Japan’s health care system is a source of great pride for the country. Japan attained universal health coverage over 50 years ago and the country's health outcomes are some of the best in the world by many measures, while health care spending is at relatively low levels. Despite the many positive aspects of the system, it faces challenges. The demographic wave of rising numbers of elderly will put new pressures on the care delivery system and the nation’s budget. Moreover, the country has high utilization of many health care services, care delivery is often fragmented, and measures of quality are not commonly available or necessarily used for continuous improvement. How will Japan address these issues and manage the health care needs and rising costs of its aged and still aging society? What can other countries, such as the United States, learn from the Japanese experience, and can new care delivery innovations taking place around the globe help address Japan's challenges?

1. Health Care in Japan’s Aged Society
May 14, 2015
Temple University
Institute of Contemporary Asian Studies
Jennifer Friedman
Council on Foreign Relations
International Affairs Fellow in Japan
Sponsored by Hitachi, Ltd
Meiji Institute for Global Affairs

2. Outline
• Disclaimers.
• Successes and Challenges of Japanese Health
Care System.
• Japanese Health Care Policies to Manage Care
Needs and Rising Costs of Aging Society.
• Health Care Delivery Reforms Abroad (focus
on the U.S.)
• Questions/Comments.
2

3. Successes of Japan’s Health Care System
3
In 2011, Japan celebrated 50 years of
universal health insurance
“Japan's success in achieving universal
health insurance has improved equity
in our health system, expanded
coverage for our citizens, and
controlled health-care costs. Our
experience shows how investment in
[Universal Health Coverage] brings
good returns.”
Prime Minister Shinzo Abe
The Lancet, Sept 27, 2013

4. Comparison of Japan and
U.S. Health Care Systems
Japan United States
Independent Providers Yes Yes
Fee-For-Service Payment
System
Yes Yes, along with closed
networks/managed care
and newer payment
models
Multiple Payers/Insurers Yes (>3400) Yes
Defined Benefit Yes Defined categories of
benefits, but variation
between states
Provider Access Open access Networks of providers
Prices Set by government Set/negotiated by payer
Universal Coverage Yes No
Long Term Care Social
Insurance
Yes No, Medicaid for low-
income and disabled. 4

5. Japan’s Open Access,
Fee-For-Service System
• Fee-For-Service (FFS) is a payment system where each
item or service is paid separately.
• Creates incentives to provide more care. Payment is
dependent on quantity, not quality, of care.
• U.S. and Japan do use other mechanisms to counter
this incentive, such as bundled payments for some
services.
• Open access means patient can choose to go to any
doctor. Insurance is not limited to a certain network of
providers. There is no “gatekeeper” or primary care
provider managing individual patient care.
5

6. Japan’s Multi-Payer System
• It is NOT single payer. There are 3400+ insurers in
Japan.
• Government sets rates that are used by all payers to
pay providers, for all items and services, with some
variation based on provider characteristics.
• Payment rates revised every two years by Chuikyo,
Central Social Insurance Medical Council.
• Payment rate for particular service may be cut if
volume appears to be growing inappropriately.
• Incentives built into rate system to encourage certain
types of provider behavior, such as care at home,
increased generic drug utilization.
6

7. U.S. Health Care Spending Dramatically
Exceeds Japan and OECD
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
TotalHealthSpendingas%ofGDP
USA
Japan
OECD Average
7Source: OECD

8. U.S. Health Care Spending Dramatically
Exceeds Japan and OECD (continued)
$8,745
$3,649 $3,484
2012 Overall Spending Per Capita
(U.S.$ Purchasing Power Parity)
USA Japan OECD
8Source: OECD

9. Why is Japan Health Spending So Low..
• Japan’s multi-payer rate setting leads to lower
prices.
• Japanese payment rates set to discourage
costly surgical procedures and encourage
lower cost office visits.
9
Japan’s rate setting system, and resulting low
payment rates, is key reason why health care
spending has been kept low/on par with OECD.

10. …Or, Why is U.S. Health Spending So High
• Higher prices due to diluted purchasing power of
multiple payers.
• More resource intense (though shorter) hospital
stays; access to costly technology.
• Higher administrative costs due to multiple payers
running their own systems, marketing costs, and
underwriting system (pre-health reform).
• Higher physician salaries for U.S. doctors.
10
Higher U.S. health spending
driven by higher prices.

11. High U.S. Spending Mainly Due to Prices
High U.S. spending “cannot be attributed to higher income, an older
population, or greater supply or utilization of hospitals and doctors….
higher spending is more likely due to higher prices and perhaps more
readily accessible technology and greater obesity…. Of the countries
studied, Japan has the lowest health spending, which it achieves
primarily through aggressive price regulation”
– Commonwealth Fund, “Explaining High Health Care Spending in the
United States: An International Comparison of Supply, Utilization, Prices
and Quality,” (2012).
“In 2000 the United States spent considerably more on health care than
any other country…. At the same time, most measures of aggregate
utilization… were below the OECD median…. this implies that much
higher prices are paid in the United States than in other countries. U.S.
policymakers… could conclude: It’s the prices, stupid.”
– “It’s The Prices, Stupid: Why The United States Is So Different From Other
Countries, Health Affairs (2003)
11

12. Japan Spending Growth Rate Higher
Than U.S. in Recent Years…
3.6%
2.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0% 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
HealthExpenditure
AnnualGrowthRate
USA Japan
12Source: OECD
Average Annual Growth
Rate (2000 to 2012):
U.S. 3.9%
Japan 3.3%
OECD: 3.8%

13. …But Per Capita Growth Rate Tells a
More Complicated Story
3.4%
1.3%
3.0%
2.8%
4.9%
3.0%
4.1%
0.2%
3.4%
2000 - 2009 2009 - 2011 2000 - 2011
HealthSpendingPerCapita
AverageAnnualGrowthRate
U.S.A. Japan OECD
13Source: OECD

14. Medical Spending Estimated to Grow
By More than Half by 2025…
¥20.1 ¥22.0
¥28.1
¥14.8
¥16.9
¥25.0
¥5.8
¥6.3
¥7.9
¥40.7
¥45.2
¥61.0
¥-
¥10.0
¥20.0
¥30.0
¥40.0
¥50.0
¥60.0
¥70.0
¥80.0
2012 2015 2025
JPYinTrillions
premiums public fund copays
…From 8.5% of GDP to 10% of GDP.
14Source: MHLW

15. Aging and New Technology Usage
Drive Spending Increases
2006 2007 2008 2009 2010 2011 2012 2013 2014
Increase in health
expenditures 0.00% 3.00% 2.00% 3.40% 3.90% 3.10% 1.60% 2.20%
Biannual fee
schedule revision -3.16% NA -0.82% NA 0.19% NA 0.004% NA 0.1%
Population change 0.00% 0.00% -0.10%
-
0.10% 0.00% -0.20% -0.20% -0.20%
Aging effect 1.30% 1.50% 1.30% 1.40% 1.60% 1.20% 1.40% 1.30%
Residual
(technological
advances/other) 1.80% 1.50% 1.50% 2.20% 2.10% 2.10% 0.40% 1.10%
15Sources: MHLW and MOF

16. Japan’s Aging, and Shrinking, Society
16
Source: IPSS

17. Japan’s Aging, and Shrinking, Society
 Japan is the most aged society in the world, with 24.1% of the population older
than 65 in 2012, rising to 40% of the population by 2060.
 Japan’s population of 127 million has been shrinking since 2010 and estimates are
that it will decrease to 86.7 million by 2060. 17

18. Japan Per Capita Health Costs
(by age, ¥ in 1000s, 2011)
223
123
86 68 71 90 106 116 132
167
210
266
352
454
614
771
910
1009
1086
1167
1198
0
200
400
600
800
1000
1200
1400
0to4
5to9
10to14
15to19
20to24
25to29
30to34
35to39
40to44
45to49
50to54
55to59
60to64
65to69
70to74
75to79
80to84
85to89
90to94
95to99
100+
% hospital % non hospital
18
Source: MHLW

19. A Different Estimate of Health
Spending Projections
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
2010 2020 2030 2040 2050 2060
HealthSpendingas%ofGDP
0%/year
1%/year
2%/year
Same analysis finds a historical trend of 0.9% excess cost growth during the last
two decades. Assuming the same trend going forward, health spending will
reach 15.6% of GDP in 2030 and 26.6% of GDP by 2060.
Excess Cost Growth =
excess of growth in
per capita health
spending over per
capita GDP growth,
after controlling for
the effect of
demographic change.
19
Source: IMF

20. Areas of High Health Care Utilization
Japan USA OECD Average
Hospital beds 1/ 13.4 3.1 4.8
Hospital average length of stay 2/ 17.5 4.8 7.4
Discharge rate 3/ 11,055 12,549 15,590
Doctor consultations 4/ 13 4 6.7
MRI 5/ 46.9 35.5 13.9
Generic Drug Penetration 6/ 23% to <~50% 78% 41%
1/ Per 1000 population. Japan and OECD (2012). USA (2010).
2/ Average length of hospital stay, all causes, days. Japan and OECD (2012). USA (2010)
3/ Discharge rate per 100,000 population. Japan (2011). USA (2010). OECD (2012).
4/ Per capita. USA (2010). Japan (2011). OECD (2012)
5/ MRI machines total, per 1,000,000 population. USA (2013). Japan (2011). OECD (2012)
6/ U.S. Congressional Budget Office (2010). Japan range due to varying methodologies, OECD
(2011 data). MHLW and EFPIA (2013 data).
20
Source: OECD

21. Other Issues
• Open access to any provider means there is not a
strong culture of a primary care provider who
coordinates care.
• Open access also has fostered competition
between providers, which in turn results in lack of
information sharing.
• Limited sharing of electronic health records/ICT
to improve care coordination.
• Quality measurement voluntary, not made public,
limited measures. Is it used to drive
improvement?
21

22. Many Good Health Outcomes,
but Others Mixed
Japan U.S.
Life expectancy at birth 83.2 years
(ranked 1st out of 34)
78.7 years
(ranked 27th out of 34)
Mortality from
cardiovascular disease
Ranked 33rd
(Lower is better)
Ranked 17th
(Lower is better)
Mortality from cancer Ranked 28th
(Lower is better)
Ranked 25th
(Lower is better)
Adult obesity (as
measured)
Ranked 16th out of 16. Ranked 1st out of 16.
Daily smokers 20.7%
(ranked 16th)
14.2%
(ranked 31st)
Alcohol consumption
(liters per capita)
7.2 (ranked 28th) 8.6 (ranked 23rd)
Suicide rate
(per 100,000 population)
20.9 (ranked 3rd out of
33)
12.5 (ranked 12th out of 33)
22
Source: OECD

23. Japan’s Health Care Policies
(not exhaustive list)
Cost-savings
• Increase utilization of
generic drugs.
• Health technology
assessment (pilot in
2016).
• Reduce reimbursement
for hospital meals.
• Increase copays.
• Annual price revision
for Rx?
System Reforms to
Improve Efficiency and
Value
• Hospital bed
realignment.
• Fee for care at large
hospital without
referral.
• Shifting national health
insurance system to
prefecture?
Meeting Care Needs of
Elderly
• Integrated communities
of care.
• Other policies listed can
also meet goal of
improving how care
needs of elderly are
met.
These three categories are not mutually exclusive; many policies meet multiple goals.
23

24. Increase Generic Drug Utilization
76%
41%
23%
9%
78%
0%
20%
40%
60%
80%
100%
GenericRxSharebyVolume
• Alternative methodology
estimates Japan generic
penetration at <~50% in 2013.
• Goal of increasing penetration
to 60% by 2018. Discussion of
accelerating timetable or
raising target.
• Industry estimates generic
penetration from promotion
measures of 59% by 2017,
70% by 2025.
• Industry estimates potential
savings of ¥593b/year, ¥8.3T
(2012-2025).
24Sources: OECD, U.S. CBO, EFPIA

25. Health Technology Assessment (HTA)
• Economic analysis may be cost effectiveness (cost/QALY),
budget impact, comparative effectiveness to inform pricing,
other.
• HTA pilot by 2016.
• Will HTA be used to limit coverage (unlikely), modify
reimbursement, and/or delist older drugs?
• Who will pay for the necessary research?
• Who will conduct the research?
• Impact on timelines for drugs/device to enter market and
patient access? 25
Definition: “Multidisciplinary process to evaluate the social, economic,
organizational and ethical issues of a health intervention or health
technology. The main purpose of conducting an assessment is to inform a
policy decision making [coverage or reimbursement decisions].” - World
Health Organization.

26. Shifting National Health Insurance to
Prefectures
• Currently, municipalities manage national health
insurance for individuals who do not have corporate or
civil servant insurance , mainly self-employed, part-
time workers and retirees < 75 years old.
• Shifting responsibility for managing and financing
health insurance from municipalities to prefectures,
starting 2018.
• Shift responsibility for long-term strategic planning
from national government to region/prefectures.
• Increase federal government investment.
• What will be the impact of consolidating responsibility
at prefectural level?
26

27. General acute
~350,000 beds
Highly acute 180,000 beds
Sub-acute/Recovery
~ 260,000 beds
Long-term care
280,000 beds
Highly acute/General acute:
Reduce average length of stay.
Revise standards for long-term
inpatients and high nursing
levels.
Sub-Acute/Recovery: New
beds for post-acute, including
sub-acute. Support home care
and return to daily life.
Long-term care: Facilities for
long-term care patients.
Other Issues : Promote home
care. Consideration of regions
with scarce medical resources
and clinics with inpatient
facilities.
7:1
¥15,660
10:1
¥13,110
13:1
¥11,030
15:1
¥9,450
357,569
beds
210,566
26,926
54,301
Care
ward
216,653
Shift Patient Care to Lower Cost Settings
Patient to nurse ratio
JPY/day in 2012
2012 2025 27
Sources: MHLW and MOF
Outpatient treatment
Home care

28. Integrated Communities of Care
• Create “community-based integrated care,” defined as a system
that provides appropriate living arrangements for the elderly and
social care, such as daily life supports, in addition to long-term and
medical care. Use proper housing and home care services to
reduce costly institutional care.
• Shift elderly from costly hospital settings of care to home care.
• New funds to localities to support medical care and long-term care.
• How will this transition take place? What supports exist to assist in
the transition?
Goal: Better coordination between
medical and long-term care for elderly.
28

29. Delivery System Reforms in the U.S.
• Affordable Care Act (ObamaCare) testing new payment systems to counter
the incentives of fee-for-service, encourage more efficient delivery of care.
• Goal is to encourage better coordination across providers and reduction in
unnecessary services while maintaining or improving quality. Pay for
“value”, not “volume”.
• Some similarity to Japanese goal of shifting patients to lower cost settings
of care.
• U.S. focus on encouraging integrated care, but integrated care defined
differently.
– U.S.: integration of patient care across the continuum from primary
care to acute care (hospital) to post-acute care.
– Japan: integration of LTC and medical care. Integration of ownership.
29

30. Delivery System Reforms in the U.S.
(continued)
• Medicare Models include: Accountable Care Organizations (ACOs), Value
Based Purchasing (VBP)/Pay-for-Performance (P4P), Bundled Payments,
Medical Homes, etc. Medicaid and private payers also pursuing reforms.
• Cautions:
– These models are being tested, not yet proven.
– Need good patient data, ability to share data, and analytic capabilities
to assess patient population and identify costly patients or those at-
risk of high cost.
– Need good quality measurement tools to ensure that quality is
maintained/improved and to protect against stinting of care.
• These delivery system reforms not unique to U.S.
30

31. Accountable Care Organizations
(ACOs)
• Medicare Accountable Care Organizations (ACO) Definition:
– Groups of doctors, hospitals, and other health care providers
who come together voluntarily to provide coordinated care to
Medicare patients.
– If ACOs save Medicare money as compared to a projected trend
for their patient population, they share in those savings as long
as quality is maintained or improved.
– Goal is to reduce unnecessary services, prevent medical errors,
ensure patients get the right care at the right time.
• Payments still based on fee-for-service system.
• Beneficiary still has open access to other providers.
• 450+ Medicare ACOs, nearly 8 million beneficiaries in 49
states.
31

32. Continuum of ACOs
Advance
Payment/
Investment
Model (35):
Shared savings
participants
receiving help
with upfront
costs (rural or no
hospital).
Shared Savings
Program (404):
Most only share
in savings during
first contract
cycle.
Pioneer ACOs
(32, now 19):
Share in gains
and losses. Can
receive
population based
payment in
exchange for
reduced FFS
payment.
Next Generation
ACOs (Expect 15-
20):
Greater sharing
of gains and
losses, possibility
of capitated
payments.
32
There are different ACO models with varying
levels of shared savings and losses, reflecting
readiness of providers to take on risk.

33. Independent Evaluation of Pioneer ACOs
• 32 ACOs, 670,000 beneficiaries (2012).
• Pioneer ACO’s saved a total of $384 million over first two
years.
• Fewer inpatient stays, procedures, imaging and tests.
• Quality measures stable or improving: reduction in admissions
for COPD, adult asthma, and heart failure. Earlier doctor’s
appointments after discharge.
• Few changes in patient perception of quality/satisfaction.
33
Source: L&M Policy Research

34. 2012 2013
Total Spending (in millions) -$279.7 -$104.5
Total spending (per beneficiary per month) -$35.62 -$11.18
Acute care inpatient stays -9,926 -8,444
Acute care inpatient days -40,799 -15,314
Acute care inpatient stays
(per 1000 beneficiary months)
-1.26 -0.9
Acute care inpatient days (per 100 beneficiary months) -0.52 -0.16
Primary care evaluation and management services
(per 100 beneficiary months)
-0.52 -0.15
Procedures (per 100 beneficiary months) -3.0 -1.97
Imaging services (per 100 beneficiary months) -1.76 -0.84
Tests (per 100 beneficiary months) -5.24 -4.33
34
Source: L&M Policy Research
Independent Evaluation of Pioneer ACOs

35. Independent Evaluation of Pioneer ACOs
Ongoing Challenges:
• Care transitions widely considered important but ability to
manage this aspect of care affected largely by availability of
timely admissions data.
• Data sharing is an issue – need to navigate multiple EHRs,
build and improve data warehousing capabilities,
communicate electronically across different care settings.
“Based on historical evidence from the formal evaluation of
the Pioneer ACO Model as well as independent internal
analysis of financial impacts…I certify that expansion of the
Pioneer Model would reduce net program spending…. “
- Chief Actuary, Centers for Medicare and
Medicaid Services
35

36. Accountable Care in Japan?
• A tool to incentivize more efficient care, which
can get at that “other” driving spending
increases.
• Need providers to work together to coordinate
care.
• Need gatekeeper or patient loyalty to specific
providers.
• Need data analysis capabilities and information
sharing.
• Need quality measures.
36

37. Conclusion
• Japan’s health care system successful at providing
equitable benefits, managing costs.
• Japan has areas of high health care utilization.
• Along with aging, high utilization/technology
driving spending increases.
• Different strategies underway to shift care to
lower cost settings, save money, provide
integrated medical and long-term care for elderly.
• But, could U.S. and other models of “accountable
care,” help to further address areas of high
utilization and slow spending growth?
37

38. Questions/Comments?
Jennifer Friedman
Jennifer_Friedman@miga.jp
jen1700@hotmail.com