Japanese hospitals battle for survival

TOKYO — With an aging population that’s already the world’s oldest, Japan might be a good place to build more hospitals. Instead, it’s shutting them down.

More than 300 medical institutions closed or became inactive in the year ended March, the most on record in figures going back to 2006, according to corporate research firm Teikoku Databank. Almost three-quarters of clinics are losing money, a survey by the Japan Hospital Federation shows, and the government is cutting payouts to institutions because of budgetary constraints even as costs remain high, KPMG says.

“The sector is getting lean,” said Yuji Inokuchi, 59, who runs a hospital in Tokyo and is a vice chairman of the All Japan Hospital Association, which represents about 2,200 institutions. “There’s a battle for survival looming.”

Japan spent more than any other country in the world keeping people 65 years or older in the hospital in 2011, with patients staying 17.5 days on average, according to Organization for Economic Cooperation and Development data. Prime Minister Shinzo Abe plans to change that, with new regulations this month curbing payouts for long stays and boosting handouts for those opting for home care and high-tech treatments.

Anticipating demand for cash to renovate outdated facilities, companies including Mitsubishi UFJ Lease &Finance Co. have established funds to invest in the health care industry.

Those who make it through the shakeup represent “one of the few growth areas” for lending, according to Nana Otsuki, a banking analyst at Bank of America Merrill Lynch in Tokyo. “As the population ages, demand for funds will expand.”

Jukoukai Hospital, where Inokuchi is chairman, has cut more than 100 beds in the past two decades to 49. Unlike his father, who opened the six-story institution in Tokyo’s eastern Koto ward in 1963, Inokuchi does house rounds twice a week. The patients he sees would have been staying at Jukoukai in his father’s day, he reckons.

Inokuchi’s efforts are in line with Abe’s goal of reducing the cost of caring for a population where one in four people are 65 years or older. Medical expenses are forecast to rise 54 percent to 54 trillion yen ($506 billion) in fiscal 2025 compared with 2012, according to the Ministry of Health, Labor and Welfare. Japan’s total health expenditure accounted for 10.3 percent of economic output in 2012, versus 9.3 percent in Britain and 9.1 percent in Australia, OECD data show.

Banks, faced with dwindling interest rates on loans because of central bank stimulus efforts to defeat deflation, are increasing their dealings with hospitals.

Domestic lenders boosted loans to medical and nursing care businesses 11.7 percent over the past five years to June 30, compared with a 4.2 percent increase to all industries, Bank of Japan data released in August show.

Chiba Bank, based in the prefecture to the east of Tokyo, saw its outstanding loans to medical institutions jump 25 percent in three years to 134.8 billion yen at the end of March.

“A lot of people moved to this area in the 1970s, and they’re turning 65,” said Eiji Kushibiki, a Chiba Bank executive. “Medical resources aren’t catching up with the increase in the elderly population.”

Kushibiki expects hospitals in the prefecture to seek as much as 60 billion yen in funds to revamp their facilities.

Lenders including Chiba Bank, Mizuho Bank and Bank of Yokohama set up a health care fund in September that will invest as much as 10 billion yen. It will acquire shares and extend subordinated loans to medical institutions, nursing care operators and other related businesses, Jun Watanabe, the executive managing director of the state-run Regional Economy Vitalization Corp., said at a news conference Sept. 1.

Mitsubishi UFJ Lease and government-owned Development Bank of Japan in May also began a fund of about 100 billion yen to invest in regional health care projects.

“Many hospitals will be rebuilt soon,” said Hiroshi Murayama, the president of Healthcare Management Partners, which will seek investment targets for the fund. Renovating facilities “will attract patients and make it easier to hire nurses,” and the fund intends to extend subordinated loans to institutions, he said in an interview.

Abe’s administration is effectively reducing medical fees set by Japan’s universal health care insurance system by 1.26 percent from this month, according to the health ministry. His predecessors reduced the amount hospitals could charge on four occasions since 2002, trimming the amount of subsidies paid by the government in the process. The previous administration, led by the Democratic Party of Japan, boosted fees in fiscal 2010 and 2012.

Hospitalization costs consist of about 40 percent of total medical bills, according to the health ministry. Decreasing hospital stays to the OECD average of 7.4 days could cut Japan’s outlays. Japan spends 64 percent of its hospital inpatient costs on seniors, versus 48 percent for Canada and 34 percent for South Korea, according to OECD data.

“There’s no doubt hospital stays are too long in Japan,” Healthcare Management Partners’ Murayama said. “Shortening them would allow more patients to be moved through the system.”

Hospitals in Japan are catering to patients that would be treated at nursing homes in other countries, lengthening stays, according to Keiichi Ohwari, the Tokyo-based chief executive officer of management consultancy KPMG Healthcare Japan. Patients often prefer remaining in hospitals because it’s mostly paid for by national insurance, whereas they may need to spend more to check into a nursing home.

“We’re running out of room budget-wise to keep patients with chronic conditions in hospitals,” said Ohwari. “But for hospitals there’s an incentive to leave patients in their institutions, because otherwise their sales will decrease.”

The elderly in Japan also frequently visit hospitals, with 61.6 percent going one or more times a month, compared with 24.6 percent in the U.S. and 14.6 percent in Sweden, according to data from the Cabinet Office.