Summary of Key Points
This article provides insights for the development of China's healthcare industry in the context of an aging population by analyzing the evolution of medical spending in Japan. Japanese medical spending exhibits four key trends: the diminishing impact of aging on the growth rate of spending, with comorbidities (the coexistence of multiple chronic diseases) and new technologies becoming new drivers; a continuous increase in the proportion of outpatient expenses and a decrease in inpatient expenses; a long-term growth rate of drug costs below 5%; and widespread losses for hospitals. The underlying logic is that aging forces healthcare insurance to control costs, with policies guiding the shift from inpatient to outpatient services, promoting the use of generic drugs, and regulating drug prices, although this also increases the cost pressure on hospitals.
Detailed Analysis
1. Aging No Longer the Main Driver of Medical Spending Growth: Comorbidities and New Technologies Take Over
Nearly 30% of Japan's population is over 65 years old, and 60% of medical spending is allocated to this group. However, the contribution of aging to the growth rate of spending has decreased from 1.6% in 2010 to 0.7% in 2023. The reason is simple: the base of the elderly population is already large, and its growth rate has slowed down. Additionally, the prevalence of comorbidities among the elderly (such as hypertension, diabetes, and heart disease) is increasing, leading to higher overall costs. Moreover, new technologies (e.g., new cancer drugs and minimally invasive surgeries), while improving treatment effectiveness, are also more expensive.
For example, data from Chiba Prefecture shows that for every one-point increase in the elderly's disease burden index (indicating the presence of an additional chronic disease), annual medical costs increase by 157,000 yen (about 7,800 RMB), nursing costs by 120,000 yen, and total costs by 257,000 yen. This indicates that future increases in medical spending will be due to the complexity of the elderly's illnesses, rather than simply a larger elderly population.
2. Outpatient Services Are Becoming More Popular, While Inpatient Services Are Declining: Healthcare Insurance Policies Are at Work
Inpatient expenses account for 37.1% of total medical spending in Japan, compared to 34.7% for outpatient services, which is approaching a 1:1 ratio (compared to the permanent 1:1 ratio in the United States). This is not accidental but is the result of healthcare insurance policies using the "DPC" system (similar to China's DRG, which pays based on disease categories). If hospitals keep patients hospitalized for longer or charge more, they will receive less from insurance and may even incur losses. Therefore, hospitals prefer to perform treatments that can be done outpatiently (e.g., chronic disease management and minor surgeries) to reduce inpatient stays.
Furthermore, chronic diseases (such as hypertension and diabetes) have become more common and do not require daily hospitalization; regular outpatient check-ups and medication are sufficient. As a result, medical expenses are shifting from expensive inpatient services to cheaper outpatient services, which helps control the overall growth rate of spending and changes the structure of healthcare services. In Japan, the number of large hospitals and beds is decreasing, while the number of clinics and outpatient departments is increasing.
3. Drug Costs Are Stabilized: Generic Drugs and Price Negotiations Are Key
The growth rate of prescription drug costs in Japan has dropped from 9% in 2015 to below 5%, and in some cases, there has even been negative growth. There are three main reasons for this:
- Replacement with Generic Drugs: Generic drugs are much cheaper than brand-name ones, and the substitution rate has increased from 40% in 2011 to 89% in 2025. This is achieved through policies that encourage patients to obtain drugs from pharmacies instead of hospitals, as pharmacies have greater profit margins on generic drugs.
- Reduced Pharmacy Fees: Pharmacy fees for dispensing drugs are continuously decreasing, prompting them to use cheaper generic options.
- Price Negotiations for High-Cost Drugs: For example, when a new cancer drug was introduced, it cost 35 million yen (about 1.75 million RMB) per year. Due to high demand, the government reduced its price by 50% and stipulated that further price cuts could be made if sales exceeded expectations.
These measures have prevented drug costs from rising excessively, thereby reducing the burden on both healthcare insurance and patients.
4. Widespread Hospital Losses: Costs Are Rising Faster Than Revenue
The operating expenses of general hospitals in Japan have increased by 14.7%, far exceeding revenue growth of 10.3%, with nearly 75% of hospitals reporting losses. The reasons are:
- Limited Revenue: Healthcare insurance policies using DPC and outpatient price controls limit hospital revenue, preventing them from increasing prices freely.
- Rising Costs: Labor costs (salaries for doctors and nurses), drug consumables (even though generic drugs are cheaper, the total amount used is still increasing), and new technology equipment (such as CT and MRI scanners) are all becoming more expensive. For example, when a hospital purchases new equipment, the cost must be borne by the hospital itself.
Although the government has implemented measures (e.g., promoting the mutual recognition of test results to avoid duplicate tests), this contradiction between fixed revenue and rising costs cannot be resolved in the short term, so hospitals must rely on cost control to survive.
Implications for China
China is rapidly aging and may face similar challenges to Japan in the future: how to control the growth rate of medical spending and balance the needs of the elderly with the pressure on healthcare insurance? Japan's experience suggests the following:
- Focus not only on the number of elderly people but also on their comorbidities and strengthen chronic disease management.
- Promote a shift from inpatient to outpatient services and use policies to guide hospitals in optimizing service structures.
- Develop generic drugs extensively to control drug prices and reduce the burden on patients and healthcare insurance.
- Hospitals must learn to manage costs effectively to avoid financial losses.
These experiences are valuable references for the transformation of China's healthcare industry.