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The Finance Ministry on Wednesday proposed reducing the fees charged by medical institutions, to curb social security costs which have ballooned due to the country’s rapidly aging population.

The fees, made up of drug and medical service costs, need to be slashed by at least 2.5 percent, the ministry told a meeting of the Fiscal System Council, which advises the finance minister.

Included in the proposals were cuts in fees charged by providers of elderly nursing care services and an end to temporary child allowances for affluent households. The ministry also recommended and a gradual rise in the share of out-of-pocket expenses — to 20 percent from the current 10 percent — within total medical treatment costs borne by people ages 75 or older.

These measures will be decided in the budget compilation work for fiscal 2018, the ministry said.

The government aims to limit the annual increase in aging-related social security expenses to ¥500 billion over the three years through fiscal 2018.

For the fiscal year starting next April, the growth is currently estimated at ¥630 billion. The government needs to reduce ¥130 billion to reach the target.

The medical fee reduction proposal is likely to be a key aspect of work to compile the budget, as the Japan Medical Association is likely to reject it.

Separately on Wednesday, the health ministry said it will set a rule to mark down expensive new drugs if the annual cost of using them is at least ¥5 million more than with existing medicines.

The threshold will be part of a new system to reflect cost effectiveness in the government mechanism to set drug prices, as the country faces ballooning medical expenses .

A draft outline of the system was presented on Wednesday at a meeting of the Central Social Insurance Medical Council, the ministry’s advisory body. Details will be made public by the end of the year.

The ministry aims to introduce the system in fiscal 2018, when Japan’s medical service fees, including drug prices, are revised, health ministry officials said.

The ministry has been considering how to reflect cost effectiveness in the drug price-setting mechanism since April 2016.

Price changes will be considered under the new system for 13 products, including the Opdivo cancer drug, which costs ¥14 million per year per patient.

Under the revised system, the prices of new drugs will be raised or lowered depending on their effectiveness relative to existing medications.

The ministry proposed the ¥5 million threshold based on the results of a 2010 survey that found half of the respondents were willing to pay up to ¥4.85 million for drugs that could prolong their lives for a year.

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