Containing Health Care Costs in Japan

Section II: The Microeconomics of Health Care

CHAPTER 5 Section II The Microeconomics of Health Care The "Natural Increase" and Cost Control Yashinari Hirai SUM MAR Y In the 1970s medical expenditures in Japan were growing so rapidly that some people even believed that the nation would be destroyed by medical costs (i/yohi bOkokuron). However, despite rapid population aging, the ratio of Japanese national medical expenditures to national income has not increased in this decade. This low growth trend was the a result of a conscious costcontainment policy by the government in the area of medical expenditure. The policy contained many specific tools, including usage control via copayments in 1984 and controls on hospital beds through regional planning in 1985. The most important tool was price control through fee-schedule revision beginning in 1981, including control of the "natural increase" (shizenzo). This paper will concentrate on explaining "natural increase" as a key concept in the Japanese policy of containing medical expenses in the 1980s. Health Care Expenditure in Japan Japan's expenditure on health care as a proportion ofnational income is quite low, second only to that of the United Kingdom among industrialized nations, and its growth has been quite moderate since the early 1980s (see Katsumata, this volume ; and Organization for Economic Cooperation and Development Health Data 1991 from Schieber et al. 1992). This point is remarkable in that population aging-a key determinate of health care cost growth-has been unusually rapid in Japan. Table I shows the alternation of rapid growth and stability of health care costs relative to national income in Japan. Rapid growth from 1960~65 was due to the full Citizens Health Insurance coverage in 1961, which increased access to medical institutions. After a decrease in the late 1960s, relative spending increased rapidly during the 1970s because of three factors: expanded usage by the elderly due to the introduction in 1973 of free medical care for those aged seventy and older; increased prices resulting from the price and wage indexing in effect from 1974 to 1978; and the large "natural increase" centered around prescription drugs and diagnostic testing. Yet, as can clearly be seen from table I, the growth of 53 Section II The Microeconomics of Health Care CHAPTER 5 The "Natural Increase" and Cost Control Yoshinori Hiroi SUM MAR Y In the 1970s medical expenditures in Japan were growing so rapidly that some people even believed that the nation would be destroyed by medical costs (ilyohi bokokuron). However, despite rapid population aging, the ratio of Japanese national medical expenditures to national income has not increased in this decade. This low growth trend was the a result of a conscious costcontainment policy by the government in the area of medical expenditure. The policy contained many specific tools, including usage control via copayments in 1984 and controls on hospital beds through regional planning in 1985. The most important tool was price control through fee-schedule revision beginning in 1981, including control of the "natural increase" (shizenzo). This paper will concentrate on explaining "natural increase" as a key concept in the Japanese policy of containing medical expenses in the 1980s. Health Care Expenditure in Japan Japan's expenditure on health care as a proportion ofnational income is quite low, second only to that of the United Kingdom among industrialized nations, and its growth has been quite moderate since the early 1980s (see Katsumata, this volume ; and Organization for Economic Cooperation and Development Health Data 1991 from Schieber et al. 1992). This point is remarkable in that population aging-a key determinate of health care cost growth-has been unusually rapid in Japan. Table I shows the alternation of rapid growth and stability of health care costs relative to national income in Japan. Rapid growth from 1960-65 was due to the full Citizens Health Insurance coverage in 1961, which increased access to medical institutions. After a decrease in the late 1960s, relative spending increased rapidly during the 1970s because of three factors: expanded usage by the elderly due to the introduction in 1973 of free medical care for those aged seventy and older; increased prices resulting from the price and wage indexing in effect from 1974 to 1978; and the large "natural increase" centered around prescription drugs and diagnostic testing. Yet, as can clearly be seen from table 1, the growth of 53 ...