Does Scale of Public Hospitals Affect Bargaining Power? Evidence From Japan

Abstract

Background: Many of public hospitals in Japan have had a deficit for a long time. Japanese local governments have been encouraging public hospitals to use group purchasing of drugs to benefit from the economies of scale, and increase their bargaining power for obtaining discounts in drug purchasing, thus improving their financial situation. In this study, we empirically investigate whether or not the scale of public hospitals actually affects their bargaining power. Methods: Using micro-level panel data on public hospitals, we examine the effect of the scale of public hospitals (in terms of the number of occupancy beds) on drug purchasing efficiency (DPE) (the average discount rate in purchasing drugs) as a proxy variable of the bargaining power. Additionally, we evaluate the effect of the presence or absence of management responsibility in public hospital for economic efficiency as the proxy variable of an economic incentive and its interaction with the hospital scales on the bargaining power. In the estimations, we use the fixed effects model to control the heterogeneity of each hospital in order to estimate reliable parameters. Results: The scale of public hospitals does not positively correlate with bargaining power, whereas the management responsibility for economic efficiency does. Additionally, scale does not interact with management responsibility. Conclusion: Giving management responsibility for economic efficiency to public hospitals is a more reliable way of gaining bargaining power in drug purchasing, rather than promoting the increase in scale of these public hospitals.

Relationship between the Current Account Balance Ratio and Salary Ratio in Japanese Municipal Hospitals

“…Additionally, contrary to previous findings [3], our results also suggest that, at least among solvent hospitals with adequate management, larger size may offer additional benefits in negotiating salaries and in purchasing power. Hospitals in good financial standing may have alternatives for cost savings and quality improvements that are not available to hospitals that lack such financial flexibility [10].…”

“…Other researchers evaluating the possible link between hospital size and fiscal health due to the economy of scale in purchasing did not find a significant impact on bargaining power [3]. This may have been due to the real or perceived lack of incentives to use group purchasing power (i.e., administrators are either unaware of the potential cost savings or do not believe that such savings would materialize) or to the expectation of using the newest available (and thus, more costly) drugs in highly advanced medical care.…”

“…While public municipal hospitals are supported by public financing and are less likely to fail than private hospitals, more than half are in financial deficit. As of 2013, public municipal hospitals accounted for about 10% of all hospitals in Japan, and most of these municipal hospitals were operating at a loss, with a net loss of 42.92 billion yen (approximately 429 million U.S. dollars) [3]. In response to the high proportion of municipal hospitals in deficit (72.2% in 2007), the Japanese Ministry of Internal Affairs and Communications issued public hospital reform guidelines to local municipalities in 2007 requesting that they improve public hospital management as quickly as possible [4].…”

“…In response to the high proportion of municipal hospitals in deficit (72.2% in 2007), the Japanese Ministry of Internal Affairs and Communications issued public hospital reform guidelines to local municipalities in 2007 requesting that they improve public hospital management as quickly as possible [4]. These guidelines were updated in 2015 and require local governments to develop plans to limit spending and increase revenue at public hospitals; in addition, the guidelines require annual assessment and reporting [3]. The guidelines primarily target hospital administration, with a main objective of reducing deficit and reducing subsidies received from local government [5].…”

Performance Comparison of Public Hospitals Between 2014 and 2018 in Different Regions of Guangdong Province, China, Following 2017 Medical Service Price Reforms

“…In addition to Germany, public hospitals in Japan are also generally facing financial deficits. Konosuke confirmed this and suggested that the extent of public hospital development is related to local purchasing power (37). However, prior studies only described the operation of public hospitals in particular locations, and did not engage in in-depth analysis of the differences in policy effects among regions.…”