Health Care Reform:
Lessons from Japan
25 Jun 2009 in Regulatory Economics, Regulatory Policy, Legislation
Debates about universal health care inevitably lead to comparisons, such as with Canada and the United Kingdom in large part because there are no language barriers making the experiences of other nations hard to gather and analyze. Typical observations from these systems include the various non-price means by which health care is rationed. For example, care can be rationed by forcing patients to wait. Some will decide that waiting is too burdensome and choose not to seek care. Some will seek health care outside of the system; Canadians can obtain care in the United States rather than wait, as long as they are willing and able to pay for it. Inevitably, some patients will die before they can receive care, and these patients will tend to be poorer than average.
The UK also rations care by authorizing a government agency (the National Institute for Health and Clinical Excellence, or NICE) to make eligibility decisions -- that is, they will decide by rule, formula, or other criteria who is eligible to receive expensive services and who will not. For example, on June 24, 2009, NICE published guidance concerning percutaneous endoscopic laser cervical discectomy, a less invasive technique for remedying certain spinal problems. The NICE guidance generally restricts access, which is available in the United States as an outpatient procedure and for which there are published peer reviewed reports of success.
Recently published peer reviewed research offers very interesting insights about how universal health care has performed in Japan. This study is interesting because Japan has succeeded in providing universal coverage and it has limited health care expenditures to about half of the GDP fraction of the US. How did Japan accomplish this?
J. Mark Ramseyer, Mitsubishi Professor of Japanese Legal Studies at the Harvard Law School, examined Japan's universal health care regime. He writes that the regime "covers (nearly) everyone for (nearly) every medical need." It costs about $2,700 per capita, whereas the US spends about $5,700 per person. It is often alleged that US costs are higher because the population is aging, but that cannot explain the difference because Japan's population is even more aged. Ramseyer reports that while 12% of the US population is 65 years old or more, 20% of Japan's population is 65 or older.
Japanese belong to one of several different national insurance plans, they make 10% to 30% co-payments, and they appear to have complete freedom to select their own doctors. They tend to wait for care, but waits are not measured in weeks or months. Japan caps the prices paid to doctors, hospitals, and pharmaceutical companies. Reimbursement rates are negotiated between the government and the Japan Medical Association (JMA); Ramseyer reports that reimbursement rates are low -- about one-fourth of US reimbursement rates.
With this information alone, it would appear that Japan has cut the Gordian knot that bedevils US health care reformers. However, a closer look at the outputs and outcomes of the Japanese system suggests otherwise.
Japanese Doctors Practice Quantity, Not Quality
Low reimbursement rates mean that physician visits are extremely short. Doctors are not paid for spending time with patients and understanding their specific needs, so they don't. Reimbursements are a function of the quantity of patients they see. Ramseyer repeats a common Japanese adage, "You wait three hours for a three-minute consult." He says "the adage exaggerates, but only barely." Doctors make patients return multiple times for treatment that could be more efficiently delivered in one visit. The costs to patients of this built-in inefficiency is not captured in the aggregate statistics.
Japanese Doctors Rarely Specialize
Japanese doctors do not invest in specialized training because the fee structure eliminates any incentive to become a specialist:
Under the Japanese system, there is little or no return on investment in human capital. Unlike the US, in which board certification is both widely sought and crucial to obtain, only a small fraction of Japanese doctors are board certified. A certification program in cardiovascular surgery was established in 2003, and by 2005 it had certified 1,643 doctors, but 1,551 of them were grandfathered. In the US, about 6,000 physicians are board certified in interventional cardiology and 5,700 are board certified in thoracic surgery. Ramseyer writes, "most Japanese doctors choose not to acquire any specialized expertise. They do what they must for their basic license, but no more."
Despite their lack of board certification, Japanese doctors advertise themselves as specialists in multiple fields. Ramseyer gives the example of a Tokyo physician who says he is an internist, orthopedic surgeon, cardiologist, dermatologist, allergist, rheumatologist, pulmonologist, gastroenterologist, nephrologist, and practices rehabilitative medicine and physical therapy. Where Japanese doctors genuinely specialize, it is outside the universal health insurance program. Only 6% of Tokyo doctors are board certified, but 40% of those performing cosmetic surgery have obtained certification.
Japanese Doctors Own Their Own Small Hospitals
Japanese doctors make more money owning private in-patient clinics and hospitals than from practicing medicine. Ramseyer reports that 28% of them own their own institutions. They maximize reimbursement by keeping patients an average of 36 days.
Private clinics and hospitals also receive favorable tax treatment that it not captured in aggregate measures of national health care spending, and they can be passed on to heirs apparently exempt from estate taxation. Doctors work either for their own private clinics or for hospitals. Those who work for hospitals stay until they have saved enough to build or buy their own in-patient clinic.
Regulatory Capture
"If ever government involvement suggested a 'capture theory' of regulation," Ramseyer writes, "this is it." Rates are negotiated between the government and the Japan Medical Society. The negotiated regulatory structure limits the supply of both doctors and facilities (especially public hospitals), and includes a number of other anti-competitive provisions.
Patients' Adaptive Responses
Ramseyer reports that Japanese patients have adapted to the limits of the nation's universal health care regime by purchasing supplementary insurance coverage for treatments otherwise unavailable in the government system. For example, because the regime does not provide for up-to-date cancer treatment, the Japanese purchase specialized "cancer insurance" that enables them to obtain care that the government system will not cover. Such insurance is widely available and provided in a relatively free market.
Ramseyer does not discuss "medical tourism," but the practice of traveling to other jurisdictions to obtain medical care is a rising phenomenon. Obviously, this is not available to citizens of modest financial means.
Mortality Effects
The combination of structural bias against specialization and regulatory capture deters the introduction of advanced technology. Patients who need specialized treatment do not have to wait in line to get it; specialized treatment simply isn't available. In 2005, Japanese physicians performed 12,000 coronary artery bypass graft surgeries compared to 469,000 in the US. The vast majority of Japanese cities lack substantial expertise in specialized cardiovascular and cerebrovascular care. Patients suffering heart attacks or strokes go to a local physician-owned hospital. Many die there because advanced treatment isn't available. If they survive long enough to be transferred to a better-equipped hospital, the doctors performing them are inexperienced.
Ramseyer provides estimates of the increase in cardiovascular and cerebrovascular mortality that result from the Japanese system. His results have recognized methodological limitations but nonetheless are consistent with the inference that structural features in the Japanese universal health care system result in high mortality rates.
Implications for US Health Care Reform
Universal health insurance in Japan has been in place for about 50 years. Thus, the practice of medicine in Japan, and patient expectations for medical care, have long since reached equilibrium. The Japanese model shows that universal care can be achieved at much lower cost than in the US. Moreover, it not seriously affected by long wait times that have been reported in Canada and the UK.
Nonetheless, these achievements have come at a price that is not captured in the conventionally reported aggregate national statistics. First, the practice of medicine in Japan is very different than in the West. Virtually all physicians are generalists; they have little or no incentive to invest in human capital; and they make their living delivering services that are ancillary, at best, to medical care, such as long hotel stays. Some US health care reform proposals seek to reallocate resources from specialists to generalists, and the Japanese system shows how these proposals would change medical care ifvthey eliminate existing incentives to invest in human capital.
Second, specialized care in Japan appears to be very limited, except outside of the universal insurance regime. To secure access to specialized care, Japanese citizens purchase private insurance and do not rely on the government system. For the conditions studied by Ramseyer, however -- heart attack and stroke -- this parallel health care system isn't available because care must be delivered urgently. As long as it permits patients to obtain services outside of the government model, health care reform in the US would expedite current trends toward multiple tiers of services, with the well-off obtaining considerably more and better care than the population at large. Affordable universal health care is compatible with quality only if, like in Japan, quality is kept at a very modest level.
Third, like their Japanese counterparts, US physicians will adapt to universal health insurance by altering their service delivery practices. Tighter caps on reimbursement per visit will result in multiple visits; capitation on reimbursement per patient will result in cherry picking the least costly patients. In the long run, medicine will become a less attractive career path for the brightest students. If they stay in medicine, the "best and the brightest" will gravitate toward the parallel unregulated market.
Fourth, universal health insurance can treat people equally only as long as the quality of care is modest. Relatively wealthy people will supplement the government minimum by purchasing specialized insurance to cover what the government-mandated program denies or makes hard to obtain. If the program prohibits consumers from obtaining care outside the system, those who can afford it will purchase medical services overseas. Health care is a normal good, and for some conditions, a luxury good. As income rises, consumption will increase more than proportionately. The government can try to suppress this, but it almost certainly would fail. For these reasons, a government-mandated minimum health insurance plan is likely to increase inequality.
Ramseyer JM (2009). Universal Health Insurance and the Effect of Cost Containment on Mortality Rates: Strokes and Heart Attacks in Japan, Journal of Empirical Legal Studies 6:2 (June).
The US figure reported by Ramseyer appears to be the number of arteries bypassed, not the number of patients. The Cleveland Clinic reports "467,000 cases of coronary artery bypass surgery were performed on 268,000 patients in the United States in 2003," giving the American Heart Association as the source for these statistics but not providing a reference. It is not clear whether the figure for Japan is patients or arteries bypassed.
