Questioning the Growth Strategy: Developing a medical fee system that encourages ingenuity in the healthcare industry

Consulting Fellow, RIETI / Professor, the University of Tokyo

The Shinzo Abe administration's growth strategy is gradually coming to light. Tapping Japan's latent strengths in the healthcare field and leveraging them to serve as an engine for growth, as well as improving the people's quality of life, have been a consistent policy direction from the previous Democratic Party of Japan (DPJ) administrations, and this approach is now enjoying non-partisan support.

Worldwide trends reveal that many developed countries regard healthcare as a priority issue and have been taking steps to nurture their healthcare industries to boost their economic growth. As a late starter, Japan needs innovative and effective approaches that can enable this through the acceleration of the speed of systemic reform.

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It appears that the main emphasis has been placed on creating an institution, modeled after the United States' National Institutes of Health (NIH), that is capable of undertaking a full range of research and development (R&D) activities from basic research to clinical practice. However, this concept of a Japanese NIH has been taken up on a number of occasions already, and several attempts have been made to centralize the coordination process in the Cabinet Office and to establish institutions such as national centers for specific diseases to conduct relevant R&D function from the research stage through the clinical stage. The real problem to be focused is why these attempts have yet to produce any significant results.

In other words, political capital should not be devoted simply to crafting organizational forms but rather to devising and firmly establishing a system whereby such institutions can pursue and develop their own mechanisms to generate results through the plan-do-check-act (PDCA) cycle and are rewarded in accordance with their achievements.

Considerable attention has been garnered by the innovative development of regenerative medicine using induced pluripotent stem (iPS) cells. However, there is a broad range of other promising fields, including non-iPS regenerative medicine, various revolutionary medical devices, personalized medicine and relevant test agents tailored to individual patients, and multifaceted use of iPS cells.

Therefore, the maturity of these different approaches must be objectively judged, and corresponding measures should be taken to maximize the outcome in clinical research, clinical trials, examinations, and the medical fees system. By establishing a principle of allocating funds reflecting the results, the centralization of upstream research fund apportionment by a Japanese NIH will likely become meaningful.

Similar consideration should be made to special medical innovation zones, where tepid approaches despite excellent methodology tend not to produce notable results. Resources end up being dispersed because of a continuous shift of emphasis on pursuing new political appeals.

For example, a variety of special innovation zone systems have been employed to create a cluster of research facilities--including the Kei supercomputer and incubation facilities--in Kobe over the 15 years since the Great Hanshin Earthquake. It has come close to being a world-class cluster. However, some fundamental shift of policy is necessary to make it comparable to medical clusters in the United States. Critical steps include establishing hospitals on a scale that enable extensive unique clinical research and clinical trials in cutting-edge fields such as advanced medical equipment, regenerative/personalized medicine, and transferring some of the examination functions of the Pharmaceuticals and Medical Devices Agency (PMDA) to local institutions.

Unless such steps are taken, this cluster will neither advance to the stage of a virtuous cycle that brings together technology oriented start-up companies nor support service companies to enable them to compete with leading clusters in other developed countries.

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The medical care system in Japan is presently confronted with three big problems: device lag (the time required for the approval of advanced medical devices), an unsustainable workload of hospital doctors, and increasing healthcare expenditure. The relevant frameworks are safety regulations, the medical fee system, and the hospital/physician supply system.

With respect to safety regulations, seeking prompt provision is now widely recognized to be as important as the safety in introducing new technology. A necessity of change has become clear in connection with medical devices and regenerative/personalized medicine, which has been regulated by the Pharmaceutical Affairs Act written with pharmaceuticals in mind. Progress is being made in developing regulatory systems suited to the particular attributes of these medical fields and the legislation required to enforce them.

It has now come to the stage where we should ensure that future government/ministerial ordinances are genuinely rational and user-friendly, and where examination practices should prudently incorporate the simultaneous pursuit of safety and prompt introduction of new medical technology.

The public insurance reimbursement system is the most important one. Its drastic revamping is unavoidable from the three perspectives of healthcare financing, sustainable medical service provision, and continuous innovation. At the same time, though, this is an area in which various interests clash over the distribution of limited financial resources and in which reform has become increasingly fettered over the years. Among a variety of issues, several problems require urgent resolution.

For example, the imbalance between working conditions/risks and remuneration in some specialties, the unreasonable medical devices price system that gives no consideration to improvements, and methods for evaluating new technologies produce quite noticeable distortions and delays against innovation. Another case is the imbalance between R&D oriented innovative pharmaceutical companies and companies reliant on high prices for long-term drugs whose patents have expired.

Unless a rational system is created that gives incentives to parties who create more significant added value and to those who have contributed more to creating social value, the focus and activity of the many parties involved will not be directed toward value creation and innovation. Medicine must become an industry driven by the private sector in order to become a real growth engine and for the general public to be provided with the highest quality of medical care on a sustainable basis.

Hospital reform is also essential in terms of both innovation and the enhancement of medical care made available to the public. Hospitals are currently founded by a diversity of entities with no underlying coordination in locating these medical institutions. This leads to growing regional imbalance and reductions in individual hospitals' scale, which have hampered the public in seeking to receive medical care and innovative efforts to pursue clinical trials and other development foundations for advanced medical care.

Governance within hospitals needs to be reformed, a scheme must reflect public assessments through the disclosure of information, and progress should be made in establishing broad-area comprehensive healthcare providers. This has become a pressing issue, not only for ensuring an appropriate distribution of physicians by locale and specialty, but also for the resolution of deficits faced by public hospitals from the perspective of healthcare financing as well.

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The full utilization of medical information is a critical need across these issues. Analyses of receipts (medical fee statements) and the use of electronic medical cards and other medical data will be essential for establishing standardized medical care, conducting epidemiological research leading to personalized medicine, incorporating scientific rationality into safety regulations, conducting a fair assessment of medical fees for new technologies, and formulating guidelines for the appropriate distribution of hospitals.

Nevertheless, there remains deep-rooted opposition to this utilization on the grounds of privacy protection. Little progress has been made in sharing medical cards despite such experiences as the massive loss of patient medical cards in the Great East Japan Earthquake. International discussions on privacy protection and the utilization of medical data are now underway, and a more clear and practical policy to facilitate rational system design and the development of advanced medical technologies is desired.

Finally, the abilities to have a bird's-eye view of the entire process, push the bureaucracy responsible for its implementation to make the necessary commitments, and monitor and supervise its implementation will be vital for the success of these reforms. It is hoped that the Abe administration will not spend precious time to dull discussions but instead take on hitherto unaddressed hardcore issues and combine the wisdom drawn from many sources to produce a positive outcome. Tackling these issues head-on will lay the foundations that will enable Japan's medicine and medical industry to make a dramatic entrance onto the international stage as a competitive player.

>> Original text in Japanese

* Translated by RIETI.

June 7, 2013 Nihon Keizai Shimbun

September 2, 2013