High Prices Squeeze Hospitals, 60% in the Red; Deficit Leading to Department Shuttering, Reduced Services

Yomiuri Shimbun

15-06-2025

The Yomiuri Shimbun
A hospital official shows the signs for three medical departments that were discontinued in April at the Ojiya General Hospital in Ojiya, Niigata Prefecture, on April 7. (Part of this image has been obscured.)
Rising prices and labor costs are causing hospitals nationwide to suffer financial difficulties. The effects are becoming apparent as some hospitals are reducing medical services or not replacing aging medical equipment.
While medical organizations are calling for the government to review medical fees in accordance with rising prices and labor costs, experts have pointed out the need for improving hospital management by making medical service systems more efficient.
Ojiya General Hospital in Ojiya, Niigata Prefecture, posted a deficit of over ¥500 million in fiscal 2023. In order to reduce the deficit, the hospital discontinued its neurosurgery, cardiovascular surgery and respiratory surgery departments in April. Patients who had been treated there now must go to a hospital in a neighboring town, about 30 minutes by car from the central part of the city.
'We made a tough decision in order to keep the hospital going, despite the inconvenience it will cause our patients,' said Masahiko Yanagi, director of the hospital.
JA Niigata Kouseiren, a welfare federation which operates the hospital and 10 others, announced last summer it expected a record-high deficit of ¥6 billion to ¥9 billion in fiscal 2024, which could lead to a situation where it will be unable to continue the hospital business due to excessive debt.
The federation fell into the red in fiscal 2023 due to such circumstances as rising prices and a decrease in patients caused by the declining population. Additionally, some patients have still been reluctant to go to hospitals since the pandemic, and the government's COVID-19 related subsidies were discontinued in fiscal 2024. These contributed to putting the business in critical condition.
By cutting down on bonuses for employees and receiving subsidies from local governments, the federation expects the deficit to have been reduced to about ¥3 billion in fiscal 2024. In fiscal 2025, it plans to discontinue a total of seven medical departments in three hospitals to nearly halve the deficit to ¥1.4 billion.
The Association of Japanese Healthcare Corporations (AJHC), along with five other organizations, conducted an emergency survey on hospitals' business conditions. The survey found nearly 60% of about 1,800 hospitals nationwide that responded to it had posted an ordinary loss for the second half of 2024.
Yoshihiro Ota, vice chairman of the AJHC, said, 'Local hospitals could be closed suddenly, leaving patients with nowhere to go.'
University hospitals are also in financial distress. The Institute of Science Tokyo is unable to replace its aging MRI (magnetic resonance imaging) equipment. Nagasaki University is also facing difficulty in getting new medical equipment.
'University hospitals provide advanced medical care. If we don't have the latest equipment, the standards of local medical care will stagnate,' said Makoto Osaki, director of Nagasaki University Hospital.
Prices cannot be raised
The reason behind the deficits is unique to medical institutions, which are not allowed to increase prices in accordance with conditions such as rising costs like other industries.
According to the AJHC and others, material and utility costs for medical services increased 14% in fiscal 2023 compared to fiscal 2018. While labor costs account for about 50% of hospital expenditures, it is difficult to reduce salaries because it could lead to employees leaving their jobs. Some hospitals are forced to increase salaries in line with other industries.
The main source of income for medical institutions is medical fees. However, these fees are determined by the government and revised once every two years in principle. No matter how much prices rise, medical institutions are not allowed to increase fees on their own.
In the fiscal 2024 revision of medical fees, the 'main' portion allocated to cover personnel costs and other expenses was raised only by 0.88% under a policy meant to curb medical bills. While the government set a target of a 2.5% base pay raise for medical workers, the target was lower than that of private companies at 3.56%.
'Such a small increase in medical fees would have been enough in times of deflation, but it is not enough to cover the increased expenditures today,' a hospital official said.
Management efforts
In April, the Health, Labor and Welfare Ministry began providing emergency assistance to hospitals, offering loans up to ¥720 million for up to five years that are free of collateral and interest.
'The government should consider not only emergency support but also a system for determining medical fees that responds to inflation and other situations,' said Kenji Shimazaki, professor of medical policy at the International University of Health and Welfare.
The Japan Medical Association and others are also calling for the introduction of a new system that responds to rising prices and labor costs in the next revision of medical fees scheduled for fiscal 2026.
However, some are cautious about unconditionally increasing medical fees for all hospitals.
'There are hospitals that remain profitable through management efforts,' said Masashi Nozawa, head of the Development Bank of Japan's healthcare department who is familiar with hospital management.
According to Nozawa, some hospitals are actively accepting emergency patients and patients from other medical institutions. Other measures include multiple hospitals joining together to purchase supplies in bulk.
'The situation has become polarized. Deficit-ridden hospitals need to try to improve their financial conditions,' he said.