Overview

Japan's nursing care insurance system was launched in April 2000. Simultaneously, for-profit corporations, which are the principal providers of nursing care services, were permitted to enter the home nursing care services market, and the nursing care support market saw rapid growth. However, if business performance is assessed on the basis of macro-level data alone, the profitability of the visiting nursing care business is low, and it would be difficult to claim that the nursing care sector was enjoying steady growth.

On the basis of an examination of the financial health of visiting nursing care providers, who are the major players in the sector, this report considers the potential for growth of the visiting nursing care business. It then identifies a number of issues facing the nursing care insurance system and considers what measures should be adopted to ensure its sustainability.

An examination of the structure of revenues and expenditure in the visiting nursing care business reveals the following three characteristics:
(i) The ratio of non-insurance premium revenue within total revenue is virtually 0%, and very little additional revenue is generated from the provision of services not covered by insurance. Because services covered by insurance are charged at officially imposed prices, companies aiming to derive a profit from these services tend to operate on a low-margin high-volume basis or seek to cut costs.
(ii) Cost breakdowns reveal that the ratio of personnel expenses within total costs is high, running at 82%. For this reason, businesses seeking to cut their costs with a view to improving profitability tend to target the wages of nursing care staff.
(iii) The ratio of depreciation costs within total expenditure is low, at only 2%, and the investment burden is small. As a result, the barriers to market entry are low and small- and medium-sized operators find it easy to enter the market, but oversupply means that competition tends to be fierce. Because it is difficult to generate income from sources other than insurance premiums, competition tends to be price-based.

Given this revenue and expenditure structure, an examination of the financial health of nursing care service providers suggests that the conditions for the growth in the visiting nursing care business can be narrowed down to 3 key points:
(i) a location where stable demand can be expected,
(ii) the ability to recruit home helper personnel and
(iii) a higher labor utilization ratio for home helpers.

However, the conditions facing the visiting nursing care business can only be described as difficult, for three reasons:
(i) Very few locations offer the right conditions in terms of both volume of demand and access efficiency. For this reason, business operators tend to be concentrated in certain areas and, under a fee system where unit prices are fixed by the government, the competition for shares of a limited pie has led to a decline in management efficiency.
(ii) The shortage of home helpers is worsening. If service providers are unable to secure enough labor, there is a risk that they will not be able to capture a volume of business sufficient to ensure a stable income.
(iii) At present, home helper labor utilization ratios are kept high by making maximum use of non-regular employees, but in view of the fact that the wages of non-regular home helpers are expected to rise, there are doubts as to the sustainability of this approach.

The picture of the average business operator obtained from macro-level data suggests that the visiting nursing care business is not as profitable as could be hoped. An examination of the financial position of major listed companies from a micro-level standpoint, reveals considerable variation in profitability, reflecting the differences in their business strategies.
(i) Visiting services are not, in the first place, the main battlefield for corporate groupings that enjoy high and stable growth potential and profitability. These groupings tend to emphasize residential services, the profitability of which is relatively high.
(ii) It is thought that providers whose main business lies in visiting-type services are unlikely to see their profitability improve as far as their growth potential, and will find it difficult to achieve economies of scale.
(iii) All business operators perceive the reform of the nursing care insurance system as a business risk. This may lead them to scale down their visiting-type services, whose profitability will be significantly affected by the revisions to nursing care fees.
In this light, it seems possible that the major players will shift the emphasis in their business operations away from visiting services towards day-care and residential services.

To summarize the above analysis, there is some doubt as to the potential for growth of visiting-type nursing care services under the current system. If the aim is to uphold and build on the original objective of creating a nursing care system through the use of market mechanisms, and to ensure the sustainability of the nursing care insurance system, healthy competition between providers must be encouraged and system design must be such as to enhance the potential for growth of the home nursing care business. Specifically, action must be taken to support improvement in the productivity of the industry as a whole by (i) increasing the ratio of the amount of additional compensation within nursing care fees so as to increase the incentive for service providers to manage their business better, (ii) strengthening monitoring of service providers by municipal authorities so as to promote sound business practices in the market and (iii) increasing the predictability of the market by avoiding, as far as possible, sudden and frequent systemic modifications.

At the same time, in view of the need to secure a level of business revenue that will allow the payment of a level of wages that will make it possible to secure the necessary human resources and given that the demand for nursing care is certain to increase as a consequence of population aging, another extremely important issue is stabilizing the finances of the insurance system. Stabilizing insurance system finances will inevitably involve either increasing the burden or restricting benefits, and the issue calls for a national debate.

For more information on the content of this report, please contact Koji Konishi, the Japan Research Institute, Limited.

Tel: 03-3288-4523

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