Under the Knife

In Uncategorized on January 15, 2010 at 12:30 am

Can America Learn from Japan’s Success in Cutting Healthcare Costs?

Yuying Luo, Staff Writer

There is little debate that the United States health care system is broken: it is one of the most expensive and inefficient of its kind in the developed world.

The National Health Expenditure Accounts estimates that health care spending in the US increased by an average of 7.7 percent per year between 1985 and 2006.[1] In 2006, health care cost the United States some $2.1 trillion, or a staggering 16 percent of the gross domestic product1. This figure is more than six percentage points higher than the average for other OECD (Organisation for Economic Cooperation and Development) countries including Japan, where health expenditures increased by a mere 0.1 percent in 2006.[2]

Experts estimate that a driving force behind the escalating health care costs is medical technology, which contributes between 38 percent to more than 65 percent to the rise in healthcare spending.[2]

Dr. John C. Campbell, a Professor Emeritus at the University of Michigan and a visiting scholar at the Institute of Gerontology at Tokyo University, is hesitant to back that statement wholly in an interview with HCGHR: “It’s not the technology that’s available that’s driving upthe cost, but rather how we use it.”

“If you think about it, technology is the same all over the world. When new technology is invented, it becomes available to everybody. The cost [of the technology] is more and less level in all the countries, yet some countries’ health care expenditures increase 6-10% year. So it’s an indirect cause.”

Dr. Campbell, who has co-authored The Art of Balance in Health Policy: Maintaining Japan’s Low-Cost, Egalitarian System, is quick to pinpoint what he thinks is the cause. “It’s not that Americans use more health care than anybody else. It’s tempting to say that Americans go to the doctor for every little thing. But the fact is that Americans go to the doctors 4 times per year, compared to 13 times per year for Japanese. It’s just [that] we pay too high a price for it.”

The Japanese, who are among of the healthiest in the world in terms of life expectancy and infant mortality, actually stay in the hospital much longer than Americans and even have nearly twice as many diagnostic scans per capita as Americans do.[3] Yet they pay less for MRIs than Americans do, despite the fact it is a service more in demand there than here.

“It’s how the system is set up to use technology to make profit that’s the problem,” Dr. Campbell emphasizes. A McKinsey Global Institute (MGI) study in 2007 showed that the United States spends 54 percent more than OECD countries for the top-five inpatient medical devices such as stents and implants.[4]

Dr. Andrea Louise Campbell, an Associate Professor of Political Science at MIT, informs HCGHR that new technology is not necessarily better either, “When we do comparative effective analyses, we often, although not always, find older and cheaper technology to be just as effective as new and more expensive treatment.”

So is Japan’s low-cost health care system an anomaly? According to Dr. Campbell, the overwhelming answer is no: the cost of healthcare technology is regulated in all advanced nations—with the notable exception of the United States. Every two years, the Japanese government decides on a “global figure” of how much money is to be allocated to health care in the next two years. The individual components of the budget are not fixed to ensure flexibility in spending.

“There is one big negotiation between the government, which is representing all health insurers, and providers—actually, mainly doctors rather than hospitals or pharmaceutical companies,” Dr. John Campbell describes. The negotiation produces a ‘fee schedule’ that establishes the price for each procedure, test, medication and device throughout Japan. It is meticulously detailed: there are two different price points for stitches—one for stitches larger than ten inches, and one for stitches smaller than ten inches. Providers are legally bound to charge the amounts determined by the fee schedule—no more, no less.

There is a clear logic to the Japanese government’s decisions, “The government keeps a close eye on trends in all medical treatments, particularly those which have increased a lot in the last two years or so,” Dr. Campbell explains. “If the reason for the growth is some technological change that had made a procedure more profitable (a famous example is multichannel blood testing machines), the fee is knocked down.’’

In 2002, the Japanese government decided that the price of MRIs had become exorbitant. So they slashed the cost by 35 percent. This had a cascading effect; as a result, the supply industry had to lower the price of MRI machines to help the health care industry meet the standards set by the government2.

The current economic crisis will test the stability of Japan’s health care system. And moreover, there are worries about Japan’s aging population inflating healthcare costs. However, as Dr. Campbell points out,“The growth of the elderly population in Japan is about to level off—it will only be about 1% a year from now until 2030”. Indeed, much of Japan’s success in controlling health expenditure was actually achieved when their aging population was growing rapidly, doubling from 1997 to 2006.[5]

The United States’ current situation is direr. Left unchecked, health care spending threatens to consume the majority of the GDP1. “In the US, the 65+ population will be rising 3% a year in the same period—one more reason for doing something to control health care spending,” Dr. Campbell says.

“The key is to fix prices. It’s the only way we can get a handle on health care spending.”


1 Ginsburg, Paul. “High and Rising Health Care Costs Report.” Robert Wood Johnson Foundation. October 2008. <http://www.rwjf.org/pr/product.jsp?id=35368&gt; (Accessed 16 Oct 2009)
2 Reid, T. R. “Interview with Naoki Ikegami.” Frontline: Sick Around the World. April 2008. <http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/interviews/ikegami.html&gt; (Accessed 16 Oct 2009)
3 Reid, T.R. “Japanese Pay Less for Health Care.” NPR. April 14, 2008. <http://www.npr.org/templates/story/story.php?storyId=89626309&gt; (Accessed 16 Oct 2009)
4 McKinsey & Company. “Accounting for the cost of health care in the United States.” Mckinsey Global Institute. October 2007. <http://www.mckinsey.com/mgi/rp/healthcare/accounting_cost_healthcare.asp&gt; (Accessed 16 Oct 2009)
5 Harden, Blaine. “Health-care in Japan.” The Washington Post. September 7, 2009. <http://www.washingtonpost.com/wp-dyn/content/article/2009/09/06/AR2009090601630.html&gt; (Accessed 16 Oct 2009)


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