Medical Remuneration to Receive the “Biggest Cut” of All

Yoshio Mitsumori is the president and CEO for Tokyo-based ADMIS, a consultant specializing in the medical device industry. He has more than 25 years of experience in the medical industry, including positions with the Itochu Corp., U.S. Surgical, National Medical Enterprises and Century Medical. A member of RAPS, he has spoken at many industry events and worked extensively in international trade of medical products and technologies. He can be reached at [email protected].

This April, the Japanese Government will slash medical remuneration by 3.16%—the biggest cut in its history. During the process of negotiation, the Ministry of Finance (MOF) suggested that cuts exceed 4%, while the Ministry of Health, Labor & Welfare (MHLW) intended for less than 3%. The Prime Minister, Junichiro Koizumi, however, stuck with the “Biggest Cut” never seen before.

After Koizumi’s landslide victory in the general election of the lower house in September 2005, his political power has never been stronger. Conversely, the influence power of the Japan Medical Association and its supporters is weakening. According to a reliable source, before the final meeting, Koizumi strongly instructed his cabinet to materialize the “Biggest Cut.” Knowing his strong intention, the final cabinet meeting calmly authorized the 3.16% cut within only 15 minutes of meeting!

One of the main components of the remuneration, the physician’s service fee, will be reduced 1.36%; this is the second reduction, since 2002, in the history of Japan’s health insurance system. Drugs and medical materials, which have both been repeatedly cut in the past 10 consecutive years, are also facing a combined 1.8% cut yet again. Physician and dental service fees will each be reduced by 1.5%, and drug prescriptions by 0.6%.

Interestingly, however, several specialties (such as pediatric and obstetrics/gynecology) will see an increase of 0.3%. These counter measures were implemented to help cope with the critical shortage of pediatricians and low birth rates.

While drugs were evenly cut by 6.7% on the authorized reimbursement prices, this becomes a 1.6% cut on the basis of total medical benefit by the National Health Insurance program. Medical materials will be reduced 0.2% as a whole. Due to this cutback, the national burden is estimated at about 250 billion Yen reduced on its National Health Insurance system.

Device Reimbursement Also Examined

After hearing of the remuneration cuts by the government, CHUIKYO (Central Social Insurance & Medical Council) decided to review reimbursement prices for 80 of 669 functional groups of medical materials, comparing these prices with the foreign average price (FAP). To give a little background, during the last re-pricing process in 2004, the reassessment was conducted for only 26 functional groups—therefore, the most recent price review is significantly larger than previous efforts.

This time, 281 functional groups were considered for investigation, with the final 80 groups chosen for the reassessment having a FAP that is more than 150% higher than existing reimbursement prices. Some of the products include spinal fixation implants, artificial joints, wound dressings, pacemaker leads, artificial heart valves, balloon catheters and artificial blood vessels, among others.

What’s remarkable is that reimbursement for 34 of the 80 selected groups is expected to be cut by 25% (Table 1). To avoid confusion in the market, items that will receive reimbursement reductions higher than 15% will receive gradual reductions, such as 5% in April 2006, 15% in January 2007 and 25% in April 2007 (in the case of a 25% cut).

To coincide with the price assessment of medical materials by CHUIKYO, the Fair Trade Commission released a new research report, Real Distribution of Medical Devices in the Market, to the public. This report contains surveillance of trends from August through December 2005 and analyzes the price differences with foreign markets and distribution problems. Pacemakers, balloon catheters and MRI were among the markets examined.

This was the second surveillance made by the Fair Trade Commission to compare the latest situation with that of 1997. The analysis revealed that the reimbursement price for pacemakers in Japan is 1.6 times higher than prices in other foreign markets, reimbursement for balloon catheters is about two times higher and the price for MRI is almost equivalent. The higher prices were attributed to distribution, regulatory application, attendance to surgery, inventory control and so on, which all contribute to higher costs for the device companies.

The report also noted that fair competition in these markets could be adversely affected as hospitals increasingly buy certain products from a small group of preferred vendors, or by distributors’ initiatives to set a favorable price to specific vendors associated with a hospital. This report greatly supports MHLW to justify the reimbursement cut in the process of negotiation.

Healthcare Benefits Are Targeted 

In addition to reassessment of medical remuneration, the Japanese government will also attempt to control ever-growing medical expenditures by setting a target of medical benefits to be spent by the National Health Insurance at 45 trillion Yen by 2025.

If this additional cost containment measure is not implemented, it is estimated that the medical benefit could expand to 56 trillion Yen by 2025. Additional savings would be expected by the remuneration cut, increased co-payments by the patient population (including elderlies), promotion of preventive care of lifetime diseases and so on. The government is expected to announce the official long-term target, along with the reform bill for the healthcare system, this spring.

The government currently estimates the target medical benefit will be 30 trillion Yen in 2010 and 36 trillion Yen in 2015 (Figure 1). To achieve 45 trillion Yen by 2025, the government intends to cut the medical benefit by 7% within next 20 years. This year’s 3.16% pricing cut means another 3.84% reduction is intended by 2025.

As a representative of medical service providers, the Japan Medical Association continuously strives to increase the medical service fee. However, these overall trends may not be favorable to them, and the trend of cutting expenses will only continue down the road as long as this political situation continues.

The new target will also force beneficiaries to bear more burden. The insurance premium for a salaried worker is expected to increase by more than 30% in next 20 years, and employers will incur these additional burdens as well. Consequently, some members of the Council on Economic and Fiscal Policy (CEFP), an advisory board to Prime Minister Koizumi, are evaluating the feasibility of a smaller target, such as 42 trillion Yen by 2025.

Current medical benefits by the National Health Insurance, 28 trillion Yen, are approximately 7.3% of GDP, and if the healthcare system remains the same, MHLW estimates it will increase to 10.5% by 2025. The new target, 45 trillion Yen, would be about 8.3% of GDP after introduction of the Healthcare Reform Plan.

In the broad outline of the Healthcare Reform Plan made in December 2005, the government and its supporting parties decided to set the benefit target as an indicator. As time goes by, if the actual benefit exceeds the target, the government will keep reviewing the healthcare policy and may introduce yet another reform plan in response to changing needs.



Yoshio Mitsumori is the president and CEO for Tokyo-based ADMIS, a consultant specializing in the medical device industry. He has more than 25 years of experience in the medical industry, including positions with the Itochu Corp., U.S. Surgical, National Medical Enterprises and Century Medical. A member of RAPS, he has spoken at many industry events and worked extensively in international trade of medical products and technologies. He can be reached at [email protected].