American Versus Japanese Healthcare Costs

A Differing Approach to the US Medical Care Crisis

Aug 16, 2009 Frank W. Hardy

Japan's vastly dissimilar approach to healthcare allows her to significantly control costs. What is so unique to her system when compared to America's?

Japan’s healthcare system, oft cited as a model of efficient cost control, spends a mere 17% of the healthcare dollar that is spent within the United States relative to GDP. In contrast to America, Japan takes direct control over the five fundamental cost areas associated with healthcare.

In their book, Containing Health Care Costs in Japan, Naoki Ikegami and John Campbell present, “In Japan, the ratio of health expenditure to gross domestic product (GDP) remained constant…despite the aging of the population and the increase in the ratio of health employees to the total employed….In contrast, in the United States there has been a continuous increase in the ratio of the health expenditure to GDP, an increase that [is] much greater than the increase in the ratio of the elderly.”

Administrative Costs

Naoki Ikegami states in his research paper, Japanese Health Care: Low Cost Through Regulated Fees, “mandatory coverage and…a single fee schedule precludes the need to enter into protracted negotiations over payment and services; thus greatly [simplifying] claims processing. In addition insurers have no marketing expenses.” Given that the government pays and processes all claims “bad debts are not a problem for providers,” according to Ikegami. Also the hidden cost of wasted time by consumers submitting insurance company forms and maintaining records does not exist.

Capital Costs

The single largest part of capital costs to healthcare is the construction, addition or renovations of hospitals and clinics. According to Ikegami and Campbell construction costs in "Japan are higher than the USA"; yet, Japan’s capital costs are much lower. An explanation to this phenomenon is found in the Japanese demographic and utilization rate.

Japan had fewer hospitals concentrated in fewer areas. According to the OECD (Organization for Economic Cooperation and Development), Japan has about 45% of the population of America concentrated in an area smaller than the state of Montana. As shown below, Japan’s system rewards prevention that allows a further reduction in the number of hospitals. These factors create a higher utilization rate per hospital while simultaneously lowering the percentage of patients nationally.

Fees and Services

According to data collected by the OECD, “Among the major industrialized nations, Japan’s personal health expenditures are virtually the lowest.” Japan is able to gain this advantage by controlling costs in all health related areas. Physician’s fees are controlled as well as the hospitals, clinics and offices they work in. Similarly medical technology, research and drugs are controlled by a national fee structure.

Ikegami and Campbell state, “…the fees that physicians derive…are uniform regardless of the patient, the physician’s experience or the setting in which the care is rendered….” Furthermore, Ikegami states, “The [Japanese] hospital system tends to emphasize ambulatory care over inpatient care….” It encourages preventative care over cure and rewards personalized family practice over abstract specialty services. Ikegami continues, “While Japan has more than twice the number of outpatient consultations than the US has, it has half the hospital admission rate and one-quarter the number of surgical operations.”

Drug and technology costs also adhere to the fee schedule. Ikegami maintains, “for new technology, the fee is set by comparing it to the nearest existing procedure, equipment or drug….the total revenue derived…not only pays for operating expenses, but also for capital acquisition costs.”

In these areas Japan’s central government is able to control the vast majority of costs to their healthcare system and differ greatly from America’s random system.

The copyright of the article American Versus Japanese Healthcare Costs in American Affairs is owned by Frank W. Hardy. Permission to republish American Versus Japanese Healthcare Costs in print or online must be granted by the author in writing.

Map of Japan

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