GUEST EDITORIAL ~eonoma6QJ \O)-I~ I_ I I IrJ.l0<W931QX1'N)1931S011C.1)

Current Pharmacoeconomic Issues in Japanese Healthcare Hisashi Ohmic"; Medical Care Administration, Nihon University School of Medici ne, Tokyo, Ja pan

1. The Japanese Heolthc are System

For morc than 30 years, hcalthcarc in Japan has been managed by a social insurance system called 'Hea lth Insurance', which has covered the whole of the Japanese population (120 million people). AI prescnt. there are aoout 10000 hospitals and 82 000 cl inics. which are also completely covered by health insurance.1I1 There are approximately 1. 7 million hospital beds. including those allocated to long lerm care: physicians and nurses number 212 000 and 834 000, respectively.! II

The proportion of the population aged > 65 years is currentl y about 13%pI but this is expected t o increase rapid ly to reac h 25 % by 2025.[3J Pre­viously there was no distinction made in Japan between hospital beds used for aCUIe or chronic care. However. the aging of the popu lation has ef­fect ed achange in hospi tal funct ion, and many hos­pitals specialising in the care of the e lderly have appeared. In [992, a new instituti onal category of long term care beds for convalescent or disabled elderly patients was introduced, afte r the amend­ment of Medical Care Law, which regulates health­care facililies.

In Japan. each medical procedure or drug has a COSI that is applied nationally and revised every second year. Health Insurance only re imburses for hospital s o n a monthly schedule, based on a 'fee for service' scheme which incl udes drug costs. Usually, physicians in hospitals are salari ed and there is no add itional reimbursement category fo r a doclOr's fcc. A cl in ic is generally ow ned by the

independent practitio ner, who gets reimbursed in the same way as the hospitals on a fcc for serv ice basis.

National heahhcarc e)(penditure, which includes the total pay ments by Health Insurance plus the patients' copayment was about ¥22 million mi llion in 199 1: 4.8%of thegross national prodUCI (GNP). [4) 32% of the total expenditure was for medication and injections incl uding intravenous infusions,IS[ of which drug costs were approximately 90 to 95%. A fig ure of 30% of healthcare expcndilUre due to drug consumption is fairly h igh compared with other developed countries. For e)(ample, in the US, the cost o f prescribed drugs is esti mated to account for about 7% of lhe IOtal healthcare e)(penditure.l6) about 20% in Gennany. 17% in France, and 11 % in the UK . The total drug consumpt ion cost in Japan (including imported drugs) is "'5.7 million million, with 85% of drugs consumed in hospitals and cli n­ics. The o ther 15% is purchased by patients at phar­macies, and is no t included in national healthcare c)(pendit ure.

2. Economic Incentives

From the pharmacocconomic point of view, the mosl important and unique aspect in Japanese heal thcare is the d ifference between the payment for drugs from social in surance and the monetary value of drugs produced. Th is d ifference in cost amounts to >¥ I million million, and is the eco­nomic basis for Japanese healthcare managemen t. In other words. thc margin o f drug cOStS between thc public fi)(cd price and Ihe free market price at

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purchase has been the primary source of profit for hospitals and clinics. In fact. a difference in cost of 30% or morc is nOI unexceptional, and thi s has meant that when more drugs are utilised. more profit is gained by the hospitals or clinics. Th is is one of the reasons why the proportion of medical expenditure due 10 drug costs is relatively high. Incidentall y, hospitals and clinics would nOI de­liver prescriptions 10 outside pharmacies. Usually, in Japan, prescribed drugs arc delivered within hospitals or clinics. To sh ift del ivery systems 10 outside pharmacies is a major problem.

Ascribing fees for professional service has been one of the most d ifficult problems in Japan. For example, prescri bing medication is an important professional dUly for the doctor. and it has been relatively casy to assign a 'med ication fcc' which includes the cost o f drugs and a prescription fee. In fact, this payment method was used until 30 years ago. After then, the fee for materials and profes­sional services were separated, but the lalter has been undervalued and the margin of profit for ma­terials such as drugs has been regarded as ' latent professional fee'. For example, the fee for a pre­scription is only ¥260 (approx imately US$2.50), while the fee for the drugs themselves often ex­ceeds ¥ I 0 000.

During th is ongoing rev ision process a new method was introduced in 1990 to determine the public price of drugs. The method is based on the weighted average of actual purchase rates with an appropriate profit margin called the 'reasonable zone' . Under this severe cost-containment policy, reasonable zones of 15% are to be reduced to 10%. Nonetheless. this new method does not ensure that the professional fee will be acknowledged appro­priately. It must be reiterated that, in this author's opinion, establishment of a professional fee for prescriptions, or medical diagnosis, and so on . would be preferable to a profi t margin assigned for drug sales. Professionalism should be appreciated economically as well as the additional circulation cost of drugs. which is worked under the present system.

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3, Long Term Care and Drug Consumption Costs

Ollmic/li

Another cause for concern is the change in drug consumption by hospitals. Due to the agi ng popu­lation, Japanese hospitals are admitting elderl y pa­tients because too few nursing homes have been provided. About 40% of hospital beds are occupied by patients aged 2: 65 years, and more than \0% of total hospital beds are in specialised geriatric hos­pitals. With the profit incentives discussed pre­vious ly, the likelihood of drug overdose and un­necessary intravenous infusions, prescriptions or medical examinations (e.g. blood analysis, electro­cardiogram, etc.) has increased considerably. The basis of treatment management for the disabled el­derly is changi ng from 'cure' to ·care'.

Several years ago, a new payment method was introduced for geriatric hospitals. The payment in­cludes a flat rale for nursing costs, medicat ion, intravenous infusions and med ical exami nations, under the proviso that more nurse aides shall be employed in the ward. Th is provides an incentive to prevent the use of unnecessary drugs. and re­places the cost for drugs and examinations with costs for the care provided by nurse aides. Other medical procedures are to be paid as usual.

A recent survey on the geriatric hospitals that have adopted this payment method shows that the proportion of the reimbursement due to drug costs has decreased from 15.3 to 6.3%, and staff costs have increased from 42.0 to 46.9%.151 The intro­duction of the flat rate method for geriatric hospi­tals was epoch-making in Japanese healthcare. It is clear that the situation has improved, but the meth­odology used to measure quality is now being stud­ied. The flat rate system of costs is to be applied to a new category of long term care hospital system, called the Long Term Care Bed Group, which was introduced institutionally after the amendment of the Medical Care Law in 1992.

4. Maintaining Profitability

After the introduction of the weighted average method for the public price of drugs, phannaceutical

Pharmacoeconomics in Japanese I-Iealthcare

manufacturers and marketing organisations could not continue to suppl y drugs at the same leve l of profitability. In addition, due to the loss of the profit margin on drug sales and the elevation of wage levels, the fina ncial management of hospital s and clinics has deteriorated rapidly. Hundreds of hos­pi ta ls ha ve already closed or have reduced the numbcrof beds provided, although the phannaceu­tical companies and dealers appear to remain eco­nomically viable. This is a very recent ongoing sit­uation, which will be assessed at a later date.

Now that the Health Insurance fund is strict ly reg ulated under the nat ional budget, the most im­portant issue is how to share the insurance revenue between the he3lthcare providers and the pharma­ceutical companies. It has been suggested that an exception should be made for drugs in high de­mand (e.g. interferon for chronic hepat itis), and that the public price for these drugs s hould be low­ered because manufacturing costs are likely to be less due to increased volume of sales. The phanna­ce utica l manufac turers are of course protesting against th is option. and negotiati ons during next price rev ision are likely to be intense.

Recently, a new payment method for medica­tion was proposed for physic ians. The new method increases the prescription fee by 3-fold or more, provided that <5 drugs are prescribed. It is uncer­tain whether the proposal will be re3lised. bUI it signals a n important change in current thinking. If this or some simil ar system were adopted. the la· tent professional fee could be expected to dimin­ish. and the physician's fee would be primarily based on profess ional services.

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5. Conclusions

Japanese hospi tal s and cl inics are now i nvolved in restructuri ng and innovation simi lar to other de­veloped countries. In these situations, pharmaco­economic issues are o ften the most imponant con­cerns. Japan has added diffic ulties due to a unique system of linking medication sales to health pro­vider profitability. Another concern is the increas­ing proportion of elderly in the popul at ion. Recent changes in reimbursement methods have been in­stituted to address some of these problems, and more have been proposed. It remains to be secn whether the outcome of these changes results in improved healthcare.

References l. Sialislic5 aoo Informa!ion Ikpanmenl. Report on 5U""CY of

mroicalcan: inslitulions. Tokyo: Minisu)' of Heahh and Wei· fan:. 1991

2. S t~tiSlic~ Bun:au. 1990 Popula!i<:>n Census in J~p;on . To~yo:

Man~gcment aoo Coordinalion Agency, 1991 j. Inslitule of Popula!i.m Problcms. Future populat ion projection

for h pan. eSlimated in S~p 1992 (medium projection). Toky..,: MiniSiry of Hea lth and V.'elfare. 1992

4. Slatistic$ and In formation Dep~l1mcnt. National medical care expenditurc estimates. Tokyo: Min;~lry of Health alKl Wei · f~n:. 1991

5. Statislics alKllnfonnation Ikpartmcnt. Report on su",-cy of ........ cial medical care insurance sc rvices. Tokyo: MiniSlry of Health and Welf~. 1991

6. Fe<kr 8J. McKes:lOO: No. I but ~ doze on WaU Sireet. 'fhe Ne'" York Ti!nC'S 1991 Mar 17; 10

Cmrespondence and reprinls: Professor Hisaslti Ohmic/ri. Medical Care Administration, School of Med icine, 30·1 Kamicho Ohtaniguchi. Itabashitku, Tokyo 173, Japan,