How Can Japan's DPC Inpatient Hospital Payment System Be Strengthened?

Lessons from the U.S. Medicare Prospective System

This report by Dr. Gerard Anderson and Dr. Naoki Ikegami analyzes how Japan can strengthen its Diagnostic Procedure Combination (DPC) inpatient hospital payment system. Given the one-year time constraint in the design of Japan’s DPC system, a variety of compromises were made in order to satisfy the involved parties. Recently, concerns have arisen over the incentives created by the payment system and the performance of Japan’s hospital sector. Some of the compromises in the design of the payment system may ultimately reduce the efficiency of hospitals or increase their operating costs. Drawing on lessons of the multi-decade U.S. experience with Medicare payments to hospitals, the report offers recommendations that aim at expanding the prospective and bundled approach to payment for hospital care to all patients at all hospitals. Although the exact savings and efficiency improvements cannot be calculated without additional data, the authors believe the gains would be substantial.

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Gerard Anderson

Naoki Ikegami