Keen Eyes for Economic Trends: Revision of the medical fee schedule should be based on evidence

SATO Motohiro
Faculty Fellow, RIETI

Discussions are underway for the FY2018 revision of the medical fee schedule, a list of government-set prices for medical services. Medical fees consist of two components, namely, a main portion covering personnel costs for doctors, etc. and a supplementary portion covering the costs of drugs, etc. used in treatment. Whereas drug prices are expected to be lowered to bring them more into alignment with market prices, the Japan Medical Association (JMA) has been calling for an "as-much-positive-as-possible revision" to the main portion on the ground of the ongoing financial difficulties of hospitals and clinics.

The Survey on Economic Conditions in Health Care, which assesses the financial conditions of medical institutions including clinics, is the valuable source of data that serve as a basis for revising the medical fee schedule. The data collected include general descriptions of facilities, profits and losses, assets and liabilities, and personnel and wages. Lately, there have been quarrels over this survey.

According to the latest survey released on November 8, 2017, the aggregate profit margin of hospitals dropped from 2.1% in FY2014 to 1.8% in FY2016. This led the Ministry of Health, Labour and Welfare (MHLW) to conclude that the financial conditions of hospitals are generally deteriorating. In contrast, the Ministry of Finance (MOF) contends that the sample of respondents to the survey is biased, noting, for instance, that the proportion of highly profitable hospitals in the sample is lower than perceived in reality. It says that after appropriate adjustments to reflect the actual distribution in the number of facilities, the profit margin of hospitals—excluding national, prefectural, and municipal hospitals—improved from 0.4% to 0.6%.

The Survey on Economic Conditions in Health Care is not a complete enumeration of all medical institutions in Japan. It is a sample survey of randomly selected institutions, and the valid response rate has been around 50%. In the latest survey, 56% of the sampled hospitals provided valid responses. Even among the public hospitals (national, prefectural, and municipal hospitals), which are subsidized by taxpayers' money (public funds), the valid response rate is not 100%.

If highly profitable hospitals are the ones not responding, the survey is bound to underestimate the aggregate profit margin of hospitals, as pointed out by the MOF. Conversely, if non-respondents are unprofitable but busy hospitals that are unable to spare staff time to respond, the resulting estimate will exceed the true aggregate profit margin. These could lead to biased survey results.

However, as it appears, that is not the only problem. The survey does not track the same hospitals and thus does not allow us to monitor changes over time in the financial conditions of hospitals. Some people also point out that the survey population is not limited to medical institutions that close their books on March 31, immediately before the revision of the medical fee scale (in April). This makes it difficult to determine the extent to which changes in the aggregate profit margin of hospitals are attributable to revisions to changes made to the medical fee schedule. In any event, there remains the concern that the government-set prices for medical services (main portion) may not be based on accurate information concerning the financial condition of hospitals (evidence).

Currently, the government is promoting evidence-based policymaking. However, a crucial prerequisite to pursuing this endeavor is the use of accurate, unbiased data. In recent years, questions have arisen about the validity of preliminary estimates of gross domestic product (GDP) and estimates of trends in consumer spending based on the Family Income and Expenditure Survey. Policymaking—including but not limited to the revision of the medical fee schedule—based on wrong data could lead to wrong conclusions.

The government has been working on statistics reform in parallel with promoting evidence-based policymaking. Addressing the ever-rising cost of medical care is a pressing issue for Japan. Given that, it is imperative to redesign the Survey on Economic Conditions in Health Care and its methods, for instance, shifting to a census survey, in which all medical institutions in the target population are required to respond.

>> Original text in Japanese

* Translated by RIETI.

December 16, 2017 Weekly Toyo Keizai

April 3, 2018