Containing Health Care Costs in Japan

7 Comparison of Administrative Costs in Health Care between Japan and the United States

CHAPTER 7 Comparison of Administrative Costs in Health Care between Japan and the United States Naoki Ikegami, Jay Wolfson, and Takanori Ishii SUM MAR y Administrative costs for payers in Japan amounted to 2.8% of the total health care expenditures, which was about half the ratio in the United States. Within the group of payers, the government-managed health insurance had the lowest ratio (2.3%) because its nonstatutory benefits tend to be minimal. because it has economies of scale, and because its internal claims-review process is less rigorous. When the sample of four Japanese hospitals was compared to that of nine U.S. hospitals, there was a difference of two- to threefold in the ratio of administrative costs; in absolute terms, fivefold. The difference in floor space occupied by general administration was also two to three times larger in the United States. Administrative costs appear to increase as the process becomes more complex. Background The high administrative costs in the United States have been regarded as the one area where savings can be made without adverse effects on the provision of health care. However, ifconsumer choice and competition, managed or otherwise, are to be part of the system, then both payers and providers will continue to need the administrative resources to process complicated transactions. Japan would seem to offer a middle way between the U.S. 's present fragmented system and Canada's single-payer plan with global budgets for hospitals. On the payer side, although the Japanese have very little choice in selecting their plans and all must offer the same statutory health care benefits, the various plans are allowed to differ, if only marginally so, in their benefits and premiums. On the provider side, although the nationally uniform fee schedule does set all the rates, payment is made essentially on an itemized fee-for-service basis. Thus, while Japan has a similar system of multiple payers and fee-for-service as the United States, the fact that it is more regulated and offers less choice is likely to result in lower administrative costs. Accordingly, the object of this paper is to compare the administrative cost issue for both payers and providers in Japan and the United States. 80 CHAPTER 7 Comparison of Administrative Costs in Health Care between Japan and the United States Naoki Ikegami, Jay Wolfson, and Takanori Ishii SUMMARY Administrative costs for payers in Japan amounted to 2.8% of the total health care expenditures, which was about half the ratio in the United States. Within the group of payers, the government-managed health insurance had the lowest ratio (2.3%) because its nonstatutory benefits tend to be minimal, because it has economies of scale, and because its internal claims-review process is less rigorous. When the sample of four Japanese hospitals was compared to that of nine U.S. hospitals, there was a difference of two- to threefold in the ratio of administrative costs; in absolute terms, fivefold. The difference in floor space occupied by general administration was also two to three times larger in the United States. Administrative costs appear to increase as the process becomes more complex. Background The high administrative costs in the United States have been regarded as the one area where savings can be made without adverse effects on the provision ofhealth care. However, ifconsumer choice and competition, managed or otherwise, are to be part of the system, then both payers and providers will continue to need the administrative resources to process complicated transactions. Japan would seem to offer a middle way between the U.S.'s present fragmented system and Canada's single-payer plan with global budgets for hospitals. On the payer side, although the Japanese have very little choice in selecting their plans and all must offer the same statutory health care benefits, the various plans are allowed to differ, if only marginally so, in their benefits and premiums. On the provider side, although the nationally uniform fee schedule does set all the rates, payment is made essentially on an itemized fee-for-service basis. Thus, while Japan has a similar system of multiple payers and fee-for-service as the United States, the fact that it is more regulated and offers less choice is likely to result in lower administrative costs. Accordingly, the object of this paper is to compare the administrative cost issue for both payers and providers in Japan and the United States. 80 Japan-u.s. Administrative Costs 81 Administrative...