Japanese Healthcare as the Lowest in Terms of National Expenditure Among the Industrialized Nations - Research Paper Example

 I. Introduction The Japanese health care, according to a report by OECD is the lowest in terms of national expenditure among the industrialized nations (Ovretveit 2001, 164). The vast difference in spending among countries, most notably between the USA and Japan is very much apparent. While the costs of medical care in Japan are relatively lower than the United States, quality and standards of the medical care are not lower than the other industrialized nations too. This paper aims to explore the differences between the healthcare in Japan and the United States in terms of cost, quality and standards. This paper further looks at the factors that contribute to the higher quality of overall standard of health care in Japan as apparent in the higher life expectancy, lower mortality and longer hospital stay for long-term care and acute care in the country. Various factors are considered, some of them are classified as societal factors, or factors that are inherent in the society which contributes to the lower costs of medical care, and the systemic factors which help the current system of medical care working to keep costs low. II. Body A. Societal factors Some of the factors that contribute to the country's low cost for medical care are societal by nature. These forces are inherent in the Japanese culture as well as the structure of their society. i. Health conscious culture One of the factors that many health experts in the United States regard as a reason for the lower costs of medical care in Japan is the people's health consciousness which is inherent in the Japanese culture (Campbell & Ikegami, 1998). This health consciousness is apparent in the country's norms, i.e. the typical Japanese diet as well as norms as regards health practices. While the Japanese diet has been criticized for being high in sodium content, the typical Japanese diet is comprised mainly of vegetables and lean meat which has enabled the whole population from suffering the diseases that is brought by obesity which is apparent in many Americans. As according to Campbell and Ikegami, while the fad toward a more health conscious society has been given much emphasis in the US over the years, in Japan healthier food is part of the daily diet which is a contributor to the lower cost of medical spending in the country (1998). With regard to the personal habits of ordinary people, Japanese eat healthier food and in smaller quantities than Americans. It is certainly that although Japan has not seen much of a fad for health foods and intense exercise as has the United States in recent years, its population has remained relatively lean, while the number of overweight Americans has increased at a record pace (Campbell & Ikegami 1998, 12). Apart from the diet, the Japanese are known to be more proactive in protecting and maintaining their health. The Japanese are known to act on their health problems at the first sign of a disease; the idea of disease prevention is ingrained in their cultures which has helped curb down the costs of subsequent medical procedures has the disease not been detected in its earliest stage. According to Campbell and Ikegami, this trait of the Japanese people have even been coined in an 'unfriendly term' which is being hypochondriac (1998). … many have noted the Japanese tendency to be quite mindful of their health—the unfriendly term is hypochondriac. Survey evidence indicates that Japanese are much more likely to take some sort of action at the first sign of some ailment, and their rate of visiting the doctor is much higher than Americans (Campbell & Ikegami 1998, 13). ii. Historical and environmental factors Another societal factor that has been considered to contribute to the lower cost of the Japanese healthcare are the environmental conditions in the country. As Japan have lower cases of societal disorders such as 'drug addiction, violent crime, teenage pregnancy, high-speed traffic accidents and poverty stricken urban and rural slums' (Campbell & Ikegami 1998). These environmental conditions which have caused distress among the people in the United States are lower in Japan, which has been suspected as one of the causes for the higher health standard in the country. The incidence of such expensive conditions as severe trauma, low birth-weight babies, AIDS, and some other diseases is therefore markedly lower in Japan (Campbell & Ikegami 1998, 18). The long history of Japan in relation to its use of Chinese medicinal practices in contrast to aggressive medical procedures is also considered as one of the causes of the lower medical costs in the country. This norm results in fewer demand for surgery in the country. iii. Tightly regulated medical practices The major difference in Japan and the United States in terms of health care is in the norms that is apparent in medical practitioners. While in the United States, specialists earn more because of the specialization of service, in Japan, specialization of service is virtually nonexistent, which requires many general practitioners to be knowledgeable in many areas and diagnose patients in as much area that they can cover. All doctors in Japan are paid the same fee for each service. Specifically, the OECD report Health Care Reform in Japan explains, "Another characteristic of the Japanese system is a conspicuous lack of differentiation and standardisation. First, the fee for a given service is identical across service providers and does not recognise the difference in quality. Second, general practice medicine is not clearly established as a separate discipline, so that specialist doctors are not differentiated from general practitioners. Virtually all doctors in private clinics try to deal with all the problems of their patients." (Ward & Piccolo 2009). The medical care in Japan is highly regulated by the government. Because university hospitals are not allowed to promote their services, there is little differentiation of the services. This does not give incentive to specialists to promote their services. Also, the current regulations require doctors to be knowledgeable of their patients' diseases, which lessens the need for specialists. This is in contrast to that in the United States, where specialists are rewarded as the prices for their services are subject to the supply and demand forces in the market. These regulations also prevent doctors from raising their prices. Japanese people are then paying for much less in terms of fees for practitioners. B. Systemic factors Apart from the societal factors, the Japanese government has a system that regulates the whole Japanese health industry which enables the country to maintain the low costs. These are the systemic factors which are inherent in the system. i. The fee schedules and the direct control in prices The Japanese health industry is unique in that the country employs a third-party system as regards the payment facilities within the hospitals. Basically, there are three entities in the Japanese medical system: the paying public, the insurers, and the government. Insurance is mandatory in Japan, where universal access to medical service is really one of the features of its medical system. There are two major health insurance providers in Japan. One is paid by employers for those who are employed, and the other one is for the self-employed and other groups within the society. The insurance covers most of the basic inclusions in a medical plan, where consumers just need to pay for a small fee for a given service. There are two important areas for price regulation in Japan, the medical fee for treatment and the pharmaceutical price. The former is the fee-for-service payment and the latter is the pharmaceutical standard price (Tokita 2002, 61). This centralization in the medical industry plays a huge role in keeping the cost of medical services lower in the country. The fee schedules that are determined by the entities which serve as the direct control in prices. … is the fee schedule itself, which together with a prohibition on any extra charges (or “balance billing”) both directly controls prices and indirectly influences providers' behavior through relative prices (Campbell & Ikegami 1998, 17) This is in contrast to the United States' decentralized health industry. Because fees are not regulated by the government, fees are subject to market forces instead, which determines the relative prices of the services. ii. The extremely egalitarian system of Japanese health care The Japanese healthcare industry provides universal coverage to all people. Because everyone in Japan is required to have an insurance, any person can avail of the coverage that is provided by the insurers. In Japan, it has been said that it is deemed unacceptable for an insurer to turn down any person. Thus, the availability of medical care to everyone in the country is made possible by the regulations of the government over the insurers. Everyone in Japan is required to get a health insurance policy, either at work or through a community-based insurer. The government picks up the tab for those who are too poor. … It's a model of social insurance that is used in many wealthy countries. But it's definitely not "socialized medicine." Eighty percent of Japan's hospitals are privately owned — more than in the United States — and almost every doctor's office is a private business (Reid 2009). Due to the egalitarian health care in Japan, the costs are spread over everyone in the population, making the costs that are related to investments in new medical technology relatively cheaper. Apart from this, the premiums are determined by a person's ability to pay which provides a lot of advantages even to the poorest of the country's population. … the Japanese system is extremely egalitarian, not only in that everyone can go to any provider and get essentially the same treatment but because various mechanisms—premiums as a percentage of income, differential tax subsidies, direct cross-subsidization among carriers—ensure that premium levels are adjusted to the ability to pay (Campbell & Ikegami 1998, 18) As the insurers are much regulated by the government, the insurers are required to pay the hospitals for the claim that are related to consumers' availing of services. This third-party system in the country keeps the costs low by regulating the insurers, making the government pay for a subsequent portion and only requiring consumers to pay for less. With both government expenditure and the insurance under tight control, the overall costs of health care in the country is kept low. The Japanese healthcare system is highly regulated by the government and, as described by the OECD, "combines a mainly private provision of services with mandatory health insurance. Service providers are paid directly by insurers (the third payer system). Payments for outpatient care are predominantly on a fee for service basis, and inpatient care is paid through a mixture of per diem and fee for service. Fees for different medical services are set out in the Fee Schedule announced by the government and revised every two years. Between 20 and 30% of the fees are born by patients as co-payments. But with a ceiling (see below) the effective co-payment rate is about 14%." (Ward & Piccolo 2009). In contrast to Japan, in the United States where the prices of the services are determined by market forces, the availability of a given technology for example depends on the medical insurance coverage of a patient. Because the costs are not spread among everyone in the country, the costs per patient for a given service, like MRI can be very high which leads to the higher medical expenditures in the United States. iii. Rough ceiling on total projected medical expenditure As mentioned earlier, the government tightly controls the costs of the medical expenditure in the country through the system that runs in the industry. As described earlier, the system is mainly comprised of the three entities: the paying public, the insurers working with the service providers, and the government. With the insurers and service providers kept under close control, the government's other tool to keeping the medical costs low is setting a projected medical expenditure as proportion of the total government budget. The government subsidies to CHI and GMHI are calculated as a fixed percentage of outlays as established by law, and so are not easily altered, and they come from the General Accounts … That means that for every revision of the fee schedule, the Ministry of Finance must approve the amount of the subsidy required and in effect impose a rough ceiling on total projected medical expenditure (Campbell & Ikegami 1998, 18). The government sets a certain amount for the projected medical expenditure, and being part of the General Accounts, this cannot be revised by law without working closely with the concerned authorities such as the Ministry of Finance. Given a certain ceiling for the total projected medical expenditure determines the level of spending in the country for medical care, which is combined with the tighter regulation over the other entities within the system. This is one of the ways on how the government of Japan keeps the cost of medical care in the country low. This is how Japan keeps cost so low. The Japanese Health Ministry tightly controls the price of health care down to the smallest detail. Every two years, the health care industry and the health ministry negotiate a fixed price for every procedure and every drug (Reid 2009). The decentralization of the health industry, again is the major difference between Japan and the United States for setting the medical costs in each country. In a country where the health industry is decentralized, and where the market forces determine the prices, little regulation as compared to Japan's ceiling on health expenditure is apparent. The government of the United States does not provide such ceiling as well as control over entities in order to tightly control the cost of health care in the country. iv. Political rather than scientific to setting medical fees Medical fees in Japan are determined through the negotiating parties. These fees are set depending on the relative costs and benefits to the concerned parties. These includes the insurers, the health care providers and the government. They set a new fee schedule depending on their needs, such as considerations whether the fees could cover the level of revenues to sustain their operations, from the point of view of the service providers for example. This also determines the relative increases in the premium that the public pays. Fees are decided not by analysis as much as by consent of the interested parties. The biennial negotiations begin with the current fee schedule, and the payers and providers dicker back and forth item by item until both sides agree. This approach is very different from the elaborate research on “relative values” that is supposed to be the basis of the Medicare fee schedule in the United States. It is quicker, cheaper, and actually less likely to provoke conflict over broad principles or claims of scientific validity (Campbell & Ikegami 1998, 19). In contrast to the practice in the United States where the medical fees are determined by the 'elaborate research' which entails many factors such as market values of services, this system that the Japanese health care industry employs is much quicker and cheaper in the process. This is one of the ways the Japanese health care industry employs in order to keep the costs low—some sort of self-regulation. v. Inhibiting effect of regulation on entrepreneurial behavior As previously mentioned, the decentralization of the health care industry in the US and the socialist system of the health care industry in Japan is one of the major determinants of the differences between the two countries' level of spending. Unlike in the US where hospitals and service providers are commercial establishments, Japanese medical service providers are prohibited by the government from being a for-profit entity. … the fifth point is the inhibiting effect of regulation on entrepreneurial behavior … private hospitals lack enough surplus revenue to allow much capital investment for expansion, and they cannot sell their service to the highest bidder (Campbell & Ikegami 1998, 19) Because the government provides less incentives to hospitals and doctors to make profits from their operations due to the tight control over the industry, the prices of the services are not determined by the market forces. When services are subject to market forces, i.e. the demand and supply in the industry, prices can fluctuate and reach higher levels especially when factors like scarcity of supply and exclusivity of the service takes place. This is a major determinant for the difference in the medical expenditure in the two countries. Japanese healthcare providers are predominantly private hospitals and physicians. Hospitals must, by law, operate as not-for-profit entities. About 80% of hospitals are private, physician-owned, and 20% are large, public, state-owned teaching hospitals. In 2000, Japan had 1.9 practicing physicians per 1,000 population, while Canada has approximately 2.1 and the US 2.7. (They also have fewer nurses per capita than most OECD countries, at 7.89 per 1,000 population, lower than the OECD average of 8.1.) Public and private hospitals are staffed by salaried physicians. Private physicians practice and treat patients in offices or clinics and do not have hospital medical staff privileges. Both hospitals and clinics treat outpatients, and patients can choose where they want to undergo treatment (Ward & Piccolo 2009). In the United States, service providers are given the incentive to maximize profits. This, however is not the case in Japan. By discouraging entrepreneurial behavior in the health care industry, the country has been able to keep away the costs from being determined by the market forces. Hence, the tight regulation of the industry with the socialist system plays a key role in Japan's low cost expenditure as compared to the US. III. Conclusion The Japanese Healthcare, according to a report by OECD is the lowest in terms of national expenditure among the industrialized nations. The vast difference in spending among countries, most notably between the USA and Japan is very much apparent. While the costs of medical care in Japan are relatively lower than the United States, quality and standards of the medical care are not lower than the other industrialized nations too. The vast difference between Japan and the United States in terms of cost, quality and standards of the health care is apparent in many studies. Over the years, many factors have been considered as for the reason for this vast difference between the countries. These factors are then classified according to societal and systemic factors in the country. The societal factors include forces that are inherent in the country's culture which contributes to the lower level of spending for medical care in the country. These include the health-conscious nature of the Japanese. The typical diet in the country has made the ordinary Japanese healthier in the process. Apart from this, the lower cost in terms of spending for medical services in the country is attributed to the people's 'hypochondriac' nature—where the Japanese at the first symptom or sign of an illness are quicker to act in order to prevent the more costly procedures when these illnesses are not detected earlier. The environmental factors also play a role in the lower cost of spending for health services. The relatively low level of social maladies in the country contributes to a lower level of distress in the Japanese people. Also, with a long history of relying on Chinese medicine, Japanese people are more inclined to use the conservative medical practices, which leads to fewer demand for aggressive practices such as surgery. The societal structure for medical practitioners also play a huge role in the lower spending for medical services. Because of the tight regulations in the medical industry, doctors are required to be knowledgeable to diagnose as much of the patient's illnesses. The lack of specialization and standardization in the health industry discourages doctors to become specialists. In contrast to the United States where specialists earn a lot more because the prices of their services are subject to the demand and supply economics, in Japan general practitioners are more rewarded. However, doctors on salary earn little in the country, and this low cost contribute to the country's low level of spending in terms of health care. Apart from societal factors, there are also systemic factors or factors that make the medical system of Japan successful in keeping the costs low. These include setting of fee schedules which serve as direct controls to prices, the extremely egalitarian health care system in the country which helps spead the costs to everyone, the rough ceiling on the total projected medical expenditure that is set by the government, political rather than scientific setting of medical fees which is according the result of the negotiation of the concerned parties, and the inhibiting effect of regulation of entrepreneurial behavior in the health care industry. The latter determines the huge differences between the two countries' control over their medical expenditures. The United States has a decentralized medical industry which leaves little regulation as regards the price levels in the country. Also, as medical service providers are given incentives to maximize their profits, the prices of the services in the United States have constantly increased over the years. In contrast to United States, the medical industry in Japan is determined by a socialist model in contrast to the capitalist's model of the US. By tightly controlling the industry, the service providers, insurers and the government's proposed expenditure for the medical industry, the overall costs of health services in the country is kept low by the government. With this, the government plays a huge role in terms of controlling the costs of the medical expenditure in the country, without sacrificing service quality. References Campbell, J. C. & Ikegami, N. (1998). The art of balance in health policy: Maintaining Japan's Low-Cost, Egalitarian System. Cambridge: Cambridge University Press. Ovretveit, J. (2001). “The prospects for reform of the Japanese healthcare system.” International Journal of Healthcare Quality Assurance. Volume 14 Number 4. pp. 164-167. Reid, T. R. (2009). “Japanese pay less for more health care.” NPR.org. Date accessed: March 9, 2009 from http://www.npr.org/templates/story/story.php?storyId=89626309 Tokita T. (2002). “The prospects for reform of the Japanese healthcare system.” Pharmacoeconomics. Volume 20, pp. 55-66. Ward, J. & Piccolo, C. M. (2009). “Healthcare in Japan.” MedHunters.com. Date accessed: March 9, 2009 from http://www.medhunters.com/articles/healthcareInJapan.html Read More