How does Japan do it?Best health indices and no waiting lists

Naoki Ikegami, MD, MA, PhDDept. of Health Policy & ManagementKeio University School of Medicine

*Please do not distribute without authorization

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The Japanese paradox (1): Low expenditures, best health outcomes

1. Low expenditure levels: 8.1% of GDP (2006, OECD)– 19th among OECD countries

2. Universal coverage with Social Health Insurance (SHI)– Public health expenditures constitute 81.3% of total

3. Excellent health indices– Infant mortality, avoidable mortality, life expectancy at 60

4. No waiting lists: unrestricted access to virtually all hospitals: may have to wait but seen on same day

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2006Totalexpendit.on health- / capita,US$ PPP

% grossdomesticproduct

Japan 2581 8.1US 6933 15.8Canada 3696 10France 3423 11Germany 3464 10.5UK 2885 8.5

Comparison of health expendituresPer capita PPP US$, ratio to GDP (2006)

Source: OECD Health Data 2009 - Version: June 09

/capita US$ PPP %GDP

8.1% of GDP, 19th among OECD

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The Japanese paradox (2):But it should be inefficient!

• Fee-for-service payment is the general rule• Over 3,500 insurance plans• Among providers, private sector dominates• Average length of stay in hospitals is 19 days• High per capita number of hospital beds• Highest per capita number of CT scan, MRI• Unrestricted, no “gate-keeper”, access to tertiary

hospitals• Little attention to quality• Why are health expenditures low, and people healthy?• Answers will be given at the end

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1. Overview of the system: Financing• Hybrid of financing from social health insurance (SHI)

premiums (2/3) and taxes (1/3)• Tax subsidies SHI plans set at fixed ratio of total expenditures

– 25% from national government taxes– Subsidies to SHI compose 10% of national gov general expenditures– Government must set budget cap on total health expenditures

• Universal coverage by employer-based plans and community-based plans– Large companies have their own plans– Companies employing less than 700 covered by national-level public

plan (1/3 of population)– Self-employed and pensioners covered by community-based plan (40%

of population) managed by municipalities• No choice of plans but benefits essentially the same

– Catastrophic coverage provided to all plans– Maximum copayment is $900/month (less if low income, more if high)

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Grouping of SHI plans in Japan• Subsidies from taxes are needed in order to maintain equity:

Tiered grouping of SHI plans• 1st tier: Plans having relatively high ratios of healthy and

wealthy enrollees→ No subsidies– MAA (Mutual Aid Associations) for civil servants: 78 plans– SMHI (Society-managed health insurance) for employees of large

corporations: 1500 plans• 2nd tier: One plan for those in between→ 13% from subsidies

– GMHI (Government-managed health insurance) for employees of small to medium corporations: 1 plan

• 3rd tier: Plans having relatively high ratios of ill and poor enrollees→ 40~80% from subsidies– CHI (Citizens Health Insurance) for self-employed and pensioners

managed by municipalities: 1820 plans– CHI for occupation-based self-employed: physicians, dentists,

carpenters, barbers etc; 166 plans

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Overview of the system: Providers

• Private-sector dominated– 80% of hospitals, 94% of clinics– Any physician can open a clinic any place in Japan– But, public-sector provides most of high-tech care because they have

additional revenue from government subsidies• Physician dominated

– Hospital CEO legally must be a physician– Almost all private-sector hospitals owned by physicians– Entry of investor-owned hospitals prohibited

• Traditional model– 95% of physician clinics solo-practices– Little functional differentiation: tertiary care hospitals from clinics, acute

care hospitals from nursing homes– Even premier medical centers have low volume compared with US

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2. How and why fees and prices were controlled?• Fee schedule: Single payment system set by government

– Applied to all SHI plans and virtually all providers: Plans and providers do not have to negotiate on an individual basis→ All done by the government

• How can costs be contained by controlling fees and drug prices?– Expenditures = Fee (Price) X Volume– Volume of each will remain essentially the same on a year to year basis– Macro control: Government first sets the overall revision rate– Micro control: Government then revises service fees and drug prices on an

individual basis• If volume expands too much, then prices would be reduced in the next revision• Balance among providers: No one particular type always the winner→ General

rule: Profitable services will be made unprofitable after revision• Why have fees and prices been so tightly controlled?

– One quarter (fixed rate) of total expenditures financed from taxes– In order to contain the general revenue budget, total health expenditures

must be contained

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Ensuring compliance to regulations• Providers must give patients an itemized account of the services

delivered and their co-payment amount; and must bill the patient immediately after the visit, or on the day of discharge– Extra-billing (providing non-listed drugs etc.) & balance billing (charging

more than the price set by fee schedule) prohibited• Peer review of claims

– Claims to plans submitted at the beginning of every calendar month– Peer review by committees in each of the 47 prefectures – If an item is judged inappropriate, then payment denied for that item

• Inspections made by a team composed of physicians from the government inspectorate and the local medical association– Made about every one to ten years for hospitals– More frequent if provider has bad reputation

• Information from local providers, patients, dissatisfied hospital employees etc.

– Billed services listed in claims matched with medical records– If no record, then provider must retrospectively pay back the amount

• Providers must pay if non-compliant, not the patients as in US

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Revisions of the fee schedule: 1st Step• Revisions made every two years (fiscal year starts

April)• Macro control: 1st Step lies in setting the global rate

(volume weighted rate for all fees and drug prices) • Global rate decided by the Cabinet (Prime-Minister)

– Global revision rate must be decided by December in order to set the next year’s budget within the calendar year

– Ministry of Finance (MOF) demands a decrease– Provider organizations (Japan Medical Association etc.)

demand an increase– Ministry of Health, Labor & Welfare (MHLW) acts as

secretariat and provides data– Politicians (Diet men) work to come out with a compromise– New government may introduce a more top-down decision

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2nd Step: Revising drug and device prices • Providers can buy drugs and devices in the market at less than the prices

set by the fee schedule because of competition among manufacturers and wholesalers ⇒How to reduce excess profit of the providers?

• Micro control in revising individual prices: Two methods– Survey of market price: wholesalers’ books etc.

• Prices reduced so that new price will only be 2% greater than the volume weighted average market price of each drug

– Old list price £10→Market price £ 9→New list price £ 9.02• Device price reductions are applied to the functional group, and not

individually– Unilateral decreases in price for new drugs selling better than projected,

or for drugs that have had generics introduced• Cumulative effect: average price of pre-existing drugs one third that of 20

years ago; ratio of drug costs to total health expenditures has decreased from 39% to 20%– Device prices have also been reduced but their share of total

expenditures has increased because market has expanded– Share of Japan in global drug market: 15% (00)→ 9% (06)

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Setting the price of new drugs and devices• Once approved, almost always listed in formulary

– Notable exception: Viagra• Prices set relative to that of nearest existing drug, device; or

cost-based if there is no appropriate comparator– In the former, the extent of innovativeness determines the relative

mark-up from the price of the comparator• International prices also used as benchmarks

– If prices are 50% higher than the average of the list prices in US, UK, Germany and France, then reduced

– US price drives up drug prices, drives down device prices• Unclear whether prices are higher in Japan or not

– Different drugs and devices used• Information on cost-effectiveness not required in Japan

– Impact of costs not taken into consideration in approval process– Delays in approval due to difficulty of doing clinical trials etc., not

costs

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3rd Step: Revising individual fees • Micro control: Fees for services are revised on an individual basis• Fees reduced if:

1) Sector that provides the service shows profit → For example, if clinics show greater profits than hospitals, clinic fees will be reduced・ Survey made of the financial state of hospitals and clinics in the year

before revision2) Volume has expanded sharply → Indication of inappropriate use such as

MRI3) Costs have decreased → Example: Material for renal dialysis

• Fees may be increased if in line with policy objectives– Example: Promoting home visits by physicians

• Net result: Must be equal to the global revision rate of the 1st Step and the amount available from reducing prices in the 2nd Step– If increased for one procedure, then another procedure must be

decreased– Effect on the total expenditures of revising the fee for any particular

service is calculated from the claims survey that shows the estimated volume for each

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Example of revisions in fees for diagnostic imaging：MRI (Yen)

Year Head Body Limbs2000 16,600 17,800 16,9002002 11,400 12,200 11,6002006 10,800 if <1.5 Tesla, 12,300 if >1.5 Tesla*2008 10,800 if <1.5 Tesla, 13,000 if >1.5 Tesla**

30%↓, despite only 2.2% macro↓

* Differential fees according to equipment type introduced for the first time

**Successful lobbying by radiologists?

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Council that makes 2nd and 3rd revisions• Central Social Health Insurance Council• 30 members appointed by Minister, subject to approval by Diet

– 7 from providers (5 physicians, 1 dentist, 1 pharmacist)– 7 from payers (SHI plan, corporate and labor representatives)– 6 from academia and public interest– 10 specialist members (drug & device companies, nurse etc)– Integrity rules: Two members from payers arrested for taking bribes

from dentist association• However, the real negotiations occur between provider groups

such as JMA, and the Ministry which is staffed by physician bureaucrats

• Recommendations (binding) on the revisions to be made to the MHLW Minister (early March)

• MHLW publishes the revised fee schedule (late March) and implemented from April 1, the start of new fiscal year

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3. Impact of containing costs by the fee schedule

• Government focuses on SHI covered and other publicly funded medical care costs– Includes copayment, but excludes OTC drugs, private room charges,

capital investment made by the government etc included in OECD– About 80% of the OECD amount– The amount is referred to as “National Medical Expenditure” (NME)– NME is the amount used for calculating subsidies from the government budget:

More important than the OECD amount which includes costs not covered• Relationship of NME to GDP

– Health expenditures have always been contained – But in the 1980s, the GDP was growing so that NME could be increased

without hurting the economy– After 1991, when the burble bust, NME increased more than GDP: Ratio

of NME to GDP increased to 6.6% in 2007– Cost containment policy was intensified, especially after 2002

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Relationship of NME and fee schedule revisions

• Fee schedule revision rate is reflected in the NME • Positive increases in the fee schedule rate are directly

reflected by increases in the NME• After 2002, increase in NME in years of fee schedule

revision: -0.4% (06) ~ 1.9% (04)– Increase in NME in years of no revision: 2.0% (03) ~ 3.0% (05)– 02 revision rate: -2.7%, 06 rate: -3.16%– Moreover, billing regulations were also tightened up

• Why did NME increase more in the non-revision years?– 2~3% increase due to aging and advances in technology

• Decreases in the fee schedule rate have absorbed increases due to aging and advances in technology

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Annual Changes in Gross Domestic Product, National Medical Expenditures and Average Fees, Japan,

1980-2007

Year

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0(%)

Gross domestic product

National medical expenditure

Fee schedule revision

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Why did the government intensify its efforts to contain costs?

• Economic depression from 1991 led to a huge deficit, totaling 1.7 times the GDP by 2002– Decrease of revenue: Corporate taxes↓– Increase of expenditure: Keynesian economics

• Government must show the public that they have done everything to contain expenditures before increasing taxes: Every government that has increased consumer taxes has lost the following election– True for other countries?

• Health sector became targeted for cost containment– Subsidies to healthcare compose 10% of total budget– President of Japan Medical Association did not support Prime-minister

Koizumi in 2005 election→ One reason why the global revision rate was minus 3.16% in 2006?

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But, backlash against containment policy• Koizumi’s fiscal austerity and pro-market policy discredited→

LDP has just lost election– But the national debt amounting to 1.8 times GDP is still growing

• Media publicity of “collapsing healthcare system”– Issues have been centered on quantity and accessibility, not quality– Mothers in labor turned away from hospitals→ Main reason lies in

unfortunate combination of events – Emergency patients denied access→ Has been happening before– Closing down of public sector hospitals→ Only 2% have actually closed– Clinic-based physicians’ income have fallen→ Still nearly twice that of

hospital based physicians and five times that of average worker– Opposition party has used this slogan to discredit the government

• New government is pledged to increase funding– Recently announced macro fee schedule revision rate will be +4% in 2010– Pledge to increase medical school enrollment by 50%– Must honor pledge at least until upper house election next July– Good times coming for healthcare providers?

• But why were the providers so quiet during Koizumi’s years?

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4. Why did the providers allow such cuts?• How physicians are organized

– 2/3 of physicians employed in hospitals, 1/3 in private practice, without hospital privileges (like GP but proclaim some specialty)

– Specialty Boards do not have much power• Hospital-based physicians identify more with their university clinical

departments than with their professional societies– 1/3 in private practice have been united in their interests under the Japan

Medical Association→ Most powerful provider organization• How hospitals are organized

– Antagonism between high-prestige, subsidized public hospitals and generally low-prestige, unsubsidized private hospitals

– Hospital organizations have not been powerful players• Government has been able to contain costs by favoring the

JMA and primary care services

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Appointment of physicians in Japanese hospitals

University Hospital

1st Internal Med. Dept.

2nd 〃

3rd 〃

1st Surgical Dept. ：

：：

National Hospital

City Hospital

Red CrossHospital

Private Hospital

Historical background: Medical schools wanted high quality hospitals, hospitals wanted high quality young doctors⇒ Development of closed network between university clinical departments and affiliated hospitals

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Lack of quality control• Training and accreditation of specialists under-developed →

Lack of standardization– Appointment to major hospital positions: Under control of university clinical

departments, credentials as specialists less important– Each university department sets its own standards– Has made it impossible to control the number of residency training positions in

each specialty• Lack of standardization in hospital quality

– Hospital accreditation started 12 years ago, but still less than 1/3 accredited– All hospitals inspected by local government but this is focused mainly on staffing

(number of physicians, nurses to patients) and floor space per bed– Expensive equipment has been purchased without considering the following:

• Has the hospital technically competent staff?• Would the hospital have sufficient volume of patients needing equipment?

• Since norms are not well established, difficult to monitor decline• Main pressure to maintain quality→ Competition

– Compete for patients (by grape-vine), and for physicians, nurses etc.– If unsuccessful, then goes out of business

• Number of hospitals: 9,490 (96) → 8,943 (06)

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My answers to the Japanese paradox

• Fee-for-service: But, macro and micro management of fees• Over 3,500 insurance plans: But, benefits nearly the same• Among providers, private sector dominates: But, not in high-

tech care• Average length of stay in hospitals is 19 days: But, low intensity

of care means low per diem costs• High per capita number of beds: But, ¼ are nursing homes• Highest per capita number of CT scan, MRI: But, no frills, low

price models dominate; price can be and have been lowered• Unrestricted, no “gate-keeper”, access to tertiary hospitals: But,

keeps hospitals physicians busy with primary care• Little attention to quality: But, does it make a difference?• How do I justify my existence as a health services researcher?