HA415 Unit 8 Japan and US Pricing Comparison Example

One National Price List Versus Thousands of Negotiated Ones: A Comparative Systems Paper Arguing That Japan's Uniform Fee Schedule Shapes How Often Its Physicians See Patients, and Asking What America's Many Prices Do Instead

[Student Name]

Purdue University Global

HA415: Health Care Policy and Economics

Unit 8 Comparative Systems Paper

[Instructor Name]

[Date]

Figures are bracketed where they should be taken from the latest international data; the paper simplifies both systems for a course argument.

The Question

What does a price-setting arrangement do to provider behavior? Japan and the United States offer a sharp contrast: one sets prices nationally for all payers, and the other lets thousands of payers and providers negotiate.

Orientation: Japan

Japan has covered its whole population since 1961 through employment-based and residence-based insurers. All insurers pay the same prices, set in a national fee schedule for services and drugs, so a clinic visit costs the same whichever insurer covers the patient and wherever the clinic is. Patients pay coinsurance, generally 30 percent for working-age adults and less for young children and many older adults, with monthly caps on out-of-pocket spending. Patients may visit almost any clinic or hospital without a referral (Ikegami et al., 2011).

Orientation: The United States

The United States finances care through employer plans, Medicare, Medicaid, individual market plans and direct payment. Medicare sets its own prices; Medicaid programs set theirs; private insurers negotiate with each hospital and physician group. The same service can have dozens of prices in one city.

How the Japanese Fee Schedule Is Set

The government revises the fee schedule every two years after negotiation in a council that includes payers, providers and public representatives. The total revision is set first as a budget decision, then individual fees are adjusted, raised where the government wants more of a service and lowered where volume or costs have grown too fast. Because one schedule covers everyone, the government can control the price of every service at once (Ikegami et al., 2011).

What the Schedule Does to Behavior

Fees for a clinic visit are low compared with those in the United States. A physician earns more by seeing more patients, and patients, facing modest coinsurance and free access, come often. Japan's rate of physician consultations per person, about [11] a year, is among the highest in the OECD, while the United States has a much lower rate (OECD, 2023). When every visit pays a small fixed amount, the way to earn more is to see more people, and Japan's physicians do exactly that. The schedule also shapes what is offered. When the government raised fees for home visits and lowered them for some tests, use shifted in the same direction. Long hospital stays, historically common in Japan, reflected per-day payments for many years, an effect the government has tried to reduce through later revisions.

What America's Prices Do Instead

In the United States, prices differ by payer and by provider. Providers with market power can negotiate higher prices, and private insurers pay far more than Medicare for the same service. A widely cited comparison concluded that American spending runs higher mainly because of what each service costs, not because Americans use more care, but that they pay higher prices (Anderson et al., 2003). The incentives differ too. American physicians and hospitals earn more by negotiating higher prices or performing more highly priced services, such as procedures, rather than by seeing more patients for low-priced visits. Physicians have shorter lists of visits and longer visits on average.

Drug Prices Under the Schedule

The same mechanism applies to medicines. Japan lists a price for each covered drug and cuts it at most revisions, often by several percent, to reflect market prices. Manufacturers know that a drug's price will fall over time, which affects when they launch new products in Japan. In the United States, list prices are set by manufacturers, and the prices actually paid depend on rebates negotiated privately with insurers and pharmacy benefit managers.

The Patient's View

For a Japanese patient, the system is simple: show an insurance card at any clinic, pay the same share of the same price everywhere and stop paying once the monthly cap is reached. For an American patient, the price depends on the plan, the network and the provider, and it is often unknown until the bill arrives. That difference in what patients know is itself a product of how prices are set.

Costs and Trade-Offs

Japan spends a smaller share of its national income on health than the United States, despite an older population and frequent visits. The price of each visit is low enough that high volume does not produce high spending. But short consultations, sometimes only a few minutes, have been criticized, and some physicians face heavy workloads. The United States spends more and has longer visits, but its prices are hard for patients to understand and vary in ways unrelated to quality.

Could the United States Adopt Uniform Prices?

Maryland's all-payer hospital rate system shows that a version of uniform pricing can work in part of the United States. A national version would face resistance from providers whose negotiated prices exceed what a uniform schedule would pay, and from insurers whose business is negotiating. A smaller step, such as tying private prices to a multiple of Medicare rates, has been proposed in several states.

What Each System Could Learn

From Japan, the United States could learn that one price list for all payers simplifies administration and gives government a lever over spending. From the United States, Japan could learn that paying for longer visits can encourage more thorough care, and that some flexibility in prices can reward quality.

Administrative Costs

One price list also lowers the cost of running the system. Japanese clinics bill every insurer the same way, using the same codes and the same prices. American providers employ staff to negotiate with, bill and appeal to many payers, each with its own rules. Part of the difference in spending between the two countries reflects these administrative costs, which follow directly from how prices are set.

Limits

Health systems are shaped by culture, history and demographics, not only by payment rules. Comparing two countries cannot prove that the fee schedule causes all the differences in visit rates; patient expectations and the number of physicians also matter.

Conclusion

Japan's uniform fee schedule is a powerful tool: it sets prices low, encourages high volume and keeps spending in check, at the cost of short visits. America's many negotiated prices produce higher spending and wide variation. The comparison suggests that how a country sets prices shapes what its providers do more than any single policy aimed at their behavior.

References

Anderson, G. F., Reinhardt, U. E., Hussey, P. S., & Petrosyan, V. (2003). It's the prices, stupid: Why the United States is so different from other countries. Health Affairs, 22(3), 89-105. https://doi.org/10.1377/hlthaff.22.3.89

Ikegami, N., Yoo, B.-K., Hashimoto, H., Matsumoto, M., Ogata, H., Babazono, A., Watanabe, R., Shibuya, K., Yang, B.-M., Reich, M. R., & Kobayashi, Y. (2011). Japanese universal health coverage: Evolution, achievements, and challenges. The Lancet, 378(9796), 1106-1115. https://doi.org/10.1016/S0140-6736(11)60828-3

OECD. (2023). Health at a glance 2023: OECD indicators. OECD Publishing. https://doi.org/10.1787/7a7afb35-en