Reform of Local Public Hospitals

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

The Government published a guideline to promote reform of local public hospitals. Intended to make management of local public hospitals more efficient and accountable, the guideline requests local governments establishing public hospitals to make three-year plans for increasing efficiency of daily management with specified performance indicators, and five-year development plans including re-organisation and, restructure.

Purpose of health policy or idea

Local Public Hospitals in Japan

Local public hospitals (LPHs) are established by local governments (both prefectures and municipalities). They provide various health services with 15.4 % of hospital beds in 2005, but are dominant in some field of health care; particularly emergency medical services, rural health care, treatment of HIV/AIDS, and cancer care. Local public hospitals obtain their revenues not only from public social insurance schemes, as other hospitals, but also from general budgets of local governments, part of which are subsidized by the national government. In FY2007/8, more than 600 billion yen (ca. five billion USD using 2007 PPP exchange rate) was transferred from general budges to the LPHs. Furthermore, in the last five years, more than half of the LPHs have been in the red, leading to supply of deficiencies from general budgets. The proportion of the LPHs operating at a loss has been increasing to 68.7 % in FY2005/6.

Guideline for Reforming Local Public Hospitals

A Planning Guideline for Reforming Local Public Hospitals (MIC 2007), which was published by the Ministry of Internal Affairs and Communications (MIC) in December 2007, aims to make management of LPHs more transparent, autonomous and sustainable with clearly-defined missions and performance indicators. It also requires local governments to make strategic plans of reorganising or networking LPHs in the prospect of achieving good performance.

According to the guideline, each local government where LPHs exist shall make a five-year performance improvement plan in FY2008 in which the following three points shall be included:

1. performance indicators to be monitored in achieving efficient management of LPHs;
2. restructure of LPHs, which shall achieve concentration of beds to well-functioned magnet hospitals and network satellite clinics to deliver health care rural areas;
3. organisational reform of LPHs, which means contract-out to private companies of daily management, delegation of delivering health care to public agencies, or privatization of LPHs.

The guideline states that LPHs whose occupancy rates had been less than 70 % in the last three years are to be downsized or to be replaced with clinics.

The Government introduces financial incentives in its block grants in accordance with the guideline.

Main points

Main objectives

The main objective of the guideline is to make management of local public hospitals more efficient and accountable as well as to develop efficient local health care delivery system where one or more than one local public hospitals exist.

Type of incentives

Financial incentives: the government have introduced subsidies as well as given permission of issuing bonds to local government for re-structuring LPHs and developing network of public health care facilities.
Non-financial incentives: the performance indicators will be collected and published annually by the Government.

Groups affected

Local governments managing public hospitals, Hospital staff, Citizens living in area where public hospitals operate.

Degree of Innovation	traditional		innovative
Degree of Controversy	consensual		highly controversial
Structural or Systemic Impact	marginal		fundamental
Public Visibility	very low		very high
Transferability	strongly system-dependent		system-neutral

Degree of Innovation: guidelines and financial incentives are common instruments.

Degree of Controversy: whether reform of LPHs can be achieved without deteriorating local delivery of health care has been discussed.

Structural or Systemic Impact: the plans are expected to be consistent with action plans for cancer care plans (www.hpm.org/survey/jp/a10/5) and detailed health care delivery plans (www.hpm.org/survey/jp/a9/3) made by prefectures.

Public Visibility: Since reform plans may lead to drastic changes of LPHs, the policy has been visible, particularly in the local governments with LPHs at a loss.

Transferability: Making a guideline to promote reform with financial measures and announcement of possible penalty would be transferred to other countries.

Political and economic background

The most important background of the guideline is that from 2008 local governments must publish financial indicators based on consolidated accounting data with local public enterprises including public hospitals. With the large amount of deficits in public hospitals, some local governments would face financial failure, which invites direct control by the MIC. Special permission to issue long-term bond would prevent local governments from bankruptcy.

Also, the administrative reform since 2000 has promoted contract-out, or establishment of agencies rather than direct provision of services. Re-organisation of hospitals and development of well-functioned fairy large hospitals with regional health care network would attract physicians, which has been a hot issue.

Complies with

Response to newly introduced consolidated financial indicators

Purpose and process analysis

Current Process Stages

	Idea	Pilot	Policy Paper	Legislation	Implementation	Evaluation	Change
Implemented in this survey?

Origins of health policy idea

Deficits of local public hospitals have been a long-standing problem, and LPHs have been expected to improve their performance. But since there have been little incentives to achieve it and public hospitals have provided health services that private hospitals are not willing to, it have been politically difficult to reform LPHs.

With the introduction of consolidated financial indicators and strengthened financial responsibilities of local governments, the guideline are timely intended to introduce performance indicators as an administrative tool as well as serious consideration to reform hospitals in terms of scale and regional networking.

Initiators of idea/main actors

• Government

• Others

Stakeholder positions

Policy paper

The Cabinet set the agenda that the Ministry of Internal Affairs and Communications (MIC) should create a guideline for promoting local governments to make reform plans of public local hospitals with performance indicators in June 2007. The MIC organised a committee on public hospital reform, comprised of accountants, executives of public hospitals, officials of local governments, and academics. Officials from the Ministry of Health, Welfare and Labour participated in the committee for observation.

The committee discussed relevant issues and created a draft guideline, which was to be supplemented by financial measures. The guideline was soon formally published by the MIC with additional information on subsidies.

Stakeholder positions

The MIC apparently took a lead. While local governments have requested the Government to create subsidies to reform local health care, they welcomed permission to issue long-term bonds. Major labour unions was against the guideline and denounced that without enough subsidies the guideline it would demolish local health care. Major newspapers admitted necessity of reform, but expressed anxiety that subsidies would be insufficient.

Actors and positions

Government
Ministry of Internal Affairs and Communications	very supportive		strongly opposed
Ministry of Health, Labour and Welfare	very supportive		strongly opposed
Others
Labour Unions	very supportive		strongly opposed

Influences in policy making and legislation

The subsides and permission of issueing bonds have been authorized in FY2008/9 budget.

Legislative outcome

n/a

Actors and influence

Government
Ministry of Internal Affairs and Communications	very strong		none
Ministry of Health, Labour and Welfare	very strong		none
Others
Labour Unions	very strong		none

Positions and Influences at a glance

Adoption and implementation

After the publication of the guideline, several prefectures apparently has investigated performances of local public hospitals and began to make their plans.

Monitoring and evaluation

The MIC is to collect performance indicators and publish annually. All public hospitals shall provide at least three financial indicators; current balance ratio, ration of personnel expenses to medical operating revenue, and occupancy rate.

Expected outcome

Under the present budget constraints and obligatory consolidated analysis of finance, the guideline pushes strongly local government to reform public hospitals. Since there are huge differences between local governments in terms of demography, economy, transport, available health personnel and other things, local governments probably make a full variety of plans, which would bring forth unprecedentedly much cases of downsizing or closing, re-organizing and re-structuring LPHs.

One caveat to re-organize hospitals would be also budgetary constraints of local governments, for which additional financial measure might be developed. The second one would be depend on capacity of local government to assess health care needs of citizens. If they fail to assess them correctly, the re-organisation will waste money and time of local governments. Finally, unless cooperation between local actors, such as adjustment local government, health professions, and labour unions, will be successfully gained, reform would be difficult to implement.

Impact of this policy

Quality of Health Care Services	marginal		fundamental
Level of Equity	system less equitable		system more equitable
Cost Efficiency	very low		very high

Quality and Equity-this policy itself would have little impact on quality and equity. However, in the process of reform, both would be considered by local actors.

Cost Efficiency -the reform will increase efficiency of delivering health care in successful cases of reform, but in some local governments reform could not be implemented, depending their political and economic situations.

References

Sources of Information

CLAIR (2004) Local Government in Japan. Tokyo: Clair. www.clair.or.jp/e/forum/other.html

Ministry of Internal Affairs and Communications (MIC) (2007) A Guideline for Reforming Local Public Hospitals

Author/s and/or contributors to this survey

Ryozo Matsuda

Ryozo Matsuda is professor for community health and health policy at the College of Social Sciences, Ritsumeikan Univerisity. This report was written when he was a visiting research fellow at LSE Health, London School of Economics and Political Science.

Suggested citation for this online article

Ryozo Matsuda: "Reform of Local Public Hospitals". Health Policy Monitor, April 2008. Available at http://www.hpm.org/survey/jp/a11/3