Regulated medical fee schedule of the Japanese health care system
This study presents a theoretical framework for examining the effect of the Japanese government-regulated medical price schedule, ‘Shinryo-Houshu-Seido,’ on the behavior of medical providers. In particular, we discuss the optimal rule of this price schedule for the regulator, taking into account information asymmetry between the regulator and providers. Our simple model predicts that heterogeneous providers either under-provide or over-provide medical inputs in comparison with the socially optimal outcome. Moreover, our results show that when the allocated budget is reduced to a certain level, even the second-best outcome becomes unachievable, no matter how the price schedule is regulated. While the limited budget size is shown to have a clear negative effect on social welfare, we suggest that the prospect of obtaining the second-best outcome is left to negotiation between the regulator and the budget allocator.
KeywordsAsymmetric information Budget caps Regulated medical fee schedule Japanese health care system
We thank all participants in the Health Economics Workshop regularly held at Saku General Hospital, Nagano, Japan, and the Fifth Irvine-Japan Public Policy Conference at University of California, Irvine (March 2009) for their helpful comments and suggestions. The research fund by Promotion and Mutual Aid Corporation for Private Schools is acknowledged. Remaining errors are ours.
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