How does the Price Regulation Policy Impact on Patient–Nurse Ratios and the Length of Hospital Stays in Japanese Hospitals?

• Published date: 01 July 2015
• Date: 01 July 2015
• Author: Haruko Noguchi
• DOI: http://doi.org/10.1111/aepr.12109

How does the Price Regulation Policy Impact

on Patient–Nurse Ratios and the Length of

Hospital Stays in Japanese Hospitals?

Haruko NOGUCHI†

Waseda University

This study examines how the 2000 and 2006 revisions of the fee-for-service system have affected

patient–nurse ratios and the average length of hospital stays in Japan. The empirical results show

that hospitals are quite responsive to changes in price policy. The fee revisions have certainly

achieved the policy objectives of reducing patient–nurse ratios and the length of hospital stays. As

a result, hospitals have responded by greatly increasing the number of expensive beds for acute

care. However, this was not exactly predicted by the Japanese government,which has aimed to real-

locate health-care resources, such as beds, tosubacute or long-term care.

Key words: fee-for-service (FFS) system, kernel propensity score matching

difference-in-difference estimation, length of hospital stay, natural experiment, patient–nurse

ratio, price regulation

JEL codes: I11, I18

1. Introduction

The Japanese health-care system has seemed to be functioning successfully during the

last several decades. This would be implied by the fact that Japan has achieved the

highest level of population health in the world at a relatively low cost (World Health

Organization, 2000; Hashimoto et al., 2011).1However, some statistics show that the

financial stability of the health-care system in Japan will be under threat, in particular,

from demographic and economic factors in the future (Shibuya et al., 2011). The popu-

lation aged 65 and older will continue to increase from 33.952 million in 2015 to 36.573

million in 2025 when the baby boomers become 75 years of age and older, and then it

This research is funded in part by the generous support of a research grant from the Ministry of

Health, Labour and Welfare (Principal investigator: Shibuya Kenji, Graduate School of Medicine,

University of Tokyo, H26-chikyukibo-ippan-009). I am grateful to the two designated discussants,

ToshiakiIizuka and Ayako Kondo, who provided comments that haveled to a significant improve-

ment in this paper. I also thank SiowYue Chia, Jong-Wha Lee, NaoyukiYoshino, Naohiro Yashiro,

Yasushi Iwamoto, Peter Orszag, Shujiro Urata, Takatoshi Ito, Colin McKenzie, and all the partici-

pants of the Asian Economic Policy Review Conference on October 18,2014 for their helpful com-

ments. Especially, I appreciate Colin McKenzie, who spent tremendous time to go through my

draft in detail and improve the readability of the English. All remaining errors are my own.

†Correspondence: Haruko Noguchi, School of Political Science and Economics, Waseda Univer-

sity, 1-6-1 Nishiwaseda, Shinjuku-ku, Tokyo 169-8050, Japan. Email: h.noguchi@waseda.jp or

noguchi.haruko@gmail.com

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doi: 10.1111/aepr.12109 Asian Economic Policy Review (2015) 10, 301–323

© 2015 Japan Center for Economic Research 301

will be peak at 38.782 million in 2042 (National Institute of Population and Social

Security Research [NIPSSR], 2012). On the other hand, the working-age population

(those aged 15–64), which supports the current pay-as-you-go social security system,

will shrink from 76.818 million in 2015 to 70.845 million in 2025, and then to 55.985

million in 2042 (NIPSSR, 2012). Among the countries of Organisation for Economic

Co-operation Development (OECD), the recent rate of increase in total health expendi-

ture as a percentage of gross domestic product (GDP) was the largest in Japan, an

increase of 2 percentage points from 8% in 2005 to 10% in the 2010s (OECD, 2014).2

Further, the outstanding stock of Japanese national debt mainly caused by the growth of

social security expenditure was US$10.46 trillion in 2013, which is more than double the

size of GDP (about US$4.9 trillion), and it is the biggest public financial burden in the

world (Schwartz, 2013). In order to make the universal health-care system financially

sustainable given the drastic changes in population structure and severe budget con-

straints, health-care reform that moves toward a more efficient reallocation of both

physical and human resources is urgently required.

Economic theory explains how an equilibrium price is achieved through the market

mechanism, which makes the distribution of resources efficient, yet does not necessarily

lead to equity in the society. However, in Japan, medical care is reimbursed under a

nationwide uniform single payment system mainly based on a fee-for-service (FFS)

system completely controlled by the government. FFS is paid equally, regardless of the

types of insurance3and facility.4It is worth noting that Japan’s FFS is not adjusted to

take account of regional cost differences (Ikegami & Anderson, 2012). After an overall

revision rate for medical care services as a whole is determined by negotiations between

the Ministry of Health, Labour and Welfare (MHLW) and the Ministry of Finance,5the

FFS is officially revised on an item-by-item basis every other year through discussions

among the representatives of various interest groups (e.g. physicians, pharmacists, den-

tists, psychiatrists from the supply side, insurers, and patients from the demand side, and

public interest groups as a third party) at the Central Social Insurance Medical Council

appointed by the MHLW.6Price regulation of medical care services imposed by the gov-

ernment would influence the economic welfare in the society, through the effects of the

revisions of the FFS on medical care providers’ treatment choices, and consequently the

allocation of medical care resources. Hence, it is important for policymakers to evaluate

the impacts of a change in price policy on supply-side behavior (Tokita, 2004).

Some researchers emphasize the primary contribution of the reimbursement system

described earlier as being cost containment, and therefore the efficiency in providing

medical care up to now (Ikegami & Campbell, 2004; Wagstaff, 2005; Ikegami et al., 2011;

Ikegami & Anderson, 2012). These points are also indicated in a report by the MHLW as

being important characteristics of the current health-care system.7In contrast, other

empirical studies in the economics field using micro-based individual data have reached

different conclusions. First, the supply of medical care would often be inefficient because

supplier-induced demand (SID) might deliver unnecessary care for improving patient

outcomes, due to the asymmetric information among patients, insurers, and medical

care providers (Evans, 1974; Fuchs, 1978; Pauly, 1980; McGuire, 2000). As has been

Price Regulation Impact on Japanese Hospitals Haruko Noguchi

© 2015 Japan Center for Economic Research302