Japan Seeks Private Sector's Help With Blowout Health Costs

(Bloomberg) -- Japan’s public sector is turning to the private sector to help slow the rapid growth in the nation’s health-care spending.

Faced with an aging crisis that’s projected to push up heath-care spending by more than 50 percent in the decade through 2025, the economy ministry is leading efforts for local governments to draw on the expertise of private companies.

While projects are small so far, some involve the nation’s megabanks and listed companies with national reach. They’re also part of an emerging global trend in "pay for success financing" contracts and "social impact bonds" that are estimated to have grown to more than $320 million in worldwide funding.

The focus in Japan is preventive medicine, which could in time cut trillions of yen from government spending, according to Shinichiro Okazaki, an official overseeing the effort at the economy ministry in Tokyo. The nation’s annual health-care spending is forecast to reach 54 trillion yen ($500 billion) in 2025, according to the health ministry.

Here’s a look at nascent efforts to cut the bill.

Cancer Prevention

The local government in Hachioji, a town in the western Tokyo area, has contracted Cancer Scan Co. and consulting firm K-three Inc. to increase the number of residents undergoing tests for colon cancer. The initiative could cut annual health-care costs in Hachioji by as much as 16.8 million yen, according to the Social Impact Investment Foundation, which is providing some of the funding. Mizuho Financial Group Inc. is also putting in money and helping structure the investment. The more people who take the tests, and the more cases that are caught early, the more Hachioji saves, some of which it feeds back to the investors.

Pumping Iron

Listed heath club chain Rizap Group Inc. saw its shares rise five-fold in 2017, partly as a result of the "spartan" programs its personal trainers tailor to individual customers. Now it’s taken a less intense version of the idea to group classes in partnership with the Ina local government in central Japan’s Nagano prefecture. Ina paid Rizap for every participant who manages to reduce their "physical age" by 10 years or more, and Rizap stands to earn if associated health-care costs decline. While the 10-year target sounds like a tall order, Rizap announced this week that 90 percent of participants in the Ina city project succeeded in bringing down their average physical age by more than that, using a measure developed by Rizap and experts at Tsukuba University. Rizap wants to eventually partner with half of the 1,700 local governments across Japan, Chief Executive Officer Takeshi Seto said.

Stopping Diabetes

The Kobe city government has teamed up with DPP Health Partners to help prevent diabetes through a program that improves people’s eating and exercising habits. Financing for the project was structured by Sumitomo Mitsui Banking Corp., which also provided some of the funding. It’s estimated by Kobe that it could cut health costs in the city by up to 170 million yen in total, with the project’s investors paid based on a drop in diabetes cases. “Japan’s social problems are increasing as the population declines,” said Kenji Kinutani, a senior vice president at SMBC who’s involved in the project. “As these social problems expand, society is looking at how to more effectively use our finances.”

©2018 Bloomberg L.P.

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