【Aging, safety net and fiscal crisis in Japan】No.18: Reasons why public hospitals are in deficit

As mentioned in Column No.3, the number of hospitals in Japan is 8,426 as of 2017, among which 893 are public hospitals established by local governments such as prefectures and municipalities. There are two kinds of public hospital: 812 hospitals directly operated by local governments and 81 hospitals managed by local independent administrative agencies. A local independent administrative agency hospital is a system created for improving the financial balance by giving a hospital CEO greater authority in terms of budget and personnel affairs.

Table 1 shows the financial balance structure of public hospitals in fiscal year 2015. Despite the fact that the gross operating revenue of 4,833 billion yen includes a subsidy of 598 billion yen, they are still in deficit by 54 billion yen. As mentioned in Column No. 16, social medical corporations fulfill the same function as public hospitals without subsidy and are in profit as a whole. In addition, public hospitals also receive a capital investment subsidy of 176.8 billion yen. The central government has made public hospital reform plans several times to encourage reform of their management, but the financial structure dependent on subsidy has not improved much in the last 20 years. None of the civil servants assigned to the hospital administration department receives specialized education in healthcare organization management.

There are three reasons for the structural deficit. The first is that non-doctor staff salaries are 20% to 30% higher than those in private hospitals, while medical doctor salaries are lower than those in private hospitals. This is because the salary system of public hospital personnel is determined not by the medical market but by the civil servant payroll regulations. The second is that public hospitals are repeatedly investing excessively with more than double the construction cost of private hospitals. According to a survey by the Medical Welfare Organization, a government lending institution, the average construction cost per bed in private hospitals was 20 million yen in 2016. On the other hand, the average construction cost per bed in public hospitals is in the range of 40 to 60 million yen. The background to such excessive investment is that there are people who will benefit from public works projects, such as hospital construction, among the members of local council members who have the authority to decide such overinvestment. The third is that no one takes responsibility for money, even if public hospitals are in deficit. In fact, as of the end of March 2016, the unprocessed cumulative deficit of 1,762 billion yen has been ignored.

（Source）The Ministry of Internal Affairs and Communications