Health Policy
White Paper

Charting a Path for
Sustainable Healthcare
in Japan

The American Chamber of Commerce in Japan

Published by:
The American Chamber of Commerce in Japan
Masonic 39 MT Bldg. 10F
2-4-5 Azabudai
Minato-ku, Tokyo 106-0041 Japan
Tel +81 3 3433 7358
Fax +81 3 3433 8454
external@accj.or.jp
www.accj.or.jp© 2023 The American Chamber of Commerce in JapanAll rights reserved.

Charting a Path for Sustainable Healthcare in Japan

ACCJ Health Policy White Paper

TABLE OF CONTENTS
Introduction ............................................................................................................................... 4
Invest in Prevention, Early Detection, and Treatment ....................................................................... 7
Maximize the Quality and Efficiency of Healthcare Delivery through New Advancements
in Digital and Data Innovation ................................................................................................ 14
Foster an Appropriate Innovation Policy and Explore New Models of Reimbursement .......................... 22
Ensure the Financial Sustainability of Japan’s Healthcare System ..................................................... 30
Please note that slides are listed at the end of each chapter

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Introduction
Japan faces a very modern problem: its success in delivering universal health coverage and fostering
longer life expectancy has led to demographic and social changes that give rise to a new set ofinterconnected healthcare challenges. The COVID-19 pandemic has exacerbated many of thesechallenges, bringing the importance of investment in health to the forefront of policy issues. The
response to the ongoing pandemic has placed additional strain on the healthcare system and stretchednational finances. As the Japanese Government moves to reform its healthcare system to address thesechallenges, we encourage Japan to develop new policy approaches that promote innovation in all areas of
the healthcare system so that Japan can continue to make advances in healthy life expectancy, improve
productivity and move to the next phase of economic growth, while maintaining Japanese patients’ accessto the most cutting edge medicines, technologies and treatments as well as the security and stability ofJapanese health and social care provision.
At the root of these challenges is the dramatic aging of Japanese society and its low birth rate. Nearly athird of Japanese people are aged 65 and over, and that percentage is expected to rise to 45% by 2050.
Aging populations create pressing needs in nursing care and chronic disease care in areas including
diabetes, dementia, heart disease and cancer. As the population ages, health is increasingly in thefinancial spotlight: national expenditures on healthcare hit a record high in FY2019, reaching ¥44.4
trillion, up ¥994.6 billion from the year prior (¥351,800 per capita).
As the Japanese Government has recognized, adapting to this situation requires a variety of policy
approaches, including improving the fiscal sustainability of the social security system and fostering amore dynamic society with higher productivity and more women and seniors in the workforce. Against
this backdrop, it is clear that health should be viewed as an investment: improving the health of Japanesepeople will be critical to reducing cost, lowering the incidence of preventable diseases and ensuring that
more people can lead active, productive lives well into their senior years.
More than most nations, Japan is capable of meeting these challenges: healthy life expectancy in Japan—
the age until which people can live without sustained medical or nursing care assistance—is about 71
and 74 years on average for men and women, respectively. With the right policies and approach tohealthcare, Japan can continue to improve the health of its citizens and create a blueprint that aging
societies across the world can follow.
The aim of this White paper is to introduce evidence-based global best practices that can assist theJapanese Government in the development and implementation of relevant policies. We have charted thispath to sustainable health care across four key “actions.”

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01 Invest in Prevention, Early Detection and Treatment
In recent years, the Japanese Government (hereafter the Government) has shifted its focus from
simply caring for disease to applying the practices of prevention, early detection, and earlier aggressive
treatment to reduce overall health care expenditures and sustain the productivity of its citizens. While
much progress has been made, much more can still be done. As such, the ACCJ has outlined a wide
range of evidence-based policy recommendations to support investments in prevention, early detection,and early treatment across several themes:⿠ Healthy Living & Well-being
⿠ Communicable Diseases
⿠ Non-Communicable Diseases
⿠ Women’s Health⿠ Childhood Medical Care⿠ Mental HealthIn addition, from a more comprehensive perspective, we put forward a set of recommendations toaccelerate these efforts even further:⿠ Implement a holistic approach to national-level preventive actions
⿠ Accelerate innovative approaches to enhancing prevention, early detection and early treatment
⿠ Empower and educate citizens to take control of their health

02 Maximize the Quality and Efficiency of Health Care Delivery through New Advancements in
Digital and Data Innovation
The Government has recognized the need for better health care data management and has begun efforts
to centralize data platforms and accelerate data-driven innovation programs, while at the same time,strengthening cybersecurity infrastructure to safeguard against external threats.
Despite these efforts, Japan trails other developed countries in the implementation of a comprehensive
health care data platform. Much more should be done to incentivize the proper collection and utilizationof healthcare-related data. Specifically, we suggest that the Government:⿠ Expand the reach of data collection beyond health care to achieve unique Japanese innovations
⿠ Strengthen public-private partnership and citizen engagement to propel innovation
⿠ Harmonize information sharing among public and private sectors to mitigate cybersecurity risk
⿠ Ensure the usability of a future health care data platform

03 Foster an Appropriate Innovation Policy and Explore New Models of Reimbursement
In response to accelerated health care innovation in Japan, the Government launched its health careinnovation initiative in 2014. Since then, the Government has pursued several broad initiatives forresearch and development (R&D) support and registration, authorization, commercialization andevaluation and reimbursement. Despite this progress, recent reforms to the pricing and reimbursement ofinnovative medical technologies threaten to undo the progress made in recent years.

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With the clear purpose of delivering health care innovation to people in need as soon as and as safely
as possible, we encourage the Government to increase its efforts to improve how it allocates physical,
human and financial resources to maximize the potential for innovation. The Government should ensurethat any new polices are fundamentally aligned with incentivizing innovation. We strongly urge theGovernment to:⿠ Reexamine the current reimbursement and pricing system to encourage and reward innovation
⿠ Explore appropriate incentive packages to support the development of technologies of therapies
needed by limited but underserved patient groups⿠ Provide end-to-end support and a robust partnership between academia and industry to accelerateinnovation
⿠ Discuss the future of fast-track registration and regulatory harmonization

04 Ensure the Financial Sustainability of Japan’s Healthcare System
Japan’s healthcare system is respected around the world for its quality of care and contribution to thelong-life expectancy of Japanese people. However, the aging society and low birth rates are causing strain
on a system that was designed mainly for controlling infectious and acute diseases within a different
population structure.
Japan’s national debt is more than double the size of its economy, the highest ratio among developed
countries, and social security expenditures now account for approximately 33% of the national budget.
Improving the overall financial health of the system will be critical as the population ages, and as the sizeof the workforce continues to shrink. In addition to efforts to improve the efficiency of care delivery, this
could also require steps such as increasing the healthcare budget in certain areas such as prevention,
raising employer and employee contributions or increasing individual co-payments for healthcare costs,
allowing mixed payment or providing incentives to purchase private-sector medical and nursing careinsurance products. A long-term solution will likely require a combination of all these measures.
As the Government enters a critical period in terms of preparing the economy for the accelerated agingof Japanese society, now is the time to have an open, holistic and constructive debate that allows
meaningful input from all key stakeholders. We strongly suggest moving this important discussion
forward and encourage the Government to:⿠ Promote “Value-Based Healthcare” to increase efficiency
⿠ Reevaluate the co-payment ratios of public insurance
⿠ Secure necessary long-term financial resources to sustain Japan’s universal health care system

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01 INVEST IN PREVENTION, EARLY DETECTION,
AND TREATMENT SITUATION
While Japan maintains the longest life-expectancy among Organization for Economic Co-operation andDevelopment (OECD) members, there is a 10-year gap between the average age of “life expectancy” andthat of “healthy life expectancy.”1 Extending an individual’s healthy life expectancy is critical to addressing
Japan’s growing health care expenditures, and even more importantly, improving the quality of life andeconomic productivity of citizens. The Government recently published the “Healthy Life Expectancy
Extension Plan," announcing specific key success factors (KSFs) centered on three main themes: healthy
life promotion; disease prevention and nursing care, frailty and dementia prevention.2
From a purely economic point of view, there are mixed perspectives on the ultimate return of prevention
campaigns. That said, given the significant costs of treatment in later disease stages, programs thatplace a comprehensive focus on prevention, early detection, and aggressive treatment (in a medical
condition’s early stage), are critical in managing total health care expenditures. For example, if diabetes
develops to the most severe stage, patients require dialysis treatment. The annual cost of dialysis
treatment is anywhere from ¥50,000 to ¥300,000 if it is detected early and more than ¥5 million in thelater stages, representing an increase in cost of 20 to 100 times (Slide 1).3 Japan’s national spending on
dialysis treatments rose to approximately ¥1.6 trillion in 2015.4 Reducing this cost through preventive,
early detection, and aggressive treatments at the onset of diagnosis would make a significant impact inmanaging these specific health care expenditures.
Current Policy
The Government has begun to shift its focus from treatment to applying the practices of prevention,
early detection and aggressive treatment to reduce overall health care expenditures and sustain the
productivity of its citizens. The Government is employing a variety of initiatives, some of which arehighlighted below.

Prevention
The Government has employed a number of measures to promote a healthy diet and lifestyle awarenessand disease prevention. Moreover, the Government is seeking to expand the use and coverage of public
vaccination programs.

Healthy Living
For the past two decades, the Government has promoted a healthy lifestyle policy branded “Health Japan21," which is currently in its second stage (2013 until 2023).5 Fifty-four Key Performance Indicators(KPIs) have been established in five categories, of which six KPIs are in the category of promoting
healthy living conditions of individuals, including controlling daily salt intake, smoking prevention,
increasing the average number of daily steps and adjusting the average workweek for employees to no
more than 60 hours per week.6 Interim evaluations conducted in 2018, however, suggested that theGovernment’s measures have resulted in limited progress.
The Government has also established an award and recognition program for companies that promote
positive health management initiatives for their employees. In doing so, the Government anticipatesthat such efforts at the company level will lead to healthier lifestyles for employees, which in turn,would prevent or delay the onset of severe medical illness, ultimately resulting in a longer healthy life
expectancy.
In addition to national-level efforts, local governments are taking action. Recently, Hirosaki City (Aomori)established a Center of Healthy Aging Innovation (“Hirosaki COI”), where the area’s annual medical
checkup data was utilized to establish new programs that support healthier behaviors in its citizens,
leading to the co-development of healthy salt-free foods and a mobile health-check application.7

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Public Vaccination
In recent years, many new vaccines have become available in Japan, and the number of diseases
targeted by the National Immunization Program has increased. While the Government has made progressin narrowing the country’s “vaccination gap,” Japan still offers the fewest publicly-funded vaccinations incomparison to other developed countries.
In recent years, vaccinations against hepatitis B, Haemophilus influenzae type b (Hib), pneumococci,
human papillomavirus (HPV), and Rota virus have been added to the National Immunization Program.8,9
The Government is also currently considering the possibility of adding vaccinations for the Mumps andHerpes Zoster viruses.10
While this demonstrates a positive step, not every disease that is targeted for the National Immunization
Program achieves high vaccination uptake. As with the HPV vaccine (for cervical cancer), for which active
recommendation was discontinued between June 2013 and April 2022, many vaccines fail to achieveadequate uptake, with some reaching less than a 1% uptake rate. In addition, there are several othervaccinations that have been publicly approved but have not been added to the list, as they have been
under consideration by the Government for several years.
The timeline for evaluating new vaccinations for introduction and the criteria by which they are evaluatedis not clear, which has made their public deployment significantly later and slower than in other developed
countries. This has prompted concerned stakeholders to demand change.

Early Detection
The Government has made considerable improvements to increase the number of health checkups
and screening for certain diseases to prompt early detection. In conjunction with the efforts to further
promote annual health checkups for all citizens, the Government is also focused on increasing the rate ofcancer screenings.

Cancer Screening
In 2019, the Government estimated that the annual loss of productivity caused by cancer in Japanexceeds ¥1.1 trillion. The Government recognizes the current cancer screening rate as alarmingly
problematic—the cancer screening rate for breast cancer in Japan is only 30–40% compared to 70–80%
in the United States and the United Kingdom. The Government aims to increase the cancer screening rate
to over 50% over the next few years.11 Local governments have taken various actions to raise awarenessof the necessity for cancer screening. Many municipalities have conducted public awareness campaigns
through direct mail programs, which has been the most effective method thus far.12 Furthermore, theNational Cancer Research Institute airs reminders for breast cancer screening on public outlets suchas television, while in parallel, coordinated efforts are performed with municipalities to send follow-up
reminders to those who have not yet been screened.13
Certain local governments have also been successful in improving the screening rate through innovativemeans. Hachioji City (Tokyo), for example, distributed notifications to its citizens highlighting the risk ofcolorectal cancers and thereby encouraging colorectal cancer screening by utilizing statistics obtained
through the municipalities’ medical record data.14

Early Treatment
The Government seeks to prevent further progression of diseases and other severe medical conditions
by implementing early treatment. Due to these efforts, some local governments have been successful inpromoting the prevention of certain nephropathies.

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Diabetic Nephropathies Prevention
The Government has placed significant attention on preventing diabetic nephropathy, the leading causeof chronic renal failure. This is key in the Government’s efforts to reduce health care expenditures due tothe significantly high costs of dialysis treatment, where the main root cause is poorly controlled diabetes
leading to diabetic nephropathy.
Certain local governments have taken innovative measures to prevent diabetic nephropathy while
collaborating with private organizations. Kure City (Hiroshima) has witnessed significant improvements
in diabetic nephropathy prevention by leveraging data from the public medical records of its local
citizens. Such data and information were analyzed to identify individuals at risk. Follow-up and personalcounseling were conducted to ensure that proper measures were taken to address their high-riskfactors.15

Recommendations
The ACCJ has long believed that investment in health and well-being for the benefit of Japanese citizens
would not only result in a higher quality of life but would also boost Japan’s economic profile. As such,
the ACCJ has outlined a wide range of evidence-based policy recommendations to support investments
in prevention, early detection and early treatment. In addition to what is included here, the ACCJ has
published recommendations spanning a range of health care topics, many of which are highlighted here
(Slide 2-1, 2-2). In addition, from a more comprehensive perspective, the ACCJ strongly believes thatthe recommendations below will support Japan in achieving its goals in prevention, early detection, andtreatment.

1. Implement a holistic approach to national-level preventive actions
While there are some successful cases in preventive health measures described above, they haveremained strictly at the local level. Best practices should be adopted across Japan. Broader, national
outreach would generate uniformity of disease prevention initiatives in the overall health careenvironment in Japan.

1a. Develop incentives for all local governments based on prevention and health promotion measuresrelated to local needs
Incentivizing local governments is an effective way to replicate the successful results achieved inpreviously mentioned municipalities. As the Government has currently implemented some incentive
programs for insurers, it should consider establishing similar arrangements including subsidies tomotivate local governments to implement prevention and health promotion actions.

1b. Deliver initiatives in both conventional and digital platforms
The Government should direct its efforts to establish multi-sectoral task force teams to tackle its healthcare priorities. Digital platforms and electronic health records (EHRs) can be utilized to share current bestpractices in every region.
The National Initiative for Dementia led by the Danish Government provides a successful case study. In
Denmark, both conventional and digital approaches were leveraged to execute this program on a national
scale. The Government established and funded a multi-sectoral professional task force for educating
nursing staff, who visit every prefecture and provide hands-on practical training. This program also
launched an E-learning tool to effectively and efficiently dispatch this critical educational information
nationwide.

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2. Accelerate innovative approaches to enhancing prevention, early detection and early treatment
The Government has already demonstrated successful cases of innovative business ideas at the local levelthat enhance prevention, early detection and early treatment. The Government should continually update
its multi-stakeholder approach to leverage new ideas and technologies and accelerate positive gains fromhealth care reform.

2a. Social Impact Bonds (SIBs)
The SIB program is a leading example in applying innovative approaches to prevention, early detection,and treatment. SIBs, originating in the United Kingdom, are a contract with the public sector or governing
authority, whereby proceeds are dedicated to the betterment of improved social services (Slide 3). SIBs
serve as an important trigger for innovation in public services by providing the resources required toestablish experimentation and new approaches to address existing problems. SIBs have been an everincreasing global trend since 2013, and accordingly, the Government has gradually accelerated these
initiatives in several municipalities, including Kobe City (Hyogo) and Hachioji City (Tokyo) since 2017.16
Kobe has been actively focused on preventing diabetic nephropathy and Hachioji has been actively
focused on preventing colorectal cancer. Both cases have resulted in significant positive outcomes,
exceeding initial expectations (Slide 4).17 The Government should expand and accelerate such programs
on a national scale.

3. Empower and educate citizens to take control of their health
The Government should continue to emphasize the importance of healthy living and follow up on annual
health checks of its citizens in new and innovative ways. Programs aimed at improving health literacy
should be multi-channel, leveraging all available technological platforms. In addition, consumers should
be provided access to their own healthcare data. Creating an environment where patients have access totheir healthcare data makes it possible to create targeted incentives and health education programs to
support individuals in taking control and developing healthier lifestyles.

References
1.
2.
3.
4.
5.
6.
7.
8.
9.

10.
11.

12.
13.
14.
15.
16.
17.

OECD
Ibid.
Japanese Ministry of Health, Labour and Welfare website (2019), “Points of revision on prevention programs to severe diabetic
nephropathy,” Retrieved Nov 2019, from https://www.mhlw.go.jp/content/12600000/000526341.pdf
Ibid.
Japanese Ministry of Health, Labour and Welfare (2018), “Healthy Japan 2nd Round,” retrieved Nov 2019,from http://www.phcd.jp/02/soukai/pdf/soukai_2018_tmp03.pdf
Ibid.
Hirosaki COI program website, Retrieved Oct 2019, from http://coi.hirosaki-u.ac.jp/web/Japanese Ministry of Health, Labour and Welfare website (2019), “Status update of Vaccination Policy,” retrieved Nov 2019,from https://www.mhlw.go.jp/content/10601000/000553926.pdf
Japanese Ministry of Health, Labour and Welfare website (2020), partial revision of “Implementation of vaccination
under the provisions of Article 5, Paragraph 1 of the Preventive Vaccination Act,” retrieved Nov 2022, fromhttps://www.mhlw.go.jp/content/000620093.pdf
Japanese Ministry of Health, Labour and Welfare website (2022), “Status update of development of new vaccines, etc.
(reporting),” retrieved Nov 2022, from https://www.mhlw.go.jp/content/10601000/000888027.pdf
Japanese Ministry of Health, Labour and Welfare website (2019), “Discussion background; cancer prevention
and early detection,” retrieved Nov 2019, from https://www.mhlw.go.jp/file/05-Shingikai-10904750-Kenkoukyoku-Gantaisakukenkouzoushinka/0000143967.pdf
Japanese Ministry of Health, Labour and Welfare website (2019), “Action summary to improve cancer screening rate,”
retrieved Nov 2019, from https://www.mhlw.go.jp/content/10901000/000514744.pdf
Ibid.
Ibid.
Japanese Ministry of Economy, Trade and Industry website (2018), “Promotion of Prevention and health Incentive for Extending
Healthy Life Expectancy” (published in Oct 2018), retrieved Oct 2019, fromMETI website (2022), “Results-based private consignment contract approach (PFS/SIB) in healthcare,” retrieved Sep 2022,
from https://www.meti.go.jp/policy/mono_info_service/healthcare/seikarenndougataminnkannitakukeiyakuhoushiki.html
Ibid.

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02 MAXIMIZE THE QUALITY AND EFFICIENCY OF HEALTH CARE
DELIVERY THROUGH NEW ADVANCEMENTS IN DIGITAL AND
DATA INNOVATION
Current State
Japan is the world’s most super-aged society. However, by promoting behavioral changes among its
citizens, it has an opportunity to counter some of the negative impacts associated with an aging society.
Ultimately, this will also support a more sustainable social security system.
Collecting, aggregating, and utilizing publicly available medical information is vital to the success of
initiatives such as preventive medicine, the research and development of innovative medical technologies,
and the improvement of care delivery. Moreover, as current medical practitioners continue to age andeventually retire from the profession, digitalization will become critical in providing high-quality, full carecoverage to the Japanese population as well as better use of multi-disciplinary teams, including nurses
and pharmacists.
Currently, Japan trails other developed countries in the implementation of a comprehensive healthcare data platform. According to an OECD survey, Japan’s health care system ranks in the lower tiers
for technical and operational readiness and data governance readiness related to the use of data for
managing medical issues (Slide 1).1 Among the data points demonstrating how far behind Japan lags in
the field of digital health, the rate of EHR adoption is an outlier—hospital adoption remains particularly
low at only 57%.2 This is significantly lower than in the United States, where EHRs are deployed in 80%3
of medical facilities. There are successful examples of EHR deployment in countries such as Denmark,Sweden, and New Zealand, where adoption and use is approaching 100%.4 Furthermore, EHRs aremaintained in various formats and information technology systems in institutions and regions acrossJapan, which hinders information sharing and connectivity. Other health-related data such as thosecollected during annual medical checkups are also not standardized or connected holistically.

Current Policy
In the 2022 “Honebuto Hoshin,” the Government recognized the need for health care data management
by centralizing data platforms and accelerating data-driven innovations programs, while at the sametime, strengthening cybersecurity infrastructures to safeguard against external threats.

Initiation of Multiple National Health Care Databases in 2020
The Government has commenced the process to standardize and deploy multiple healthcare data
platforms. The need for this initiative has been viewed as critical—the Government has increased
spending upwards of ¥72 billion in 2019, a five-fold increase over the previous year.5
This initiative currently focuses on eight areas of service (Slide 2), which can be classified into four
categories: 1) genome medicine and artificial intelligence research and development, 2) personal
health records (PHRs), 3) platform for healthcare professionals, including EHRs, and 4) big data use
and analysis.6 Initiatives to reform the current infrastructure to provide these services are also being
explored, such as an online national personal identification system.7
However, according to the Japanese Ministry of Economy, Trade and Industry (METI), most of the data in
PHRs are highly decentralized and vary in format among suppliers, which represents barriers to reform(Slide 3-1, 3-2).8
While efforts for reforming infrastructure are well-intentioned, there continue to be significant challenges
in the transition to a national health care data platform, such as the lack of access to online records via
secure internet links in some major teaching hospitals.

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PHR Initiatives by Local Governments
Certain municipalities have already offered local PHR platforms to their citizens. Kanagawa Prefecture
launched a regional PHR platform called “MY ME-BYO Carte,” that was used by 1.2 million people (outof 9.1 million people) as of February 2019.9 This platform is connected to other health care application
services (developed by private companies) and health insurance data platforms. Information compiled inthis platform is also utilized as a means for future planning and strategizing for introducing healthy living
promotions, child education support, and other local government initiatives.
Kobe City (Hyogo) also launched a PHR application called “MY CONDITION KOBE” in April 2019. The
application tracks, measures, and monitors a variety of key health attributes while providing users tools
for realizing the full potential of the application. Health attribute measures include, among other things,
daily steps, sleep time, heart rate and logs to record daily nutrition, weight and certain other medical
data. This application has other functions such as a point system to incentivize healthy living and an
artificial intelligence counseling chat to provide personalized health care tips.

The Next Generation Medical Information Infrastructure Act (Jisedai Iryo-Kiban Ho)
The Government has made numerous attempts through legislative reforms to propel data-driven healthcare innovation to allow health care data to be analyzed and used by third parties.
The Government enacted the “Jisedai Iryo-Kiban Ho,” (Next-Generation Medical Infrastructure Act) in
May 2019 to allow medical big data to be edited to remove certain personally identifiable information
before the data is pooled so that the data can be utilized to benefit research and development efforts
for new drugs. Prior to enactment of this new law, individual health-related data such as illness records
and medical checkup results were classified as “sensitive individual data” in the Law on the Protection of
Personal Information. This limitation hindered the development of health and medical big data platforms.
The new law allows hospitals and clinics to provide patient data to authorized organizations thatare accredited by the Government to receive and anonymize such data. Such organizations will be
responsible for “cleansing” data, ensuring that all personal data are anonymized. This data will be madeavailable to academic researchers and drug companies or government agencies for a fee. Hospitals
and clinics that choose to provide such information would need to obtain patients’ consent beforehand.
Patients can opt-out if they do not wish to share their information (Slide 4).
While the enactment of this law garnered much attention in the hope that it would accelerate innovationand propel the data-driven business, only three third-party organizations have been certified by 2022.10
The government should promote this initiative so that active data utilization can accelerate innovation
further.

Strengthened Personal Information Protection and Cybersecurity
The defense and mitigation against the risk of personal data breaches and cyber-attacks are criticalfor obtaining citizens’ confidence and building trust by ensuring that information used in data-driven
innovation systems will be protected.
The Government has strengthened its cybersecurity capabilities to protect data against external attacks
by continuously updating and enforcing the personal information protection and cybersecurity laws andguidelines adapted for technological and social changes.
In regard to medical information, the Government has continuously amended its laws and guidelines forsecurity management to align with legal-related revisions and the ever-evolving complexity and depth ofcyber-attacks. The Government is currently updating the laws and guidelines to adapt to the increased
complexity of information technology and changes related to medical information and the introduction of
new national data platforms.11

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Recommendations
1. Expand the reach of data collection beyond health care to achieve unique Japanese innovations
The Government should consider expanding the reach of its data initiatives beyond health care.
Daily behavior directly impacts health, and accordingly, the Government should consider the need toconsolidate a wider range of characteristics and attributes to create a comprehensive data platform.
The Government should also consider expanding the scope of data collection to encompass all meaningfulattributes while securing privacy and confidentiality for creating a national data set that is distinguishable
from those of other countries. To enable personalized and in-depth data collection and analysis, thecreation of personal health care IDs can be a possible solution to link medical data from clinics, hospitals,
and other institutions. The introduction of such a measure may lessen the burden of health-related datacollection from multiple sources. Moreover, this information, once anonymized, can be made available
to the Government and various health organizations to plan national initiatives and to tackle complex
matters within the Japanese health care system.

2. Strengthen public-private partnership and citizen engagement to propel innovation
The Government should consider strengthening the partnership with private organizations to drive theutilization of the data prepared in the public sector while engaging its citizens to ensure consensus andunderstanding of digital transformation.
The Singaporean Government is currently working with Fitbit, an American healthcare-related wearable
device company, and has been supplying citizens with free fitness trackers since October 2019.12
Singaporeans will be able to receive a health-tracking wearable device for free if they commit to paying$10/month for one year to receive the company’s premium coaching service. If users consent to share
their data with Singapore’s Health Promotion Board, health attributes will be collected and used in future
healthcare-related initiatives.13 By introducing this partnership with Fitbit to benefit its citizens, theSingaporean Government aims to improve citizens’ lifestyles through digital technology.
In Japan, the Ministry of Internal Affairs and Communications and the Ministry of Economy, Trade andIndustry recently deployed the “Information Bank” platform to collect and utilize consented users’ dataand in return, provide benefits to them, including monetary rewards and coupons. The Government
should consider incorporating similar initiatives specific to health care and develop ways to incentivize its
citizens to share vital health care information for effective use.

3. Harmonize information sharing among public and private sectors to mitigate cybersecurity risk
In order to minimize the security risk while accelerating innovation, the Government needs carefulanalysis and prompt information sharing with public and private stakeholders.
Japan needs to establish a system for companies to respond swiftly to cyber incidents. For example,
there are up to eight public institutes for the submission of security incidents, though it is not clear tocompanies where to send their security incident report,14 which makes it difficult for private companies totake immediate action.15
In the United States, the Department of Homeland Security automates the digitization of information
sharing (automatic indicator sharing) by automatically selecting suitable information for each institution
and implementing the counteractions.16 Governments should make continuous efforts to explore robust
and agile information sharing to ensure the credibility and safety of the system.

4. Ensure the usability of a future health care data platform
Utilizing advanced analytics, modeling, and simulation to enhance decision support capabilities, costeffective and sustainable solutions for both the prevention, diagnosis, and treatment of disease, as well

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already possible and will grow in capabilities in the coming years as these leading-edge technologies takeroot. The following actions can assist citizens in Japan to benefit from innovative solutions with advanced
technologies and data.

4a. Ensure data quality and platform accessibility to improve health care quality
The Government should constantly assess the quality of the data provided by the Government, hospitals,
and academic institutions to ensure the accessibility of their data platforms.
Though top priorities are data anonymization and secure storage, a balanced approach to allow theconsolidation of real world data/real world evidence and wider accessibility of the data will support efforts
to propel innovation.

4b. Foster the awareness of utilizing health data platforms among citizens and medical practitioners
Given that academic researchers and industries are expected to utilize data, it is critical to ensure that
medical and nursing care practitioners, payers, and citizens understand the value of leveraging healthdata for a better society.
The Netherlands demonstrates an insightful example in its national PHR initiative called the “MedMij”
project. In order to ensure citizens’ understanding of the significance of its digital health and its soonto-be PHR service, they have organized interactive events for citizens and opportunities to co-create
the utilization guidelines with patient associations, engaging a variety of stakeholders in discussion wellbefore the launch.17
Since the Government is currently focused on setting up an integrated platform utilizing Cloud Computing
and Big Data, the Government should create an action plan to ensure the actual use of this data platformin line with common standards.

4c. Incentivize digital innovations to tackle challenges of medical/nursing care practitioners
Along with contributing to a higher quality of comprehensive medical/nursing care services and promotionof healthy living, both the Government and the providers themselves need to pay attention to resolving
issues faced by healthcare providers.
Some of these issues include staffing problems of medical and nursing care and gradual deterioration ofworking conditions, including increasing and demanding working hours. While the Government is trying
to improve the working environment within the medical industry by lowering the limits of overtime work,
this problem cannot be solved without an in-depth review of how medical care is delivered, including theutilization of digital resources and innovation. The Government has been working with businesses andacademia to set up the “AI Hospital System” to help with diagnosis and consultation tasks.18

References
1.
2.
3.

4.

5.
6.

OECD website (2017), “OECD Recommendation on health data governance” (published on Jan 17, 2017), retrieved Nov 15, 2019,from http://www.oecd.org/health/health-systems/Presentation-Health-Data-Governance-Recommendation.pdf
Japanese Ministry of Health, Labour and Welfare website (2021), 電子カルテシステム等の普及状況の推移 “Update of the diffusion status of
EMR in Japan,” retrieved Sep 2022, from https://www.mhlw.go.jp/content/10800000/000938782.pdf
U.S. National Library of Medicine, National Institute of Health (2017), “Electronic health record adoption in U.S. hospitals:
the emergence of a digital ‘advanced use’ divide,” (published in Nov 2017), retrieved Nov 14, 2019,from https://www.ncbi.nlm.nih.gov/pubmed/29016973
Reza F., Prieto J.T., Julien S.P. (2020) Electronic Health Records: Origination, Adoption, and Progression. In: Magnuson J., Dixon
B. (eds). Public Health Informatics and Information Systems. Health Informatics. Springer, Cham. https://doi.org/10.1007/978-3030-41215-9_11
Japanese Ministry of Health, Labour and Welfare website (2018), “Outlook of FY 2019 Budget Proposal,” retrieved Nov 15, 2019,from https://www.mhlw.go.jp/wp/yosan/yosan/19syokanyosan/dl/01-01.pdf
Japanese Ministry of Health, Labour and Welfare website (2019), ”Milestone of data health reform” (published on Sep 9, 2019),
retrieved Nov 15 2019, from https://www.mhlw.go.jp/content/12601000/000545973.pdf

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7.
8.
9.
10.
11.
12.

13.
14.

15.
16.
17.
18.

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Ibid.
Japanese Ministry of Economy, Trade and Industry website (2017), “New Industrial Structure Vision” (published in Jun 2017),
retrieved Sep 2022, from https://www.meti.go.jp/english/publications/pdf/vision_171222.pdf
National Governor’s Association website (2019), “Successful initiative in the Health Country Declaration” (published in Jul 2019),
retrieved Jul 3, 2023, from https://www.nga.gr.jp/committee_pt/committee/shuryo/kenkou_rikkoku/1552271715233.html
Cabinet Office, Government of Japan. Certification as a business operator based on the Next-Generation Medical InfrastructureAct. Retrieved Oct 13, 2022 from https://www8.cao.go.jp/iryou/nintei/nintei.html
Japanese Ministry of Economy, Trade and Industry website (2019), “Revisions of medical information security management guidelines” (published in Oct 10, 2019), retrieved Nov 14, 2019, from https://www.mhlw.go.jp/content/10801000/000555936.pdf
Forbes online, “Fitbit Partners With Singapore Government To Offer Trackers To 5.6 Million People” (published in Aug 22, 2019),
Retrieved Nov 14, 2019, from https://www.forbes.com/sites/jamessomauroo/2019/08/22/fitbit-partners-with-singapore-government-to-offer-trackers-to-56m-people/?sh=4fa118b18f1c
Ibid.
Japan Cybersecurity Information Community website (2018), “Survey of cybersecurity information sharing overseas” (publishedin Mar 9, 2018), Retrieved Nov 15, 2019, from https://www.j-cic.com/pdf/report/CybersecurityInformationSharingSurvey20180309(JP).pdf
Ibid.
Ibid.
Institute of International Social Economy Research (2017), “Final study report of ICT utilization to extend healthy life expectancy”(published in Mar 2017), Retrieved Nov 4, 2019, from https://www.i-ise.com/jp/report/pdf/rep_it_201703e.pdf
Cabinet Office: Cross-ministerial Strategic Innovation Promotion Program website (2019), “High-tech diagnosis and treatment
system by AI hospital” (published on Mar 20, 2019), Retrieved Nov 18, 2019, from https://www.nibiohn.go.jp/nibio/part/promote/files/SIP-AI-hospital.pdf

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03 FOSTER AN APPROPRIATE INNOVATION POLICY AND EXPLORE
NEW MODELS OF REIMBURSEMENT
Current State
Japan now faces formidable challenges in sustaining a leading position in the global pharmaceuticalindustry due to the ever-increasing cost of R&D and intensifying global competition.
Japan’s efforts to promote a more competitive pharmaceutical industrial policy stand at odds with theGovernment’s practice of utilizing drug price reductions to control social care spending. For example,
between 2016 and 2018, more than 80% of the total savings for social security were made from pricecuts on pharmaceuticals (Slide 1).1 This tendency has remained a concern and a controversial point forindustry stakeholders faced with the need to achieve greater returns on their investments to develop new
drugs. Developing innovative medicines is a capitally intensive undertaking. According to a recent study,
developing a major new prescription drug is estimated to cost manufacturers, on average, $1.4 billion
and take an average of 14 years to obtain marketing approval.2
Highlighting the lack of a competitive industrial policy, Japan’s biopharmaceutical companies
only generated ¥1.8 trillion in market value–an amount 60 times smaller than the United Statesbiopharmaceutical industry, which boasts a total value of ¥104 trillion.3
While the United States has become a fertile ground for academia-born venture companies in thebiopharmaceutical industry, Japan has fallen behind. Approximately 80% of new drugs approved by theUnited States Food and Drug Administration are being developed by these nascent organizations.4 This
is in contrast with the lack of such emerging growth companies in Japan, raising significant concerns forJapan’s future innovative potential.
With these threats in mind, the Government has recognized the need to take appropriate action tostimulate innovation.

Current Policy
In response to the emergent need to accelerate health care innovation in Japan, the Government
launched its health care innovation initiative in 2014, in conjunction with the foundation of related
hub institutions, such as the Japan Agency for Medical Research and Development in 2015 5 to assist
with conducting the Government’s health care research and development efforts. Since then, theGovernment has pursued various broad initiatives for R&D support and registration; authorization andcommercialization; and evaluation and reimbursement cycles including:R&D Support and Registration
Support for Venture and Emerging Growth Companies through Consultation
The Government has launched the “Medical Innovation Support Office” (MEDISO), which serves as anadvisory committee specialized in health care venture support to startup companies.6 MEDISO supports
these organizations to overcome challenges regarding funding and intellectual property and attempts toeliminate barriers to market entry to encourage innovation.

Accelerated Registration through Partial Revisions of the Pharmaceutical and Medical Device Act and the“Sakigake” program
The Government commenced its regulatory reforms with the partial revision of the Pharmaceutical Affairs
Law in 2014 and enacted Pharmaceutical and Medical Device Act.7 This revision aimed to ensure safe andswift access to new drugs while providing adaptability to the unique market characteristics of medical
devices. It also mandated the inclusion of package inserts and expanded the definition of medical devices

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to adapt to the faster-paced market cycles.
Further revision of the Pharmaceutical and Medical Device Act is underway to clarify the status ofinnovative drugs, orphan drugs, and special-purpose drugs along with providing incentives to accelerate
the introduction of such drugs for mainstream use.
The Government has encouraged the early evaluation and approval of critical new drugs with the“Sakigake” program and conditional early approval system once their efficacy at the early stage of clinicaltesting is confirmed. The pharmaceutical industry as a whole has applauded this development as it
reduces the deployment lag for innovative products in Japan and accelerates commercialization.

Reimbursement and Evaluation
Pricing and reimbursement are strategically important to enhance the pace of innovation of the Japanese
health care system as well as to ensure financial sustainability. This represents the most controversial
topic related to health care legislation as there are multiple conflicts of interest among stakeholders. The
Government has drastically increased the complexity of reimbursement and pricing through the reforms
described in the following discussion, undermining the predictability and transparency of the market,
hindering innovation.

Stricter Requirements for the Price Maintenance Premium System (PMP)The PMP has been critical in promoting innovation in Japan and ensuring timely access to new andinnovative drugs.
The Government implemented a new drug pricing package in 2018 to include several new pricing
policies.8 In this reform, the government narrowed the number of products and companies eligible for
PMP, cutting 30% of patented medicine out of the PMP scope. Recent data has shown the year-on-yearincrease in the number of clinical trials in Japan seen after the PMP has come to a halt and the numberof clinical trials in Japan is now lower than in countries such as China and Korea. There is a high risk that
the PMP criteria put in place in 2018 will not be effective in boosting innovation. The new product criteria
required to obtain PMP are not science-based as they only focus on the speed and the order in which
products are launched, which do not truly measure the “innovativeness” of such products.
Furthermore, requirements were established based on the product’s history of use in Japan, whichappears to be inherently biased to favor large domestic companies. As a result of these factors, theGovernment’s commitment to fair and non-discriminatory policies has been called into question.

Increased Frequency of Price Revisions
Recently, the Government has revised prices at a more frequent pace, including the consumption tax
increase in October 2019.
The Government determined that it would implement an annual price revision system to commence from2021 for pharmaceutical products and is currently considering extending the system to also cover medical
devices. The Government has also considered expanding the scope of target products subject to annual
price revision.
Specific to medical devices, the Government recently reduced the gap between Foreign Average Price(FAP) and reimbursement prices in Japan. The Government is also attempting to reduce the number offunctional categories to simplify the Medical Fee Schedule. Merging certain categories together will lower
the reimbursement amount for high-cost categories, which usually represent the new, innovative producttypes.
The increased frequency and unpredictability of pricing revisions undermine certainty and predictabilityof economic metrics for pharmaceutical and medical device companies; which in turn, has a negative“knock-on” effect on innovation.

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Launch of Value-based Healthcare with Health Technology Assessment (HTA)
With the emerging concept of “Value-Based Healthcare,”—a new health care delivery model in which
medical services are paid based on patient health outcomes—Japan officially introduced the HTA systemfor pricing adjustments on pharmaceuticals and medical devices in 2019 after a trial phase in 2016.9 HTA
is the scientific procedure of evaluating the return on investment in health delivery when determining
the cost of premiums and health expenditures. While the HTA was established several years ago in otherdeveloped countries such as the United Kingdom, Germany, Canada, and Australia among others, Japan
only recently adopted this initiative in recent years.
Specifically, the Japanese HTA is uniquely different as it only applies an incremental cost-effectivenessratio, while other countries consider a broader range of factors in their assessments. Japanese HTA also
sets a lower cost/quality-adjusted life year (QALY) threshold when compared to other countries (¥5
million per quality-adjusted year for general products). The validity and effectiveness of this thresholdhas been met with criticism from academia and industry, with many stakeholders arguing for the need tomake significant improvements to the current scheme to better reward innovation and foster the further
advancement of a value-based approach to evaluating new healthcare technologies and interventions.

Examination of the Mixed Billing System
The Government has explored the possibility of increasing the flexibility of its reimbursement system
including mixed billing, which has required prudent discussion due to the high risk of increasing accessgaps and aggravating the problem of public reimbursement manipulation by overcharging for medical
services.
As of September 2021, the Government allows mixed billing for only two types of services: assessment
treatments and selective treatments.10 The Government has also examined the possibility of expanding
the scope of mixed billing by defining new medical services.

Recommendation
With the clear purpose of delivering health care innovation to people in need as soon and as safely as
possible, the ACCJ encourages the Government to increase its efforts to prioritize meaningful healthcareinterventions, evaluating how it allocates physical, human, and financial resources to maximize thepotential of new innovations. The Government should ensure that every policy is fundamentally alignedwith the goal of incentivizing innovation.

1. Reexamine the current reimbursement and pricing system to facilitate innovation
The Government has not aligned its reimbursement and pricing policies to promote innovation, but rather
they undermine its potential. The ACCJ encourages the Government to reassess existing policies from theperspective of delivering the most effective and innovative medicines to patients in Japan.

1a. Enhance the HTA System to align with rewarding innovation (Slide 4)
The current HTA system should be reexamined to provide appropriate reward for innovation, as opposedto acting solely as a cost-containment measure. The current HTA system has been criticized for its
inflexibility as it focuses only on incremental cost-effectiveness metrics.
Observations and results from examples outside of Japan have indicated that a more sophisticated HTA
system should be established.
First, the cost-effectiveness ratio is only one of the multiple criteria used for an evaluation in manyother countries. A level of flexibility is needed to capture and consider other factors and generate
an appropriate incentive for the development of innovative products. For example, the Netherlands

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continuously explores increasing the quality and transparency of its system by assessing other criteriasuch as the severity of target diseases, demand, efficacy, and social accountability of certain drugs.11
Thresholds are also continuously evaluated and revised, when necessary, in accordance with the severityof target diseases.
In another example, to ensure continued access to innovative medicines, Germany conducts an HTA
assessment of new drugs one year after the launch.12 This differs from most markets where theassessment outcome is required prior to reimbursement. By assessing additional benefits versus
existing alternative drugs one year after the launch, they can also utilize real-world data to inform theassessment.
Lastly, there are significant questions around the scientific validity of the cost-effectiveness thresholds inJapan, currently set at ¥5 million per QALY for general products. More research is necessary to address
the validity of this threshold from an economic and health systems perspective.

1b. Reexamine the current pricing policies to incentivize Innovation
As explained, the Government’s current reimbursement policy has been called into question for its
excessive focus on cost containment and its discriminatory position against smaller and/or foreign-based
companies, failing to become a true incentive for innovation.
For example, the repricing market expansion rule that was established decades ago to address significant
market changes has created a negative impact on the development of new drugs. The rule mandates
that prices for a medicine that exceed a certain marketplace threshold will be reduced, thus hampering
efforts to introduce additional indications for existing therapies and other new, innovative products astherapeutic uses expand. This has a severe impact on the development of new drugs and disincentivizes
the delivery of groundbreaking treatments to patients.
These disincentives are also seen in the medical technology sector, where more frequent priceadjustments and continued debates on the future shape of the FAP rule and continued consolidationof functional categories has created a lack of market predictability, preventing manufacturers fromdelivering new products at a more accelerated pace.
We encourage the Government to consider reexamining these pricing systems to better incentivize
innovation.

1c. Include organizations from industry into the decision-making process
As the Government developed its specific plans to execute the pricing reform initiative over the past
few years, there have been fewer formal attempts by the decision-making bodies to seek input fromindustry stakeholders, which demonstrates a lack of transparency and inclusiveness. The Government isencouraged to seek the industry’s perspective, providing meaningful opportunities to provide input andhave an ongoing dialogue with decision-makers throughout the decision-making process.

1d. Reconsider the frequency and timeline of the announcement of pricing policy changes
The announcement of pricing policy reforms are often made only several months before implementation,
which further increases unpredictability and makes it difficult for manufacturers to establish a clear
business plans. The Government should reconsider the timeline to allow them ample time for stakeholder
input in the rule-making process, while giving sufficient notice for major rule changes.

2. Explore appropriate incentive packages for each health care theme
The Government is encouraged to also consider special treatment for emerging global and national fieldsof health care development by incorporating the most appropriate push and pull incentives.

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For example, antimicrobial resistance (AMR) is an emerging global issue that risks undermining theachievements of modern medicine. It is difficult to trigger innovation to address AMR due to acutemarket needs and uncertainty in profitability of products to treat AMR. To encourage the allocation of
new resources to the development of new treatments, such as those used for AMR, the Government isencouraged to consider the adoption of incentives such as government stockpiling and procurement ofthese technologies and direct support for R&D by sponsors which would help to reduce the risk in suchinvestments.
The Government is also encouraged to consider pull-incentives that reward successful innovations earlier
in the product lifecycle. Since health care themes have unique concerns and risks that deter industry
players from investing, the Government is encouraged to carefully observe and explore the mostappropriate incentive schemes to propel innovation.

3. Provide end-to-end support and robust partnership between academia and industry to accelerateinnovation
As noted above, the Government has taken multiple measures to trigger innovation through tangible
measures including corporate tax adjustments for startups and emerging growth companies. However,there is no focus on end-to-end support, and in particular, support for the “exit” stage of the development
process, such as commercialization upon final approval. Monetizing and strong partnerships between
different professions and disciplines are key to creating an ecosystem to provide end-to-end support for
innovation, for which the United States and the United Kingdom show positive examples (Slides 2, 3). As
discussed previously, in the United Kingdom, the government has optimized its funding, practical testing,and partnership between academia and business.
The United States government has been successful in providing a special funding program for small
and medium-sized enterprises along with a business education program to accelerate products andcommercialization for drugs. Both the United States and the United Kingdom have built an ecosystem toensure the optimal allocation of financial, physical and human resources to fuel innovation.

4. Discuss the future of fast-track registration and regulatory harmonization
While the Government’s continued efforts to reinforce fast-track registration and regulatory harmonization
have been welcome, the Government’s near- and long-term plan for further change and evaluation
remains opaque.
The Government is encouraged to continue discussing plans to further advance fast-track registrationand harmonization in the discussions with industry bodies and to provide direction to the industry, which
fosters increased predictability for ongoing and upcoming research and development.

References
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

IQVIA Market Prognosis, Sep 2018; IQVIA Institute, Dec 2018. Reprinted with permission “The Global Use of Medicine in 2019 andOutlook to 2023.”
ScienceDirect website (2016), “Innovation in the pharmaceutical industry: New estimates of R&D costs,” retrieved Nov 22, 2019,from https://www.sciencedirect.com/science/article/abs/pii/S0167629616000291?via%3Dihub
Japanese Ministry of Economy, Trade and Industry website (2019), “Status and Challenges of Bio-venture Companies in Japan,”retrieved Nov 13, 2019, from https://www.meti.go.jp/committee/kenkyukai/bio_venture/pdf/001_07_00.pdf
Ibid.
Japanese Ministry of Health, Labour and Welfare website (2019), “Status and challenges of pharmaceutical industry in Japan,”retrieved Nov 5, 2019, from https://www.mhlw.go.jp/content/10801000/000398096.pdf
Ibid.
Ibid.
Japanese Ministry of Health, Labour and Welfare website (2018), “Update of Drug Pricing System in Japan” (published on Jul 3,2018), retrieved Nov 5, 2019, from https://www.mhlw.go.jp/content/11123000/000335166.pdf
Ibid.
Japanese Prime Minister Cabinet Office (2018), “Health and Medical Field: Objectives and perspectives for regulatory reform,”
Retrieved Sep 2022, from https://www8.cao.go.jp/kisei-kaikaku/english/pdf/140613/item2-2.pdf

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11.
12.

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PhRMA website (2015), “Newest Update of HTA in other foreign countries” (published in Aug 2015), Retrieved Nov 6, 2019, fromhttp://www.phrma-jp.org/wordpress/wp-content/uploads/old/pressroom/pressevent/150831HTA_slide_japanese.pdf
Ibid.

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04 ENSURE THE FINANCIAL SUSTAINABILITY OF JAPAN’SHEALTHCARE SYSTEM
Current State
Japan, a nation with the highest life expectancy at birth among OECD members, maintains a highquality of life through an emphasis on a healthy lifestyle and access to leading quality medical care.1
This is primarily attributable to a unique universal healthcare insurance system, Kokumin Kaihoken. In
order for Kokumin Kaihoken to continue, the country’s financial sustainability must be ensured. This
notwithstanding, Japan has one of the highest levels of public debt in the world and is in urgent needof making dramatic reforms in its social security system, which now accounts for 33% of the national
budget.2 A deeper look into Japan’s health care revenues and expenditures raises some importantquestions and concerns about the sustainability of the health care system.
Health Care Expenditures and Government Spending Estimation (Slide 1)
Japan’s health care expenditures has continuously grown in recent years, reaching ¥42.6 trillion in 2018.3
An increase in health care expenditures has also been observed in other economies that also have bothan aging society and a leading public health care system.
According to the Government, health care spending is anticipated to drastically increase due to Japan’s
super-aging society (projections are based on estimated annual changes and the increasing cost of goods
and wages).4 Despite this reality, when controlled for demographic factors, Japan ranks at the lower endof health care expenditures amongst developed nations, pointing to the success of measures aimed atlimiting health care expenditures.5 Going forward, however, further measures will be necessary to ensure
the sustainability of the current Kokumin Kaihoken program.

National Burden Ratio Related to Health Care Expenditures (Slide 2)
Over the years, governments have generally passed on certain costs to their citizens as a result of steep
increases in providing quality health care. Japan, however, has maintained a relatively low nationalburden in spite of a continuous increase in its health care spending. In order to achieve this low nationalburden, the Government has issued sovereign debt to finance increased spending.

Financial Sources of Health Care Expenditures (Slide 3)
A society with an increasingly aging population that does not seek measures for the elderly to financetheir own health care or to contribute to the country’s overall social security program will inevitably
experience a disproportionate reduction in cash flow to pay health care costs (i.e., revenue generated by
the Government will decline as a result of a decreasing percentage of citizens that contribute to social
security programs). In 2018, 49% of Japan’s health care cost was financed by insurance premiums, 38%
by taxes (25% by the central government and 13% by local governments), and 11% by out-of-pocket
payments.6
The portion covered by the central government has been relatively flat at approximately 25% despite theannual increase in health care costs – which will continue to result in a greater amount of spending overtime.7

Current Policy
With its robust universal health coverage (employees’ or national health insurance), Japan applies
an age-based, predetermined common co-payment ratio to all citizens, covering all medical care,pharmaceuticals and medical devices officially approved for medical efficacy and safety. Co-payment
ratios are currently distributed across multiple age groups: 20% for those under 3 years old, 30% for

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those from 3 to 69 years old, 20% for those from 70 to 74 years old and 10% for those 75 years old andabove, with certain exceptions based on income limits that were recently passed by the Government for
those over 75 years old.

Launch of the “Value-Based Healthcare (VBH)” Proposition
In addition to the biennial revisions of medical fees and reforms of hospital bed functions, Japan has
launched the VBH (outcome/performance-oriented model), which includes the introduction of HTA for
pricing certain drugs and medical devices. VBH is a health care delivery system in which providers,
including hospitals and physicians, are paid based on patient health outcomes. This differs from a feefor-service pricing model, in which providers are paid based on the number of health care services thatare provided. While outcome models have been promoted for over a decade in the United Kingdom, theUnited States, Canada, and Australia among others, Japan has only recently adapted this initiative. For
example, the Government has been exploring criteria to measure and establish values related to thequality of medical treatment provided in hospitals and other medical institutions.

Evaluation of the Public Insurance Framework
Measures to contain the growth of government expenditures through the revision of the public insurance
scope of coverage and premiums have been proposed by various stakeholders. For example, the National
Federation of Health Insurance Societies (Kenpo Ren) announced its preliminary proposal to exclude hay
fever medication from the scope of coverage for the revisions in medical fees in 20208, and now there’s
limitation for reimbursement on certain pharmaceutical drugs that can be replaced by over-the-counter
drugs and promote the use of less-expensive generic drugs.

Recommendations
1. Promote “Value-Based Healthcare” to increase efficiency
While Japan is in its early stages of introducing VBH, this initiative is limited to the area ofpharmaceuticals and medical devices, as seen in the introduction of HTA in the pricing of drugs andmedical devices. In the context of the entire health care system, the Government should advance theidea of VBH to establish the relevant infrastructure to maximize efficiencies that is mutually beneficial to
the Government and its citizens.
The Government should establish a comprehensive platform to collect, analyze and utilize information
related to medical care quality and costs, making it possible to develop substantial incentives to suppliers
to promote VBH.

1a. Establish an interactive incentive framework for medical professionals
In order to promote VBH, it is imperative for the Government to ensure that medical practitioners areaware of the need to maximize clinical efficiency. The Government should establish an ecosystem toincentivize medical practitioners to embrace VBH. Accountable Care Organizations (ACO), establishedwithin the Affordable Care Act in the United States, provides a relevant example.
An ACO is a government-authorized voluntary institution of doctors, hospitals, nurses, and other medical
practitioners that provides primary care while being held accountable for the quality of care and per
capita costs.9 ACOs place financial responsibility on providers in hopes of improving patient managementand decreasing unnecessary expenditures, while providing patients with the freedom to select among
various medical service providers. ACOs serve as effective tools to incentivize a variety of medical
practitioners to promote better coordination of care delivery and maximize patient care.

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2. Reevaluate the co-payment ratios of public insurance
Japan’s universal health care program encompasses the same scope of coverage, and related premiums
for all citizens. In order to ensure financial sustainability, it is critical for the Government to consider
certain revisions to the existing insurance model to improve the efficiency of health care spending. As
noted earlier, the Government should also reconsider the proposition of utilizing a co-payment ratio,
which at present uniformly provides 90% of coverage to the elderly aged 75 and above, with certain
income restrictions. The Government should further consider determining the co-payment ratio based on
criteria other than age, specifically the ability to pay.
Other countries have demonstrated reasonable examples of optimizing health care spending by holding
their citizens accountable for their own health care.
Private insurance with fixed payments is also common in Japan, which mainly covers co-payments for
hospitalization and specialist treatments (such as cancer treatments). These products have essentiallybecome complementary to public insurance.

2a. Adopt phasing premium rates for medications based on their therapeutic value
While the Government uniformly applies the same premium rates to all medications, the Government
should consider the alternative of adopting a graduated rate system based on therapeutic value.
Graduated rates may also be a means to promote VBH and incentivize the production of medications
with higher therapeutic values to generate higher premiums. In France, the public insurance system is acompelling example of how to adopt and deploy a graduated rate system for public health care (Slide 4).
An independent scientific committee assesses the therapeutic value, taking into account both the severityof the illness and the efficacy. Therapeutic value is assigned into four levels with different premium rates:“important," “moderate," “low," and “insufficient.”10
If a higher-rated value is assigned, a higher rate of premium is allocated, while no premium is imposedon medications judged as “insufficient.” For Japan, an initiative similar to this would assist with promoting
VBH by revising these specific aspects of public insurance and accelerate the exclusion of pharmaceuticaldrugs that can be replaced by over-the-counter drugs, which, as described earlier, appears to be a viable
solution to reduce health care expenditures.

2-b. Establish a public insurance framework with diversified coverage of private insurance
In addition to reevaluating and adjusting co-payment ratios in public insurance, it is imperative to also
redefine the roles and use of the private insurance system to maximize its value in order to attract
citizens to use it. While a cash-based plan for hospitalization and special treatments is the main systemutilized in Japan, other countries, such as Germany and France, have been successful in diversifying thefunctions of private insurance to increase its utilization (Slide 5). These countries have strengthened the
supplementary functions of private insurance, and as a result, in France for example, more than 90% of
French citizens are currently covered by supplementary private insurance.
Both governments provide options to their citizens for determining their health care needs at the levelthat is financially suitable for them.

2-c. Establish a new financial framework to enhance individual ownership of health care
The Government should also consider a means for its citizens to take ownership of their own health andwell-being from a financial perspective. The introduction of a new financial framework may spur increases
in healthier and preventive lifestyles among its citizens. A Health Savings Account (HSA) program,
like those established in the United States and Singapore, provides viable examples of how to make itpossible. An HSA is an account in which pre-tax money is deposited into a designated account, createdfor individuals to accumulate funds for use for qualified medical expenses that public insurance would notcover. In the United States, withdrawals from the account are tax-free if used to pay for such qualified

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medical expenses. By providing citizens a means to manage their health care costs, it also incentivizes
citizens to practice preventive measures to save money on future care. This also ensures that funds
deposited into an HSA are held for investment for an individual’s future health care needs.

3. Secure necessary financial resources to sustain Japan’s universal health care system
In order to ensure the financial sustainability of the health care system in Japan, the Government should
consider how to secure sources of revenue to prepare for expected increases in health care expenditures,
rather than continuing the current, and possibly unsustainable practice, of financing a significant portionof national health care expenditures through debt issuances.

3-a. Debate the future form of generating governmental income including the use of consumption tax
While the consumption tax increased from 8% to 10% in October 2019, the Government has not clarified
its vision for the consumption tax moving forward. The Government should continuously reassess its
future plan while carefully considering the results from the increase in tax and provide an overall pictureof its plan to its citizens and businesses to restore predictability to the market and ensure an outcome
beneficial to all stakeholders.

References
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OECD
Japanese Ministry of FinanceJapanese Ministry of Health, Labour and Welfare “2018 Health Care Cost Outlook”
Japanese Cabinet Office, Ministry of Finance and Ministry of Health, Labour and Welfare “Estimation of Future Social Security for2040” (published in May 21, 2018)
Ministry of Internal Affairs and Communications “census” (Excluding the population of unknown age), National Institute of Population and Social Security Research "Projected population of Japan (Estimated January 2012)" (Medium-Fertility and Medium-Mortality Estimates). Compiled by JRI based on "Overview of National Medical Expenses in FY 2017" by the Ministry of Health, Labourand Welfare
Japanese Ministry of Health, Labour and Welfare “2017 Health Care Cost Outlook”
Japanese Ministry of Health, Labour and Welfare
Health Insurance Union Association website (2019), “Policy Recommendation for the next revision of medical fee," Retrieved Oct
2019, from https://www.kenporen.com/press/2019-08-23-14-31.shtml
Centers for Medicare & Medicaid Services website (2019), ”Accountable Care Organizations (ACOs): General Information" Retrieved Jul 2023, from https://innovation.cms.gov/innovation-models/aco#:~:text=Accountable%20Care%20Organizations%20(ACOs)%20are,the%20Medicare%20patients%20they%20serve
Haute Authorité de Santé (2014), Pricing & Reimbursement of drugs and HTA policies in France, MarchACCJ Healthcare Committee / valid through November 2025

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