**4. Concept of price formation in the healthcare field**

#### **4.1 How to discuss price levels in the medical field**

The discussion of value covers the whole range of activities related to the health and welfare field, such as examinations and diagnoses provided by medical facilities, surgery, and hospitalization, as well as medication, therapeutic materials, and care provided by caregivers. Prices (i.e., official prices in Japan) are attached to several services.


*The analysis has been corrected for the number of months. Pre-post CEA was calculated as [medical cost (post-pre)/ medical effectiveness (post-pre)] (suppression amount for medical costs accumulated over 24 months per one-time reduction[avoid] in relapses). Expressed as points per 24 months per time. Analyzing the cost-effectiveness (the ratio of total medical costs and a number of relapses, after correction for the number of months) before and after rituximab therapy revealed that cost-effectiveness improved in medical, economic terms. This was 317,707 points (30,726USD) per 24 months (0.27 times) after rituximab therapy compared with 725,403 points (70,155USD) per 24 months (4.30 times) before therapy [41].*

#### **Table 3.**

*Medical economics analysis (pre-post-CEA) accounting for the medical costs of rituximab.*

Professionals who typically work in clinical or long-term care sites may not be very aware of these prices. However, the financial resources for the operation of medical and long-term care facilities are based on the price of services provided to patients/family members and long-term care recipients, who are the so-called beneficiaries. The medical institution charges to insurer for various services provided to the assured patient, which become the source of salary payments and reinvestment for the parties concerned. Therefore, if the price, value to be generated, and amount of resources consumed are not well balanced, the motivation for the employment of professionals and profitability assumedly decreases, thus making sustainable facility management difficult.

Consequently, the supply of medical and long-term care will decline, which is a significant problem for residents, including patients and their families [43–45]. Therefore, the price levels at which service recipients and providers are mutually satisfied (or convinced) should be discussed. However, determining the characteristics and effects of the target market is necessary to discuss the appropriateness of the price, considering the theory related to human choice and behavior (outlined in the previous section). In particular, as the field of health and welfare has service characteristics that are different from those in other fields, it is necessary to consider and interpret the mechanism of the market. Against this background, this section explains the basic price and its calculation methods.

The behavior and motivation of market economic agents and the pricing mechanism for goods and services, including resource allocation and income distribution, should be considered for price optimization. Overall, the general economic approach is limited because of various uncertainties related to highly specialized technologies in medical science. Thus, examining price settings in the medical field is generally difficult because of the complex involvement of various factors. A price-setting approach in medical treatment can be divided into two major categories: "market-based" and "input-based" [46]. The "market-based" approach determines the price level by considering the actual market price of medical treatment, while the "input-based" approach is based on the consumption of goods and services. Generally, prices are presumed to have been formed in the public medical market using these approaches in countries with a mature medical system.

Approaches to explain the public price of individual medical technologies (services) have also been discussed. For example, from the standpoint of a medical provider (supply approach), "technical difficulty" and "medical cost" are often selected from the viewpoint of quality evaluation and business management. Furthermore, for the payer (or beneficiary), the methods of "patient outcome," "economic performance," and "willingness to pay" are often selected from the perspective of market and value evaluation (**Figure 15**) [48–50]. Additionally, cases exist in which certain preconditions are set to use these indicators. For example, in Japan's universal health insurance system, most prices charged to public insurers by medical institutions are centered on direct

**Figure 15.**

*Theory of the price-setting approach (in general and within the range of this examination) [47].*

#### *Socio-Economic Considerations of Universal Health Coverage: Focus on the Concept… DOI: http://dx.doi.org/10.5772/intechopen.104798*

medical costs, based on the consumption of medical resources—considering their clinical usefulness and hospital operability. Technical fees (e.g., surgery fees), influenced by doctors'specialties, are considered technical difficulties. Furthermore, overseas (developed countries) market prices are referred to when determining the public prices for pharmaceutical resources and medical devices.

As the socio-economic environment surrounding the medical system becomes more severe, even public prices that follow the theory of the public economy are expected to play a role in improving the system's performance and increasing its sustainability. In other words, verifying the structure of price formation and the appropriateness of its level has become a major concern for medical stakeholders. Based on this, an analysis of factors that affect prices is also expected. However, when developing official price research in the medical field, the following must be noted: There are not enough research reports to study the analytical model required for factor analysis. This condition is especially true in Japan. In addition, the formation of official prices involves various subsidy programs (politics), and thus, the analytical approach becomes too complicated. Therefore, in this chapter, as an initial study on medical prices, we introduce a survey on price differences between Japan and overseas and price factors in the private market.

This study examines the mechanism of market price reference and the influence of the real economy (citizens' economic burden) on the public price, contributing to the arrangement of public price discussions in the future.

#### **4.2 Research example of medical pricing for foreigners visiting Japan**

This section presents a method for setting the price level based on the analysis of medical expenses of Japanese medical institutions for foreign visitors (FVs). Furthermore, international comparisons of price levels for Japanese tourists (patients) in foreign countries have been conducted previously [47]. This section elucidates the "market-based" and "input-based" approaches discussed in 4.1, and discusses the "foreign price reference system," which is part of the setting of public prices in Japan. In recent years, the supply of medical services centered on pharmaceutical products has been based on global R&D, manufacturing, and sales systems. In addition, some patient groups also exhibit cross-border consultation behaviors. In other words, it is inferred that discussions with a view to the globalization of medical care are indispensable for the progress of UHC, even if they are indirect.

The costs were analyzed based on socio-economic ranges in this calculation, considering clinical characteristics and economic activities. The costs related to general medical care and public investment in hospital management and healthcare infrastructure through the insurance system and various taxation systems that support Japan's medical system are also considered. For example, social insurance burdens (e.g., insurance contributions and subsidies, such as operational grants to medical institutions) and additional expenses for FVs (e.g., interpretation, coordinator, equipment, and risk management costs) were used as calculation items.

Three medical institutions with more than 400 beds were chosen as target facilities, and their locations (urban or rural) were considered. Additional factors (such as the occupancy and profit rate of each facility) were considered in the calculation. Data collection involved medical practice and medical institution management surveys. The medical practice survey used time study (i.e., occupation time of medical staff and institutional equipment) and medical records (i.e., electronic and management ledgers): Some were self-reported alternatives based on their professional experience.

The medical institution management survey collected financial statements (profit and loss balance sheets), number of patients and medical treatments, number of staff and equipment, unit purchase price, and the area of each department.

The medical expenses for FVs were broadly divided into "additional expenses of foreign medical treatment" and "increased expenses of regular medical treatment." The following definitions for additional and increased expenses were applied: additional expenses for new and additional services (e.g., interpretation and transportation) for non-locally insured patients. The increased expenses for medical services were similarly offered to the locally-insured patients. However, for non-locallyinsured patients, the unit price and quantity increased (e.g., consultation hours and staff). Profit was included in this calculation as a necessary resource for reinvestment by medical institutions to realize sustainable management while appropriately responding to the medical needs of FVs. However, when determining profit margins, the historical average of each institution was adopted to avoid the distortion of price levels and the expensive economic burden on FVs owing to excessive profits. The profits gained from FVs were essentially the same as those from Japanese patients.

Compared with the medical expenses (point system) of Japanese patients, those for FVs were 1.31 times (1 point 0.12 dollars) higher for pharyngitis, 1.56 times (1 point 0.14 dollars) higher for urticaria with allergies, 2.21 times (1 point 0.20 dollars) higher for hemorrhagic cystitis, 3.66 times (1 point 0.34 dollars) higher for in patients with severe pneumonia, 1.22 times (1 point 0.11 dollars) higher for general appendicitis, and 2.92 times (1 point 0.27 dollars) higher for endoscopic cholangitis treatment (**Figure 16**). Moreover, the operating expense for trochanteric fractures of the femur was 3.59 times (1 point 0.33 dollars) higher. **Figure 17** shows the amount billed when providing medical treatment to Japanese overseas travelers (overseas FVs) in each country. The survey indicated that although the total number of patients was 18 (one in each country, except for the USA, Australia, Italy, and China), the actual medical payment was approximately USD 20.32–158.75/bill (medical expenditures for medical examination and drug cost) in 12 countries. The highest price was in the USA, at USD 158.75/bill (medical fees may be partially unknown), followed by Austria with USD 79.38 (purchasing power parity 86.28)/bill and Belgium with USD 73.93 (purchasing power parity 73.93)/bill. In summary, including additional research, the medical expenses for FV patients were 1.22–3.66 times higher than those for Japanese patients,

**Figure 16.**

*Calculation of price levels for foreign visitors (seven diseases) [47].*

**Figure 17.**

*International comparison of medical expenses (pharyngitis and outpatients) [47].*

1.31–2.21 times higher for outpatients (pharyngitis, urticaria, and cystitis), and 1.22– 3.66 times higher for inpatients (e.g., with severe pneumonia, appendicitis, cholangitis, and femoral fractures).
