The financial impact of COVID-19 for medical institutions in Japan

The financial impact of COVID-19 for medical institutions in Japan

The Government of Japan fully lifted the country's state of emergency on May 25, 2020 seven weeks after its declaration. However, the financial impact of COVID-19 for medical institutions is becoming gradually visible and it is necessary to support these institutions in making a recovery while minimizing the impact of subsequent waves of infection.

(1) The response of medical institutions during the emergency

During the state of emergency in April, government policy focused on preventing the spread of COVID-19 infections and securing medical capacity for treating COVID-19 patients with severe symptoms.
Some hospitals changed the layout of the wards, secured more beds, and purchased additional medical supplies and equipment. At the same time, they restricted the hospitalization of non-COVID-19 or non-emergency cases, and postponed planned surgeries to avoid the infections within hospitals.
Regarding human resources, additional healthcare workers were dispatched to hospitals that were accepting COVID-19 patients. However, when hospital staff became infected (regardless of if the infection occurred inside or outside the hospital), other staff who had close contact with the infected staff were to self-quarantine for 14 days. This led to a reduced ability to provide medical services, and even temporary closures of hospitals or wards.
Individuals who showed potential symptoms for COVID-19 were encouraged to monitor their symptoms for 2 to 4 days and call a public health center first, instead of going to a hospital right away. If symptoms were mild, the person was recommended to stay at home and the public health center would conduct daily follow-up over telephone. People also refrained from going to hospitals for other regular medical services under such situations.
These measures helped prevent healthcare system from being overwhelmed during the emergency. However, medical institutions are now suffering financially from the consequent decline in revenue due to a drop in the number of patients and an increase in preparation costs for COVID-19 treatment.

(2) Financial impact on the medical institutions

A questionnaire survey on the hospital management situation was conducted with 4,332 hospitals across Japan from May 7 to 15, 2020 by three medical associations(1). Effective responses were collected from 1,141 hospitals as of May 15, and preliminary results revealed the situation of hospitals in April 2020 compared to April 2019:
• Average profitability for 1,049 hospitals was －9.0% while it was +1.0% last year.
• Out of the 1,049 hospitals, 269 that accepted COVID-19 patients had －11.8% profitability while it was +0.3% in 2019.
• The number of outpatients decreased by 19% (from 8,518 to 6,841).
• The total number of hospitalized patients decreased by 10% (from 6,440 to 5,783).
As the medical service fees is determined by the government under the universal medical care insurance system, hospitals cannot raise the fee to control their profitability. This means that the fixed costs for hospital management remain high while the overall patient count decreases due to COVID-19. Due to this, the associations that conducted the above survey requested the government for strong financial relief.

(3) Financial relief for the healthcare system

The MHLW has taken several financial measures to aid medical institutions during the state of emergency. For example, MHLW allowed hospitals to triple their medical service fees for COVID-19 treatment in the ICU on May 26.
In addition, on May 27, the Japanese Cabinet approved a draft second supplementary budget of 31,911 billion JPY (296 billion USD) in general-account spending for fiscal 2020(2). Of this amount, 2,989 billion JPY (27.7 billion USD) is allocated to supporting medical treatment providers. For core medical institutions where whole hospitals or wards are used for COVID-19 and other medical services are suspended, fees for beds not in use are also compensated. Infection prevention and control for other wards, such as emergency, perinatal, and pediatric care, will be also reinforced. A bonus payment for front-line healthcare workers as well as employees for long-term care and social welfare facilities is also included.

The financial impact on medical institutions will be more visible from June as hospitals and clinics receive disbursement for medical service fees from insurers two months after the medical treatment. To prevent the healthcare system from collapsing, it is necessary to stay alert, monitor the situation, and provide continuous financial support for the twin measures of preventing the spread of COVID-19 and recovering regular medical services.

* 1) All Japan Hospital Association, The Japan Hospital Association, The Association of Japanese Healthcare Corporations, “Emergency survey on hospital management under COVID-19, May 18, 2020”
http://www.hospital.or.jp/pdf/06_20200518_01.pdf
* 2) Second Supplementary Budget (Cabinet Decision) Overview http://japan.kantei.go.jp/ongoingtopics/_00028.html

Masashi Suzuki Healthcare Global Unit Manager
Mitsuyo Morikawa Healthcare Global Unit Senior Staff
Mami Wakabayashi Healthcare Global Unit Staff