Reforming the Japanese Healthcare System
November 15 (Tuesday) 2005
The curtailment of healthcare costs is becoming a major issue in Prime Minister Koizumi's structural reforms. The Ministry of Health, Labor and Welfare's "Proposal for the Structural Reform of the Healthcare System" announced on October 19, predicts that if the current system continues, healthcare benefit expenses will reach 40 trillion yen by 2015, and 56 trillion yen by 2025. If one takes into account the healthcare costs that are not covered by insurance, the burden on citizens becomes even greater. The Council on Economic and Fiscal Policy is concerned that uncontrolled expansion of health care costs is a burden not easily shouldered by the people, and at the same time is worried that the resolution of these financial problems will be postponed. To solve these issues, the Council is calling for a policy that would link curbing healthcare costs to macroeconomic indicators.
In response to this, many people related to the medical field and the Ministry of Health, Labor, and Welfare oppose the linkage of macroeconomic indicators with curbing healthcare costs, claiming that such a plan is extraneous to healthcare policy. Private-sector members of the Council on Economic and Fiscal Policy's figures differ from those of the Ministry of Health, Labor, and Welfare, and have proposed target numbers as a guidepost for holding healthcare costs down, aiming for healthcare costs of 35 trillion yen in 2015 and 42 trillion yen in 2025.
With the formation of the new Koizumi Cabinet, this problem has transformed into an issue of realizing a tangible policy decision, sparking fierce debates amongst relevant parties.
In my opinion, a certain degree of control, based on some sort of quantifiable macro-level goal, is necessary to counter unrestrained expansion of healthcare costs. In actuality, however, even if a quantifiable macro-level goal is established, properly controlling the growth of healthcare costs is no easy task; this is because the greatest cause of burgeoning healthcare costs is the graying of society. On average, the cost of healthcare for the elderly is many times that of the cost for young people. If a country's demographics are shifting toward an ageing society, rising healthcare costs are unavoidable.
In healthcare, there are two kinds of methodologies: treatment and prevention. Treatment-style healthcare gets more expensive as graying continues. In response to this, if effective preventative healthcare is pursued, healthcare costs associated with the graying of society will still rise, but this increase will be mitigated to a certain degree. Traditionally, Japanese healthcare is of the treatment variety, and the development and government efforts regarding preventative healthcare is severely behind that of other developed nations. As a result, there is an inclination in Japan toward unavoidable, accelerated growth of healthcare costs stemming from societal ageing. If the structure of healthcare itself is not changed, we cannot expect sufficient results from merely raising quantifiable goals. Touting quantifiable goals must be combined with structural changes in costing and pricing. To put it more simply, physicians, medical institutions, pharmaceutical companies, and patients must each behave rationally toward each other, and they themselves must incorporate mechanisms for reducing healthcare costs.
I would like to introduce three suggestions. In the first, pharmaceutical companies compress the drug-price margin (i.e. the difference between the standard price for drugs and the actual cost to manufacture them). This would cause pharmaceutical makers with low productivity to close, and increase competition among pharmaceutical companies with high productivity, thereby pulling down the cost of drugs themselves.
The second is DRG PPS -- Diagnosis Related Group/Prospective Payment System. DRG PPS sets a standard medical treatment cost for many illnesses, with costs that rise above this standard excluded from coverage. This system allows both physicians and medical institutions to avoid costly treatment procedures and cuts down on healthcare costs. If healthcare providers deteriorate the content of medical services they will lose out to competition, and thus the system preserves the quality of service while providing an incentive to offer services at the lowest possible prices.
The third example is the reimbursement system. In this system, medical institutions bill patients for the entire amount of medical expenses incurred by their visit. Later, patients will be reimbursed up to the coverage allowed by their insurance. To put it more simply, let's consider the case of someone who comes down with a cold, visits a hospital, and receives a 3,000-yen prescription. The actual fee for the visit is 10,000 yen, and thus the patient will pay the entire sum upon their visit. Even though the patient knows that 7,000 yen will be reimbursed at a later date, 10,000 yen up front is a considerable sum; this will encourage the patient to go to bed early and get up early, lead an orderly life, eat balanced meals, and pursue other ways of keeping healthy, thereby reducing the need to visit the hospital.
These are all micro-level incentive schemes, where patients, physicians, and pharmaceutical makers behave rationally, resulting in a self-regulating mechanism for reducing healthcare costs out of their own volition. The end result of this sort of mechanism is a reduction of total healthcare costs.
It is critical to incorporate this kind of scheme, and to promote policies that will reduce the total cost of healthcare. There is a certain amount of discussion regarding the above proposals amongst specialists and within the Council on Economic and Fiscal Policy, but due to the resistance of medical associations, pharmaceutical companies, and other interested parties, the implementation of these mechanisms has not been successful. However, the April 2003 introduction of a Japanese version of DRGPPS -- known as DPC (Diagnosis-Procedure Combination) -- in 82 advanced treatment facilities nationwide is a noteworthy move.
It is my hope that the government will proactively implement these micro-level schemes, and in so doing, realize the goal of reducing healthcare costs while maintaining quality.