Economic Analysis Series No.152
The present and future National Medical Expenditure in Japan

September, 1997
Tadahiko Tokita (Senior Visiting Fellow)
Tetsuro Chino (Visiting Fellow)
Hideaki Kitaki
Izumi Yamamoto
Mitsuyoshi Miyagi


Japan is approaching an aged society. In 1995 those aged 65 years old and over occupy 14.6 percent (18.3 million) in the population. The ratio is expected to rise to 19.6 percent by 2005, to 25.2 percent by 2015, and to 27.4 percent by 2025. Over the next 30 years, the proportion of elderly persons will be increasing so rapidly that they are bound to pose serious challenges to the country. In the field of health care there would be several major problems caused by such rapid demographic changes in the population. These problems will be addressed in the following chapters.

In chapter 1, we will forecast the future health care expenditures from various aspects and discuss the major issues our society is going to face. With a rapidly ageing population, the amount of our society's resources being devoted to health care will increase since the average medical expenses per capita for the elderly are four or five times higher than those for the non-elderly. Therefore, it is requisite to estimate the burdens of health care to the society and distributive transfer between the working and non-working generations under the current health care system over the next 30 years. These quantitative results encourage us to visualize the future situation and to discuss what health care reforms should be carried out.

However, some remarks on the projections are in order, since in this study the current health care system is assumed to continue in existence throughout the time period in question. Even a slight change in the institutional framework for estimation would affect the future health care expenditure. For example, let us take the (new) Gold Plan, i.e., the ten-year strategy to promote health care and welfare for the aged. With the development of this program, some of the elderly inpatients now staying in hospitals may be transferred to other care-providing facilities such as nursing homes. Some may be transferred to their homes and be taken care of by their families. In both cases, such a transfer would cause "cost-shifting". That is, medical expenditures decrease in the hospital sector while additional expenses increase in the other sectors. Similar changes would be brought about by the Nursing Care Insurance scheme. At present (in 1996), the bill is still under discussion in the Diet, but it would influence our estimates of medical spending when it is approved and comes in force.

Next, bearing in mind the rapid increase of the aged in the population, greater emphasis should be placed on inefficiency problems caused by the current health care delivery system. We try to analyze and discuss two major issues on efficiency in production and in consumption. Under the current system, the consumers (patients) can choose hospitals or clinics according to their willingness or judgment. That may result in inefficiencies in production of hospital care (secondary or tertiary care). Actually, many patients, particularly the elderly, are accustomed to visit too often hospitals rather than clinics and, consequently, causing congestion in the hospital sector. In this respect, it may be necessary to encourage hospitals and clinics to divide their roles between primary and secondary care. Before discussing these respective roles in the delivery of services from the normative point of view, the following fundamental problems should be investigated: How many patients will hospitals and clinics deal with respectively? How much of resources will they use in the future? In chapter 1, we attempt to answer these questions.

It is often pointed out in Japan that the per capita medical expenditure varies very much across prefectures and is higher in the western areas than in the eastern. This phenomenon also illustrates the inefficiency in the delivery of services and, therefore, high medical costs. Chapter 2 will deal with these problems. First, it is requisite to identify the factors that may affect the medical expenditures across prefectures. The empirical results will clarify the impact of individual factors on medical spending and lead us to find policy choices that could improve the efficiency or alleviate wastefulness in use of medical resources.

Over the last decade, the government has implemented some measures in order to improve production efficiency particularly in the hospital sector: the regulation on the number of beds in each medical region (the Regional Medical Care Plans), the introduction of fixed payment system for geriatric care, the incentive strategies to encourage some of the beds in hospitals into those for long-term care, and so forth. From the viewpoint of economic efficiency, the empirical results in chapter 2 will also shed light on the economic implications of these policies, among other things, regulations on the number of beds and doctors, and the current reimbursement fee schedule favorable to the services of medical instruments such as CT-scanners.

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  1. page15
    Chapter1 The estimation of National Medical Expenditure in Japan
    1. page17
    2. page18
      I    National Medical Expenditure(NME)and its estimation
      1. page18
        1)Definition of NME
      2. page19
        2)Models and key issues
    3. page20
      II   Estimations and the empirical results:Model I
      1. page20
        1)Model I
      2. page20
        2)Some assumptions and cases
      3. page21
        3)Empirical results and discussions
    4. page28
      III  Estimations and the empirical results:Model II
      1. page28
        1)Model II
      2. page29
        2)Empirical results and implications
    5. page33
      IV Conclusion and Policy Implication
    6. page34
    7. page38

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    Chapter2 The determinants of medical expenditure across prefectures in Japan
    1. page45
    2. page45
      I    Differences in medical expenditure across prefectures
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        1)Date characteristics and key issues
      2. page48
        2)Variations in the components of medical expenditure
    3. page50
      II   Model
      1. page50
        1)Analytical framework
      2. page51
        2)Independent variables
    4. page54
      III  Empirical Results
    5. page57
      IV Conclusion and Policy Implication
    6. page58
    7. page62
      Appendix Tables

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    Concluding Remarks
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