Global Trends in Health Care Reform
Payment reform in Japan
Naoki Ikegami, MD, MA, PhD
Dept. of Health Policy & Management
Keio University School of Medicine
nikegami@a5.keio.jp
The Japanese health care system
Low expenditures,
expenditures best health outcomes
1 Low expenditure levels: 8
1.
8.1%
1% of GDP (2006
(2006, OECD)
–
19th among OECD countries
2 Universal coverage with Social Health Insurance (SHI)
2.
–
Public health expenditures constitute 81.3% of total
3. Excellent health indices
–
Infant mortality, avoidable mortality, life expectancy at 60
4. No waiting lists: unrestricted access to virtually all
h
hospitals:
it l may h
have tto waitit b
butt seen on same d
day
If it ain’t broke
broke, why fix it? Focus on payment reform
2
Comparison of health expenditures
Per capita PPP US$,
US$ ratio to GDP (2006)
/capita US$ PPP
%GDP
7,000
18.0
6,000
16.0
2006
5,000
4,000
Japan
US
Canada
France
Germany
UK
3,000
2,000
Total
expendit.
on health
- /capita,
US$ PPP
2581
6933
3696
3423
3464
2885
14.0
% gross
domestic
product
12 0
12.0
10.0
8.1
15.8
10
11
10.5
8.5
8.0
6.0
4.0
1,000
20
2.0
U
K
Fr
an
ce
G
er
m
an
y
8.1% of GDP, 19th among OECD
C
an
ad
a
U
S
0.0
Ja
pa
n
0
Source: OECD Health Data 2009 - Version: June 093
Paying providers: General principles
① Hurdles in evaluating what to purchase: Information
asymmetry
– You have to trust your doctor
② Hurdles in evaluating quality: Every patient is different
– Limits of risk adjustments
– Cherry-picking is easy for providers (and for payers)
③ Hurdles in setting the price: How much should doctors
earn? For doing
g what?
– Should doctors earn twice or twenty times average worker (for
doing one hour’s work) ?
– How much time for a cataract operation? 5 or 50 minutes?
• Americans have pursued the American dream: All hurdles
can (eventually) be overcome
– ① Plans and patients can make their best choice
– ②Q
Quality
lit can b
be evaluated,
l t d based
b
d on which
hi h providers
id
can be
b paid
id
– ③ God’s invisible hand in the market
4
Paying providers: Japanese way
• Japanese have been pragmatic: Has not pursued the dream֜
Goal has been to contain costs and balance among providers
– Quality and efficiency are elusive goals in healthcare
• Government sets fee schedule (price of physician & hospital
service drugs etc
service,
etc.)) which is applied across-the-board to all
payers and providers
• Plans and providers are not allowed to negotiate on an
individual basis
• How can costs be contained by controlling prices?
– Expenditures = Fee (Price) X Volume
– Revisions are made at the macro and micro levels: For the weighted
global rate and for the individual service or drug
– Should the volume expand too much for any particular service, then its
price will be decreased in the next revision
– The
Th volume
l
off each
h service
i can be
b estimated
ti t d from
f
the
th national
ti
l survey off
claims data
5
Revisions of the fee schedule: 1st Step
p
• Revisions made every two years
• Macro control: 1st Step lies in setting the global rate
(volume weighted rate that is applied to all services
and drug prices)
• Global
Gl b l rate
t decided
d id d by
b the
th Cabinet
C bi t (Prime-Minister)
(P i
Mi i t )
– Ministry of Finance (MOF) demands a decrease
– Provider organizations (Japan Medical Association etc.)
demand an increase
– Ministry of Health, Labor & Welfare (MHLW) acts as
secretariat and p
provides data
• Global rate has been reduced 2000-08 in line with
fiscal austerity policy
– Has contained the impact of increases due to advances in
technology and to aging
6
2nd Step:
p Revising
g drug
g and device prices
p
• Providers can buy drugs and devices at less than the prices
set by the fee schedule because of competition among
manufacturers and wholesalers
• How to reduce fee schedule prices: Two methods
– 1st: Survey of market price: Inspect wholesalers’ books etc.
• Price
P i reduced
d
d so that
th t new price
i will
ill only
l be
b 2% greater
t
than its volume weighted average market price
– Old list price $10→Average market price $9→New list
price
i $9.02
$9 02
– 2nd: Unilateral decreases in price for new drugs selling
better than projected, or for drugs that have had generics
introduced
• Cumulative effect: average price of pre-existing drugs one third
that of 20 years ago; ratio of drug costs to total health
expenditures has decreased from 39% to 20%
7
3rd Step: Revising price of individual services
E
Example
l off MRI diagnostic
di
i imaging
i
i (Yen)
(Y )
*Prices of services are revised on an individual basis
[Net effect of all changes] = [Amount set by 1st & 2nd revision rates]
Year
Y
2000
2002
2006
2008
2010
Head
H
d
B d
Body
Li b
Limbs
16,600
17,800
16,900
30%↓, despite only
2.2% macro↓
11 400
11,400
12 200
12,200
11
11,600
600
10,800 if <1.5 Tesla, 12,300 if >1.5 Tesla*
10,800
,
if <1.5 Tesla,, 13,000
,
if >1.5 Tesla**
10,000 if <1.5 Tesla, 13,300 if >1.5 Tesla**
* Differential fees according to equipment type introduced for the first time
**Successful lobbying by radiologists?
8
Annual Changes in Gross Domestic Product, National Medical Expenditures
and Average Fees, Japan,
1980-2007
(%)
12.0
Gross domestic
product
10 0
10.0
National
N
ti
l medical
di l
expenditure
8.0
Fee schedule macro
revision rate
6.0
4.0
2.0
0.0
-2.0
-4.0
Year
9
Council that makes 2nd and 3rd revisions
• Central Social Health Insurance Council
• 30 members appointed by Minister, subject to approval by Diet
–
–
–
–
–
7 from providers (5 physicians, 1 dentist, 1 pharmacist)
7 from payers (SHI plan, corporate and labor representatives)
6 from academia and public interest
10 specialist members (drug & device companies, nurse etc)
Integrity rules: Two members from payers arrested for taking bribes
from dentist association
• However, the detailed negotiations occur between provider
associations, and the Ministry which is staffed by physician
bureaucrats
• Recommendations (binding) on the revisions to be made to the
MHLW Minister (early March)
• MHLW publishes the revised fee schedule (late March) and
implemented from April 1, the start of new fiscal year
10
Fee schedule revision process came to
be criticized
• P
Payers: Fee-for-service
F f
i is
i giving
i i an open
check to providers→ DRG should be
introduced
– People believe what they like to believe
• Providers: Negative revisions are
bankrupting hospitals
– Anything should be better than the present
• Media: Revision process is not transparent
– Some can afford to be virtuous
11
DRG type payment introduced in 2003
• But
B t compromises
i
had
h d to
t be
b made
d
–
–
–
–
Surgical procedures, devices etc remain FFS
Per diem (not per case) rate
rate, with rates declining as LOS↑
Initially, only for the 82 university hospitals
Hospital specific conversion factor: Difference between FFS
and bundled rate at the time of introducing DRG to that
hospital would be compensated by this factor
• Now, half of all acute beds paid by DRG
– Hospitals have opted for DRG because they can generally
make more money than FFS
12
Impact of introducing DRG
• Positive effects
– Standardization of care, use of clinical pathways
– Detailed
eta ed data for
o co
comparing
pa g hospitals’
osp ta s case
case-mix
• Negative effects
– Some up-coding, but little means to monitor
– Some under-treatment, but monitoring is more difficult
than over-treatment in FFS
• Because payment is bundled
bundled, micro-management of
the fee schedule no longer has any effect
– Macro revision rate (1st Step) applied to DRG
• At best, neutral effect on controlling costs
13
What has been done by government
• Introducing P4P: 2010 revision provides bonus if the
h
hospital
it l has
h the
th following:
f ll i
–
–
–
–
–
–
ALOS is short after adjusting for the hospital’s case-mix
Has high DRG case-mix
case mix index ((=more
more complex patients)
Covers a wide range of DRG groups
High volume of emergency inpatient care
Designated as a regional center for cancer etc
etc.
The above bonuses introduced in exchange of gradually
eliminating the hospital specific conversion rate
• Start
St t tto reform
f
claims
l i
review
i
process
– Profiling of hospitals based on DRG composition
– Inspection
p
of hospitals
p
based on profiles
p
– Cross-matching DRG listed in claims with medical records
14
What has been done by hospitals
• P
Putt pressure on outlier
tli physicians,
h i i
clinical
li i l
departments (note: physicians are employed
b h
by
hospitals
it l in
i Japan)
J
)
• Shift diagnostic procedures to outpatient care
• Shift from brands to generics
• Try to increase hospital admissions to fill
beds made empty by decreases in ALOS
• Try to code for most “appropriate”
appropriate group
15
Conclusion
• Payment system requires constant vigilance in order
to contain costs
• Demand for reform comes from many sources, with
conflicting
g objectives
j
• Compromises must be made to implement reform
• Making the revision process more transparent may
increase opportunities for gaming
• DRG type payment requires new mechanisms for
controlling
g costs
• BRIC countries should be cautious in introducing
DRG: Could be garbage in, garbage out
16