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News Release

The Sustainability of Public Finance and Medical Care Reform

June 27, 2005


The movement for the curbing of medical care benefit costs is gathering momentum. Opinion is divided into two camps: those who take the view that the growth of benefit costs should be regulated on the basis of macro indicators such as the economic growth rate with a view to restoring the health of public finance, and those who believe that the level of benefit costs should be viewed in terms of enhancing the quality of life of the people of Japan and that regulation on the basis of macro indicators would be inappropriate. Incidentally, the Honebuto no Hoshin 2005 ["Strong-Bones Policy 2005"] reform document makes no clear statement on the use of macro indicators.

However, the thrust of concrete initiatives for the curbing of benefit costs is the same in both camps, namely (i) as a medium-to-long term measure, promoting measures to combat lifestyle-related diseases, reducing the length of hospital stays (the implementation of a "Plan for the Normalization of Medical Care Costs"), and(ii) as a short-term measure, a review of the scope of public provision of social security.

It is thought that these measures would cut benefit costs from their present level of ¥58 trillion to around ¥47 trillion by fiscal 2025. Incidentally, the reduction in benefit costs (¥11 trillion) would break down as ¥6.4 trillion achieved through (i) (Ministry of Health, Labour and Welfare estimates) and ¥4.5 trillion achieved through (ii) (JRI estimates).
However, the effectiveness of these cost-control measures would be limited in the following ways:(i) Even if the maximum effect of the measures were realized, the average annual growth rate of benefit costs over the period fiscal 2005-2025 would be 2.6%. Given that the growth rate would be around 2% if a growth rate control system based on macro indicators were adopted, it is important to realize that achieving the target level would require more far-reaching measures.(ii) It is not clear whether the medium-to-long term measures would be of any benefit in practice. This is because (a) there is no guarantee that measures to combat lifestyle-related diseases would be implemented as planned, and (b) it is highly likely that patients would simply shift from inpatient care to outpatient care.

The four issues to be resolved if public finance is to be restored to health simultaneously with the reform of the medical care system can be summarized as follows:
(i) The introduction of a growth rate control system as a means of verification
A growth rate control system would be an effective means of curbing benefit costs. However, applying such a system to the current system in a rigid manner could lead to a fall in the quality of medical care. Accordingly, it should be positioned as a means of verifying that measures to curb benefit costs are working. To minimize the impact on national living conditions and on medical institutions when the system was actually introduced, the system should be applied in a flexible manner. For instance, it should be reviewed not on an annual basis, but on a medium-term basis, say once every 3-5 years.
(ii) Creation of conditions favorable to the normalization of costs
Conditions favorable to the realization of the benefits of the "Plan for the Normalization of Medical Care Costs" should be created through a clarification of the division of functions among medical institutions, greater transparency in consultation information, the establishment of a family doctor system, the creation of incentives to individuals and insured persons to take greater steps to prevent disease, etc.
(iii) Making allowance for economic conditionsShort-term measures centering on an increase in the portion of medical costs to be borne by the patient would risk exerting downward pressure on consumption by reducing disposable incomes. Such measures should be introduced on a gradual basis.
(iv) Publication of an overall scheme for reformThe relationship between public provision of social security and the national burden is a tradeoff. The choice between more extensive provision, entailing a heavier burden, and less extensive provision, entailing a lighter burden, should be left to the people of Japan. To this end, it is important that the people should be presented with a number of choices with regard to the overall scheme for reforms embracing the entire system.

For more information on the content of this report, please contact: Kenji Yumoto the Japan Research Institute, Limited.

Tel: 03-3288-4737

Eiko Tobita the Japan Research Institute, Limited.

Tel: 03-3288-4663

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