Photo/Illutration Yuji Inoguchi, center, president of the All Japan Hospital Association, and other hospital association presidents speak at a news conference on Jan. 22 about the financial strain on hospitals. (Natsumi Adachi)

Hospitals are facing serious financial difficulties as rising costs of goods and labor put increasing strain on their operations.

A report released on Jan. 31 by the Welfare and Medical Service Agency showed that half of all general hospitals in Japan were operating in the red in fiscal 2023.

The profit margin for medical services, including treatments, was also the lowest since fiscal 2007, when corresponding data became available.

Hospital associations have warned that many institutions are on the verge of bankruptcy and have called on the health ministry for urgent financial support.

“Hospitals nationwide are caught in a game of chicken, waiting for the one next door to go under,” one hospital director said.

The agency’s survey showed that the profit margin for medical services at general hospitals―facilities with at least 20 beds that do not specialize in a particular field, excluding psychiatric hospitals―remained positive until fiscal 2019.

However, that fell to negative 1.1 percent during the COVID-19 pandemic, and further dropped to negative 2.3 percent in fiscal 2023.

During the pandemic, even though the profit margin for medical services was negative, many hospitals remained in the black in terms of operating income due to the government’s COVID-19 subsidies.

However, after the subsidies were cut off in fiscal 2023, their finances deteriorated rapidly.

Five hospital associations―including the Japan Hospital Association, the All Japan Hospital Association and the Association of Japanese Healthcare Corp.―requested financial support from health minister Takamaro Fukuoka on Jan. 22.

“Expenses are rising much faster than the increase in revenue,” Takao Aizawa, president of the Japan Hospital Association, said at a news conference. “If nothing is done, our country’s hospital system will collapse.”

In Japan, fees paid to medical institutions for services are fixed and hospitals cannot add extra charges to cover rising costs, such as the increasing price of goods, at their discretion.

In the 2024 revision of such fees, the portion allocated to health care workers’ wages and related costs increased by 0.88 percent, but hospital representatives have said this is “very low.”

“Private hospitals may soon disappear,” Shigeaki Kano, president of the Association of Japanese Healthcare Corp., said at a news conference.

He urged the government to make changes to the current medical service fees without waiting for the next revision in 2026.

Overall, revenue from medical services has been rising.

However, this is largely due to the increasing use of high-cost medications, such as cancer treatment drugs that cost millions of yen.

These expensive medications also come with high management costs, leaving hospitals with little to no profits.

Hospitals must improve efficiencies to survive. The declining population and other factors are reducing demand for medical services.

As the number of vacant hospital beds increases, costs only continue to rise.

The health ministry has been working to reduce the number of beds to an appropriate level and promote hospital restructuring and specialization.

In the 2024 supplementary budget, the health ministry allocated around 130 billion yen in emergency support for medical institutions.

The funds will be used to assist hospitals that reduce bed capacity or introduce equipment to improve operational efficiency.

However, some point out that individual hospitals can no longer sustain themselves through management efforts alone.

Although bed occupancy rates have recently increased, they have not kept pace with rising labor costs and surging prices of goods.

Hospital management is also burdened by the high expenses of updating electronic medical records, which can cost hundreds of millions of yen.

The government’s push for health care digital transformation is adding further financial strain.

Hospitals across the country are struggling financially, both in urban and rural areas.

(This article was written by Natsumi Adachi and Kazuya Goto.)

Related News