Report No.13
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Japan Entrepreneur Report No. 13 November 2003
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- Japan's "invisible" economy, Part II
- Health-care sector needs second opinion
- Music mogul moves into medicine
- The biggest customer of all
- Bits and bytes
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Japan's "invisible" economy, Part II
"Exploratory surgery?"
Tatsuro Ochiai had never heard of such a thing. But a doctor at the
largest and most prestigious medical facility in his city had found an
abnormality during a routine checkup, and recommended he undergo the
procedure. The retired salaryman reluctantly agreed.
The operation apparently went smoothly, and the doctors reported to Mr.
Ochiai and his wife that "everything was fine." Relieved, the couple
left for a long-anticipated vacation to Hawaii with their daughter, son-
in-law and granddaughter. Mr. Ochiai even bought a sport shirt in
Waikiki to present as a gift to the doctor who had performed the surgery.
It was the last pleasant encounter he would have with the physician.
Twenty-one months later, during another physical exam, the same doctor
who had performed the surgery on Mr. Ochiai "discovered" late
stage cancer. As often happens in Japan, he delivered the bad
news to Mrs. Ochiai, rather than to the patient himself, informing her
that the advanced stage of the disease meant her husband had between six
and 24 months to live.
Pressed by Mrs. Ochiai as to why the cancer had gone undetected, the
physician admitted that he had discovered cancerous tissue during the
exploratory surgery nearly two years earlier, but had removed it and felt it
was "inappropriate" to disclose existence of the disease to the aging
couple.
Mrs. Ochiai was simultaneously grief-stricken and furious. She and her
husband immediately severed their relationship with the hospital their
family had relied on for decades and sought treatment at a specialized
clinic. Uncertain whether she should try to sue the hospital or the
doctor for professional negligence, Mrs. Ochiai consulted with her son-
in-law, an attorney, who reminded her that cases like Mr. Ochiai's were
common, and since Japanese civil law does not recognize discovery--the
process whereby each side can compel the other to produce documents
relevant to the case--it would be next to impossible to obtain Mr.
Ochiai's medical records and charts from the hospital. What's more,
Japanese doctors enjoyed almost unassailable authority; reportedly not a
single physician in Japan had lost his license for malpractice in the
previous 25 years. Mrs. Ochiai decided to focus on enjoying the time
left with her husband rather than embroil the family in an ugly legal
dispute with poor prospects for a favorable outcome. Mr. Ochiai died 18
months later.
Cases like Mr. Ochiai's are common in Japan, and a constant reminder of
the need for reform in the $270 billion health-care industry. There is
probably no health-care system in the world that <doesn't> need reform
of some kind, but Japan's problems are especially acute, due to the
rapidly aging population and deteriorating public financing for the
nationalized medical system.
Simply throwing the sector open to freewheeling, U.S.-style competition
is not the solution in Japan, whose egalitarian medical system is
designed to guarantee same-price, same-access care to everyone. As JER
correspondent Carl Kay points out below, health care policy must
consider factors above and beyond the principles of free market
competition. Yet deregulation could do much to improve medical care in
this country.
By law all medical care in Japan is not-for-profit and doctors must be
licensed in Japan, so at first blush the sector doesn't seem to offer
much opportunity for foreign entrepreneurs outside psychological
counseling, chiropractic services, dietetics, rehabilitation, corrective
exercise, and other health-related services that don't require a
physician's license. Even so, "outsiders" are starting to have an
impact on medical services. To see how, Carl traveled to Kamogawa to
hear a series of strong second opinions from health-care reform pioneer
John Wocher, who serves as Executive Vice President of the Kameda
Medical Center. Kameda treats 2,500 outpatients per day, about the same
number seen daily by the Mayo Clinic, and a figure that corresponds to
nearly 10 percent of Kamogawa's population. Carl's interview with Mr.
Wocher below is the second in his series about foreigners making their
mark on Japan's "invisible" economy (see Part I at
<www.japanentrepreneur.com/200310.html#1>).
Mr. Wocher believes Western-style managed health care is coming to Japan,
but is that what consumers really want? Assuming it brings the
advantages Mr. Wocher and others predict, the answer is a resounding
"yes." Koh Koike, a music sector entrepreneur who made a lateral move
into the health sector, is building his new business based on strong
evidence of consumer support for the likely benefits of a deregulated
health-care industry. See "Music mogul moves into medicine" following
Carl's interview with John Wocher.
Finally, because we're dealing with a sector heavily influenced by
government in this issue of JER, we take a look at "the biggest customer
of all." Happy reading...
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Health-care sector needs second opinion
Japan's multi-trillion yen health-care sector reveals many of the
institutional and cultural bottlenecks holding back Japan's domestic
economy. Health care policy must, of course, consider factors that
transcend free market principles, and as a result no nation has a
totally unregulated health-care market. But according to John Wocher,
Executive Vice President of one of Japan's largest private hospitals,
much of what is simply commonsense good practice in the U.S. is absent
or just barely emerging in Japan. Mr. Wocher's efforts to do things
differently at Kameda Medical Center (www.kameda.jp) have helped build a
$300 million business and serve as a beacon for health care reformers
throughout Japan. JER recently met with Mr. Wocher in his office
overlooking the ocean in the Chiba resort town of Kamogawa where he
discussed Kameda's many accomplishments and the opportunities for Kameda
and others to do even more.
- Before we get into the business, please tell us how a foreigner came
to be EVP of a large Japanese hospital.
I was a medical service corps officer in the U.S. Navy for 30 years
including many in Japan. I had contact with many hospitals here when we
built a network for referring cases we couldn't treat at our base
facilities. The Kameda family has for generations tried to run a
hospital that provides both excellent health care and a solid financial
base. Twelve years ago they felt the beginnings of a major shift and
thought that my perspective could help lead them forward.
- Why was a different perspective so important?
You have to understand how narrow, traditional, and ingrained things are
here in Japan. The Japanese hospital system is almost totally doctor-
centered, not patient-centered. There are no economic incentives
anywhere in the system for improving the quality of the care, no
competition.
- How is that?
Under the national health care system, every medical procedure is
reimbursed at a fixed price, regardless of the quality of the service
delivered. In fact, if poor care in a hospital leads to further problems,
the hospital can bill more for the additional treatment, so the
incentive is backwards. Average hospital stays in Japan are the longest
in the world. Meanwhile, little tracking is done of medical outcomes, so
sub par facilities and practitioners are rarely identified and have no
incentive to improve.
The doctor is too strong an authority figure here. If you ask to get a
second opinion you imply a lack of trust, or doubt, and many patients
are afraid to ask their physicians. The "sick" role differs in the two
cultures. In Japan, the patient says, 'I'm sick now, take care of me.
Tell me what I need to do.' In America we ask, 'What are my choices?'
We want to take be in control and take responsibility.
Patients have little access to information to compare hospitals and
doctors. This is not fertile ground for a robust "consumer" movement
among customers of the Japanese health care system.
- But you say a major shift is coming.
Kameda believes that some form of managed care is coming to Japan within
the next few years, whereby reimbursement will be based on the patient's
diagnosis and not on each procedure the doctor chooses to administer.
This will be a hybrid of managed care with a combination of diagnosis
and procedure-determined reimbursement. In the United States this was
called a DRG (Diagnosis Related Grouping) reimbursement system, and like
the U.S., the introduction of a DRG-like system is intended in Japan for
cost cutting.
- More like HMOs in the U.S.?
Exactly. So the hospitals that reduce errors and inefficiencies will
improve quality and be more profitable, and the poor facilities will
struggle to survive. Some will not survive. The profitable hospitals
will be able to invest further to attract patients, creating a cycle
that will separate the winners and losers. Kameda intends to be a winner.
- You've taken major steps in anticipation of this shift.
Following U.S. practice, we select, train, qualify and re-qualify our
doctors much more carefully than many hospitals here, where they tend to
rely on referrals from medical school professors they know and let many
doctors perform any procedure they feel competent to perform. We
attempt to practice evidence-based medicine, which supplements the
judgment of individual doctors with the establishment of fixed protocols
to standardize treatment of the same disease applying consistent best
practices to achieve optimal outcomes. We have an American physician in
charge of physician staff training to instill the concept of clinical
practice guidelines and evidence-based medicine to augment experience-
based medical practice. The concepts of credentialing and privileging
are just taking root here in the more progressive hospitals.
Kameda is one of only about 10 percent of Japan's hospitals that has
voluntarily undergone certification by a Japanese third party. We passed
that twice and have ISO 9001 certification as well. We also encourage
our doctors to go against the current economic incentives and apply
"minimal appropriate care" rather than the usual "maximum appropriate
care" that can lead to wasteful and sometimes harmful over treatment.
In the future, under managed care, there will be shorter hospital stays
and also much more same day out patient surgery, which is 85% of all
surgical procedures in the United States. Japan is certainly technically
capable of this, but cultural and institutional barriers, in addition to
a lack of financial incentives, have kept this from happening here.
We have invested heavily in information technology. Our medical records
are increasingly available on-line, on-demand in a highly secure
environment. Our electronic formulary minimizes errors, making it
technically impossible to dispense a drug dosage with power of ten
errors by mistyping a decimal point or failing to see the patient's
contraindications for a drug. We think that good people in good systems
is the right formula for quality improvement.
We are trying to make Kameda into a magnet hospital that people will
seek out from throughout Japan and other countries as well. Japan has
more to offer Asia than just electronics and cars.
- How is all this being received?
On the medical side, we have a total focus on the patient. Our hospital
is ranked in the top ten in Japan, out of a total of almost 10,000
hospitals nationwide, in two major surveys. And with 850 beds, we are in
the top 1% in size nationwide. So we are maintaining this quality on a
large scale. We have about 600,000 patient visits a year, on a par with
the Mayo Clinic in the United States. We believe that a partnership
with the patient is a sound strategy for success.
- But for now you're still under the fixed reimbursement system, so
don't you lose money by being patient-centered?
We are profitable now and will be even more so when managed care arrives.
On the administrative side, we have attacked the waste built into the
entire hospital system here. This frees up resources to focus on the
patient. We have been very creative and cost-conscious.
We carved out many of the non-medical functions in the hospital and made
them into separate companies that are within the Kameda group. I call
this "insourcing"...maintenance, materials management, IT services and
the like. This lets us isolate the costs of those functions and work to
make them more efficient. Also by taking these out of the regulated,
non-profit medical part of the operation, we can operate them as profit-
making businesses that sell to other customers besides our hospital. Our
IT company made a multi-million dollar sale of our electronic medical
records system to another facility. This helps directly recoup some of
our IT investment, which we can't otherwise do because all health care
is not-for-profit in Japan, and we are not allowed to sell business
services. Meanwhile, our patients get the benefit of higher quality and
more efficient care, because we concentrate on our core competency:
health care.
In procurement, we had to dislodge the wholesaler that previously
managed our inventory of pharmaceuticals and supplies from inside our
warehouse. They charged us high markups on products that already come
into Japan from overseas at inflated prices compared to what U.S. buyers
pay. Various suppliers would actually remove from the box things like
wiring diagrams so that we would be dependent on them for installations
and calibration. Their only value was that they absorbed the inventory
risk, but with the IT systems we have put in, we trigger auto-reorder
right from the point of use, so we can minimize our inventory exposure
but gain the cost and speed savings of controlling our own process.
Supply chain management at Kameda is quite sophisticated and improving.
- All these efforts, plus a $100+ million investment in a major
expansion of the hospital. What if your prediction about the coming
changes is wrong?
We are not just predicting the future but influencing it. We helped
found the Voluntary Hospitals of Japan, a group of 15 progressive, like-
minded institutions throughout the country that are working together on
lobbying for reform, group purchasing to cut costs and benchmarking of
best practices. By data mining and looking at cost/outcome comparisons,
we can actually prepare for the Japanese DRG environment, which is
essential for financial survival. I also wrote a book about the
deplorable state of hospitals here, and it has sold almost 10,000 copies.
- In Japanese, no less.
I wrote it in English, and one of my colleagues here translated it for
me. It hasn't been published yet in English, but there is a Korean
language version, too.
- Where do you see further entrepreneurial opportunities in the health
care field in Japan?
Malpractice insurance here is very limited in coverage, is expensive for
big hospitals and penalizes good ones because rates are not based on
risk performance. Someone should press to open up the reinsurance market
and offer coverage beyond the minimums. By charging premiums to match
the risk of the hospital, you could build a very nice business.
With managed care, there will be a big need for coders to apply the
diagnosis codes to each case for insurance filing. Training, staffing
and outsourced services will be possible there. The same is true for the
safety management and risk management functions that many hospitals
don't currently have.
- Thanks, John. We should let you get back to looking after the 2,500
patients that will visit Kameda today.
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Music mogul moves into medicine
When Koh Koike learned he had astigmatism, he wanted the best corrective
surgeon he could find. But like most consumers in Japan, he had little
objective basis for identifying outstanding doctors, and relied
primarily on advice from friends or family. Eventually he decided to see
a famous ophthalmologist who makes frequent television appearances.
But following surgery his astigmatism flared up again, so he found a
different hospital noted for its leading-edge technological treatment of
the disease. The doctor in charge told Mr. Koike he needed the chart
from his previous surgery in order to proceed with new treatment, so Mr.
Koike went back to the first hospital and the celebrity doctor. His
request was denied by the physician, who roared in anger, "What do you
think you're doing, going to see another doctor?" Mr. Koike still can't
obtain his chart from that hospital.
Were Mr. Koike an ordinary consumer, the story might have ended with the
famous doctor's arrogant refusal. But Mr. Koike, an entrepreneur,
sensed that other consumers share his frustration with Japan's doctor-
centric, patient-unfriendly medical system. What's more, he was in a
position to do something about it. Mr. Koike is president of Oricon
Entertainment, Japan's leading music market data firm, and a company
with a robust, long-tested research methodology powered by a giant
consumer research "panel"--a database of volunteers who participate in
ongoing market research tests. Mr. Koike decided to implement Oricon's
first health-care related consumer survey.
The results confirmed Mr. Koike's intuition. Of more than 65,000
respondents, 90 percent said they favored informed consent and second
opinion, health-care practices still rare in Japan but considered common
sense in the West. More than half of those surveyed said they had
experienced excessive treatment or over-prescription of drugs.
Mr. Koike sensed a ripe business opportunity. Japan's consumers were
legitimately dissatisfied with the health care they receive. Like him,
they had no objective basis for telling good physicians from mediocre
ones. By law, most Japanese hospitals cannot advertise specialties,
procedure volumes, and medical outcome data, so without a basis for
objective evaluation, consumers flock to "prestige" hospitals and offer
famous doctors under-the-table payments for surgeries and other critical
procedures. These payments can start at the equivalent of U.S. $1,000
and reach $3,000 or more per procedure.
That means Japan's egalitarian medical system, which guarantees same-
price, same-access care to all citizens, already has a dark free
enterprise underside, because some consumers purchase higher quality
services through these "gray market"-style payments.
Determined to exploit both the lessons of his own experience and the
market opportunity he perceived, Mr. Koike decided to leverage Oricon's
powerful consumer panel to create a ranking of Japan's doctors and
hospitals based on a "customer satisfaction" survey of patients.
Medical journalists had published various hospital rankings, but
Oricon's survey was the first to put patients squarely at the center of
the evaluation process.
The results were surprising. Unknown doctors working in rural Japan and
smaller suburban clinics got higher marks than those at well-known
university hospitals. In the course of the work Mr. Koike himself met
100 of the top-ranked doctors, and grew to understand why they have such
good reputations with patients. "None of them have the brusque,
dismissive air of the typical medical authority," he said in a recent
interview with Nikkei Business.
Mr. Koike published the ranking in a best-selling book, "Best Hospitals:
Picked by Patients!", and created a new entity, Oricon Medical, to
develop a medical market research business. Longer-term, Mr. Koike
foresees a service whereby patients in Japan would get advice from
medical specialists around the world.
"Until now, doctors haven't listened to patients enough," said Mr. Koike
in the Nikkei interview. "I hope this will help foster competition in
the medical sector."
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The biggest customer of all
Here is a truism for you: the more successful you are in business, the
more you have to deal with government. This is particularly so in Japan,
where the government simply can't keep itself from meddling in the
private sector. In other words, the amount of time you spend with
bureaucrats and regulators is a direct measure of how successful you are.
Official spending is no joke. Everywhere around the world, governments,
both local and national, comprise the biggest customer group by far in
many industries. In Japan's nationalized medical sector, government
payments account for essentially 100 percent of revenue. In sectors
such as information technology, government buying can account for as
much as 20 or 30 percent of total purchases. Entrepreneurs usually
prize government customers as customers, because they are reliable and
often renew their contracts automatically once the vendor establishes a
proven track record.
So how does a small business, say in the IT sector, go about winning
government work? It's tough, because bureaucrats are usually
comfortable with well-known brands like Fujitsu and Hitachi, but
petrified of purchasing from unknown startups. What's more, purchasing
managers ordinarily are not sophisticated enough to evaluate technology
from a startup that may be only one component of a complex, larger
system. Managers understandably want to go with a vendor with broad and
deep resources and a proven track record of integrating many pieces of
technology into a smoothly running system. Finally, many startups are
unable to take on the cash flow risk of the Japanese government payment
cycle, since they may not get paid until the end of the government's
fiscal year. Large, established systems integrators can absorb this
risk; smaller companies cannot. The result? Government employees tend
to choose the same big vendors over and over again.
This is not a trivial problem in a nation trying to encourage
entrepreneurship. A kind of structural barrier to post-startup
expansion arises when young, innovative startups are systematically
excluded from bidding in a market where government contracts account for
a large portion of spending.
To its credit, Japan's Ministry of Public Management, Home Affairs,
Posts and Telecommunications (www.soumu.go.jp) recognizes the problem
and is doing something about it. Earlier this year, the Ministry
started examining government procurement policies in Korea, the U.K.,
and the U.S. whereby preference is given to small businesses and
startups. And venture capital firm SunBridge has formerly recommended
that the Ministry adopt a kind of "local content" policy that would
require large integrators to include startup components in their system
solutions. This would let purchasing managers continue to enjoy the
comfort of dealing with large, established integrators, while providing
startups with a foot in the door.
One startup that recently adopted this approach is Horizon Digital
Enterprise (www.hde.co.jp), a developer of Linux management tools
founded years ago by a group of students attending Hitotsubashi
University. When the Japanese government adopted an open source
procurement policy for its electronic government initiative, Horizon
built a special local government version of its key Linux management
tool and got NEC to incorporate the product in its government bids.
Horizon has been on a roll since. And with efficiency-driven reform
inevitable in nearly every domestic sector, the future looks bright for
startups like Horizon that can capture the biggest customer of all--the
government.
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Bits and bytes
Serious about technology ventures in Japan? Mark your calendar for
Saturday and Sunday November 29 and 30. The Sixth National Venture
Summit will be held at SunBridge Venture Habitat, featuring heavy
hitters such as Tatsuya Shindo, founder of Accela Technology, and Atsuo
Fujimura, founder of @IT, the leading online information resource for
information technology professionals in Japan. Conference proceedings
will be in Japanese. See www.SunBridge.com for more details.
What are Japanese Web designers most interested in right now? Flash and
search engine optimization, according to last month's issue of Web
Designer magazine. Responding to those needs, Sozon.com, a Japanese
venture, now offers what it says is the world's first search engine
optimization product that handles both Japanese search engines and Flash
analysis. See <http://www.seospy.com/> for details in Japanese or
<http://www.sozon.com/e_index.php> for details in English.
"Five 'Ps' to drive your business - Passion, Perseverance,
Professionalism, Peak Performance, and Paradise." That's the theme of
the Tuesday, December 2 evening presentation by Tokyo entrepreneur Ann
Sado, founder of a management consulting firm specializing in marketing
and PR for the creative fields. See the Entrepreneur Association of
Tokyo Web Site at <www.ea-tokyo.com> for details and signup information.
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Tim Clark
Senior Fellow
SunBridge Corp.
Voice (U.S.) 503.235.4419
Voice (Japan) +813.5459.0765
clark@sunbridge.com
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Copyright 2002-2003 Tim Clark
Reproduction in whole or in part without express written permission is
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