Fees for medical services, products, and pharmaceuticals delivered by almost all providers are dictated by a national fee schedule. Every two years, the fee schedule along with conditions for billing are reviewed and revised by the MHLW. This process, which begins in the spring of odd-numbered years and finishes in April of the following year, sets fees and policies that dictate the healthcare benefit package as well as nearly all provider and medical facility income. This policy tool acts as the government’s cost control lever as both overall costs and line-item costs can be adjusted affecting provider behavior. With clear objectives and on-going oversight, this mechanism acts as a strong rein on the healthcare system’s associated costs, supply, and service provision. Interestingly, it also extends to ensure the financial health of providers.

Revision to the fee schedule takes place first at a global level before moving on to the item level. The global level process signals the government’s health spending intentions over the next two years. Specifically, the Ministry of Finance’s Budget Bureau and the Health Insurance Bureau (HIB) of the MHLW decide on the global revision rate, which is the combination of volume-weighted adjustments to prices of services and pharmaceuticals.¹ These figures are based on discussions between various stakeholders, including the ruling party and the JMA, and estimates based on the Empirical Survey of Medical Care Economics (Iryou Keizai Jittai Chousa) and the Pharmaceutical Price Survey (Yakka Chousa).² Economic, social, and political considerations are also taken into consideration. Because these rate changes only reflect adjustments in pricing, it may be more helpful to think of these figures as signals rather than a reasonable estimates because changes in volume and product availability ultimately affect overall costs over the next two years.³

After global rate reductions are finalized in December, line item revisions are made to the fee schedule and pharmaceutical prices by the Central Social Insurance Medical Council (Chuikyou), an advisory group to the MHLW Minister that is staffed by the HIB and includes members who represent payers, providers and the public.⁴ This group is one of the most critical groups within Japanese health policy. These price adjustments are made in order to achieve specific outcomes. For example, medical service rate increases are used as provider incentives and decreases are used to contain high-volume services. These rates are also adjusted to ensure income and costs are relatively equitable across the various health specialties. Because these revisions directly affect provider income, this process includes the reflected interests of the ruling party and finance ministers as well as extensive negotiations between interest groups and MHLW bureaucrats.

Pharmaceutical rate revisions are a unique and important part of the cost control process. Once the volume-weighted average price is set, the new price is decided by adding a certain percentage onto the average price. Because the difference between these rates and provider purchase price is equivalent to provider income, purchase prices have been pushed down by provider negotiations leading the MHLW to further push down the payment rates to control costs.⁵

Unlike the fee schedule, revisions to the conditions for billing are not limited to once every two years, but can be revised by the MHLW at any time. Through these conditions, the provision of products and services can be controlled enabling an additional method of cost control. These conditions also serve as the main source of quality control on healthcare services. By setting certain standards that must be met before a service can be billed, the MHLW is able to ensure that, for example, the proper equipment is used for a specific service or the appropriate number of staff is available to each inpatient receiving treatment.⁶

1 Maeda, A., Araujo, E., Cashin, C., Harris, J., Ikegami, N., & Reich, M. R. (2014). Universal Health Coverage for Inclusive and Sustainable Development: A synthesis of 11 country case studies. p.71

2 Maeda, A., Araujo, E., Cashin, C., Harris, J., Ikegami, N., & Reich, M. R. (2014). Universal Health Coverage for Inclusive and Sustainable Development: A synthesis of 11 country case studies. P.103-104

3 Maeda, A., Araujo, E., Cashin, C., Harris, J., Ikegami, N., & Reich, M. R. (2014). Universal Health Coverage for Inclusive and Sustainable Development: A synthesis of 11 country case studies. p.103

4 Maeda, A., Araujo, E., Cashin, C., Harris, J., Ikegami, N., & Reich, M. R. (2014). Universal Health Coverage for Inclusive and Sustainable Development: A synthesis of 11 country case studies. p.111

5 Maeda, A., Araujo, E., Cashin, C., Harris, J., Ikegami, N., & Reich, M. R. (2014). Universal Health Coverage for Inclusive and Sustainable Development: A synthesis of 11 country case studies. p. 77

6 Maeda, A., Araujo, E., Cashin, C., Harris, J., Ikegami, N., & Reich, M. R. (2014). Universal Health Coverage for Inclusive and Sustainable Development: A synthesis of 11 country case studies. p.73