Drug Economy Japan

For this case study, we will examine the main aspects of the economics of the health care system in Japan. Japan incorporates a universal healthcare system that costs less than its American counterpart, and has much higher rates of utilization. We will begin by covering the pricing policy for medical services in Japan, including health insurance premiums and regulations governing hospitals and clinics. Health insurance is mandatory, with premiums that are based on ability to pay, and medical fees are predetermined by the Japanese government.

We will then study the economic and health care implications of these price regulation policies. For example, heavily regulated treatment prices combined with low physician salaries have led to a very high rate of prescription drug use: physicians are remunerated each time they write a prescription for a dispensing pharmacist, so drug sales have become an important source of profits for clinics. We plan to model the prescription drug market in Japan. Finally, we hope to look at how problems that Japan faces today - such as its aging population and shrinking labor force - put economic stress on the health care system.

Factors/causes contributing to the surge in Japan’s health care spending:

Rapidly aging population

21% of Japan’s citizens are 65 or older, and by 2050 almost 40% may be in that age group.

increasing chronic diseases

Low birth rate

Stagnant economy

Citizens over utilize physicians and facilities

the Japanese see physicians almost 14 times a year, three times the number of visits in other developed countries.

the average length of a hospital stay is two to three times as long in Japan as in other developed countries.

Beds/space for emergency care and serious medical conditions occupied by a flood of patients seeking only routine treatment/ less urgent care.

Physicians and hospitals compensate for reduced reimbursement rates by providing more services, tests, drug prescriptions, which they can do because the fee-for-service system doesn’t limit the supply of care comprehensively.

physicians over-prescribing tests and drugs under the fee-for-service payment for every prescription written

Most hospitals operate at a loss due to low reimbursements

How the health care system is structured in Japan:

-how hospital networks work, and how they are run: Most hospitals and clinics are owned and run by physicians as non-profit; investor-owned for-profit hospitals are prohibited