices is
set and revised in a similar way.
Third, service fees are individually revised, within the
budgetary limits set by the first two steps, and not by
applying a global revision rate across the board as a
conversion factor. The fees for those that have shown
inappropriately large increases in volume may be cut
dramatically. For example, in the 2002 fee schedule revi-
sion, the fee for a head MRI was reduced from 16 600 Yen
(US$138) to 11 400 Yen (US$95). Such examples of con-
taining costs via micromanagement of the fee schedule in
the biennial fee revisions have been multiplied many
times over and have blunted increases in costs stemming
from the expanded use of high-tech equipment. Paren-
thetically, despite these cuts in fees for MRI, which have
also been made in the past, Japan has the highest per
capita number of MRIs in the world (OECD, 2005)
because they have spurred the development of low-priced
types of MRI.
The second and third decisions are made by the Central
Social Insurance Medical Care Council of the MHLW,
which is composed of representatives from providers and
payers, and those to represent public interest. The objec-
tive basis for making the latter decision is provided from
the survey of the financial condition of hospitals and
clinics made by the MHLW in the year prior to the
revision: If a particular specialty or type of facility is
found to be making a large profit, then fees in that area
are likely to be reduced. In addition, the MHLW conducts
a survey of the claims data to estimate the volume of each
item, so that the effect of revising any particular item on
International Encyclopedia of Public Health, First Edition (2008), vol. 4, pp. 1-8
the NME can be calculated. Although the revision process
tends to become heated as the specialty and hospital
groups lobby the MHLW and the JMA, care has been
taken to maintain the balance among the providers: Hos-
pitals versus clinics, acute care versus chronic care, and so
forth. This balancing principle has inhibited rapid changes
and minimized conflict. It has kept important constituents
from becoming too dissatisfied and, if dissatisfied, allowed
them to hope to do better in the subsequent fee-revision
process 2 years later (Ikegami, 2005).
Trends in Medical Expenditures and Prices
Figure 3 shows the annual percentage increases in the
GDP and the NME, and the global revision rate from
1980 to 2002. Since health and fiscal policy is focused on
the nominal NME, rather than the per capita or deflated
amount, analysis will be made using these figures.
The first point to note is the relationship of the NME
to the GDP. When averaged out for the period from 1980
to 2002, NME increased at an annual rate of 5.0%, com-
pared to GDP at 4.0%. However, the pattern is quite
different in the 1980s, when the economy expanded at
the rate of 6.4%, and after 1990, when the rate was just
2.0%. From 1980 to 1989, since the NME grew at about the
same rate as the GDP, the ratio remained constant at around
5%. However, after 1990, the economy declined sharply; in
the latter half of the decade, the nominal growth rate of
GDP became zero or even negative. During this deflation-
ary period, the growth rate of NME actually declined, but
less so than that of the GDP, so that its share increased from
4.6% in 1990 to 6.0% in 1999. After 2000, the gap has ceased
to expand as cost-containment efforts were intensified.
The second point is the impact of revisions in the
national fee schedule on NME growth. It can be seen
that the global revision rate has had a substantial effect
on the NME, with the correlation of the annual increase
rate between the two indices being 0.78 for the years
studied. It should be also noted that medical inflation
was sharply constrained during this entire period, averag-
ing only 0.46% per year, which is 1 percentage point
lower than the consumer price index (CPI) of 1.46%.
After 2002, the revision rate was a net zero in 2004 and
decreased by 3.16% in 2006.
The third point is, because medical inflation has been
minimal, the bulk of the increase can be attributed to
three factors: Population growth, population aging, and
other (the residual). Demographic factors have had a
constant effect due to declines in birth rate and increases
in the proportion of the elderly: The two together have
contributed to an average annual growth rate of 1.8% in
the NME. The other category includes changes in volume
(the number of patient visits and hospital days) and
advances in technology. While it is not possible to sepa-
rate out these factors, since volume has tended to
decrease, almost all the increases in the residual could
 Author's personal copy

Japan, Health System of 7

12.0

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6.0

4.0

2.0

0.0
80

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20
2.0

4.0

National Gross Fee-schedule

medical domestic prices
expenditures product

Figure 3 Annual changes in gross domestic product, national medical expenditures and average fees, Japan, 19802002.
Reproduced with permission from Ikegami N and Campbell JC (2004) Japans health care system: Containing costs and attempting
reform. Health Affairs 23(3): 2636.

be ascribed to advances in technology. The average annual
increase of the other category was 2.8%, which is lower
than that of the GDP, and negates the widely held belief
that advances in technology must inevitably drive up
health-care costs (Ikegami and Campbell, 2004).
Prospects for the Future
While Japan has managed to maintain equity and contain
costs by relying on the fee schedule, both the delivery and
the financing systems are under pressure to reform. In the
delivery system, the laissez-faire policy of permitting phy-
sicians to open clinics and profess any specialty has led to
their uneven distribution. In particular, there is a shortage
of hospital-based pediatricians and obstetricians as their
work-load is heavy and compensations low, when com-
pared with clinic-based physicians. Moreover, the patients
trust has eroded as medical errors have come to be reported
in prestigious hospitals (Leflar and Iwata, 2005). In the
financing system, the cross-subsidization among plans to
equally share the cost of caring for the elderly has become
increasingly difficult to sustain as society ages. Cutting fees
to absorb the increases in the NME due to population aging
and advances in technology will also become more difficult
because this would ultimately lead to reducing the income
of health-care workers. This would not be a practical solu-
tion because labor is likely to become in shorter supply as
the economy started to grow again in 2002.
To meet this challenge, in June, 2006, the Diet passed a
comprehensive package of reform drafted by the MHLW.
In the delivery system, the 47 prefectures will be given
greater responsibility to coordinate services within each
major disease group (such as cerebral strokes), to shorten
the average length of stay, and to implement preventive
services for the early detection and intervention of the
metabolic syndrome (MHLW, 2006c; Ogata, 2006). In the
financing system, the prefecture will become the unit for
restructuring health plans and also that of the new inde-
pendent health insurance plan that will enroll all elders
75 and over. Should the SHI plans fail to meet targets,
then their contributions to the new plan that enrolls all
elders 75 and over will be increased by up to 10%. Thus,
the fiscal responsibility will be gradually devolved from
the MHLW to the prefectures. Each prefectures pre-
mium level would reflect the communitys needs, willing-
ness to pay, and the efficiency of the delivery system.
However, whether the prefectures are up to this chal-
lenge and whether costs can be contained by the reform
plan remain questionable. Prefectures do not have expe-
rienced staff who can take a proactive role in health policy.
Coordinating services among providers will be difficult
since they tend to be functionally undifferentiated and
therefore compete with, rather than compliment, each
other. Shortening the average length of stay may decrease
hospital costs but would be offset by increases in home
and community care and LTC costs. Systematic screening
of metabolic syndrome may not lead to the improvement
of life style by counseling as envisioned, but to aggressive
treatment, which would increase immediate costs without
any assurance of containment in the future (Thorpe and
Howard, 2006). Perhaps most important, the degree to

International Encyclopedia of Public Health, First Edition (2008), vol. 4, pp. 1-8
 Author's personal copy
8 Japan, Health System of
which decisions on revisions of the fee schedule would be
transferred to the prefectures remains unclear because it
raises the issue of geographical equity.
An alternate solution advocated by the Economic and
Fiscal Council of the Cabinet Office is to restrict SHI
benefits to a basic package, allow extra billing by providers,
and permit the entry of investor-owned for-profit hospitals.
By doing so, the pressure on the general expenditure budget
that subsidizes the SHI would decrease and patients as
consumers would have more opportunities to exercise
their choice. However, this would not only erode the egali-
tarian provision of services, but also remove the fee sche-
dules tight control on benefits and reimbursement. By
doing so, the door will be opened to an inflationary and
inefficient market-oriented system (Ikegami, 2006). Japans
future health-care policy should be closely monitored to
determine whether the solidarity principles of SHI are
sustainable in a society with increasing disparities in income
(Tachibanaki and Urakawa, 2006).
See also: Acute Care Hospitals; Adolescents; Agenda
Setting in Public Health Policy; Blood Transfusion
Services; Comparative Health Systems; The Demand for
Health Care; Dentists; Determinants of National Health
Expenditure; Disability and Rehabilitation; Emergency
Medical Technicians; Governance Issues in Health
Financing; Health Finance, Equity in; Health Policy:
Overview; HIV/AIDS and TB; Home Care; Hospice and
Palliative Care; Innovative Financing of Health Promotion;
Insurance Plans and Programs An Overview; Interest
Groups and Civil Society, in Public Health Policy; Long
Term Care in Health Services; Long Term Care, Organisa-
tion and Financing; Maternal Health Services; Mental
Health and Substance Abuse; Nurses; Oral Health;
Planning, for Public Health Policy; Primary Health Care;
The Private Sector in Health Care Provision, The Role of;
Provider Payment Methods and Incentives; Public Health
Professionals; The State in Public Health, The Role of;
Universal Coverage in Developing Countries, Transition to.
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