WHY REFORMS SUCCEEDED OR FAILED: POLICY COMPETITION AND REGULATORY ADAPTATION IN JAPAN'S POSTWAR HEALTH POLICY by BENOIT ROUSSEAU LEDUC B.Sc, Universite de Montreal, 1993 M.Sc, Universite de Montreal, 1996 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR IN PHILOSOPHY in THE FACULTY OF GRADUATE STUDIES Department of Political Science We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA October 2002 © Benoit Rousseau Leduc, 2002 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of 'taL' L'e/\L CO. , The University of British Columbia Vancouver, Canada Date DE-6 (2/88) Abstract This dissertation investigates the position that interest groups occupy in the decision• making process of the government of Japan from case studies in the area of health policy. Three important points are demonstrated. First, the medical associations have created strong interdependent linkages to the party in power and have obtained their policy preferences from within the party's decision-making organs. Second, the policy design process in Japan's leading political party, the Liberal Democratic Party, has left little room for the prime minister's initiatives in health care policy. The party has deconcentrated the policy approval process in various councils over which the prime minister has little or no influence. This stands in sharp contrast to the situation prevailing in most parliamentary systems. Third, the thesis demonstrates how the prime minister can, through the design of supra-partisan national councils for reforms, temporarily bypass the normal policymaking channels of the party and enhance its ability to carry out policy adaptation. Two such national councils are investigated: the Nakasone Provisional Council on Administrative Reform (1981-84) and the Hashimoto Administrative Reform Council (1997-98). The temporary national councils are investigated as institutions complementary to the normal policymaking channels of the ministerial and party committees. In the field of health care, the national councils have introduced policy options which had been rejected for years by the medical body and the party in power. The Hashimoto national council, in particular, introduced market- oriented policies that significantly altered Japan's health care system. Three policy areas are investigated: the introduction of principles of information disclosure through the provision of medical files, the creation of transparent price determination mechanisms, and the attempt at reforming the medical fee schedule. These policy changes are seen as a first step toward the introduction of market principles in Japan's service economy. ii Table of Contents Abstract ii Table of contents iii List of tables vi List of figures vii Acknowledgements viii Glossary of Japanese terms ix Chapter 1. Introduction 1 Policymaking channels in Japan's parliamentarism 4 The institutional complementarity of national councils for reform 11 Methodology and Precis of the Study 16 Note on sources 20 Chapter 2. Policy competition and government regulation: Between the constraints of adaptability and long-term commitment 22 The economics of state organization 23 Adaptability and commitments in government regulations 27 Regulatory transactions and their political environment 30 The organization of the state 32 Policy competition mechanisms in conflictive regulatory transactions 36 Policy competition and incrementalism in American presidentialism 41 Executive leadership in French health care policy 44 Policy competition and regulatory adaptation in Japanese national councils 46 Policy competition in Japan's national councils: An overview 50 Conclusion 52 Chapter 3. Interest groups in health care politics 54 Administrative controls and the rise of the Japan Medical Association. 54 Influence of the Central Medical Council on health policies 60 Interest groups and political contributions 65 Historical roots of interest group competition 75 Conclusion 80 Chapter 4. Containing regulatory adaptation in the 1970s: The Liberal Democratic Party versus the Ministry of Finance 81 The entry of the Ministry of Finance in health care politics 82 Reviewing the Health care for the Elderly Law First movement on reform: LDP veto 88 Second movement toward elderly health care reform: Renewed LDP veto 91 Third movement on elderly health care reform: Administrative objection and deliberation council's rejection 94 Fourth movement on elderly health care reform: Administrative initiative and the role of deliberation councils 97 Conclusion 99 Chapter 5. National Council Decision-making in the 1980s: Small government or the shifting of costs to Insurance Societies? 101 Brain trust decision-making and the Nakasone administration 101 Health care reforms under the Nakasone national council: An overview 108 Reforming the National Insurance: Proposals to create the Retiree Health Care Insurance 114 The political imperative to increase workers' contributions to elderly care 116 Restoring government financial responsibility in welfare 124 Conclusion: The organizational strength of the national council 127 Chapter 6. Policy Competition in the 1990s: Bureaucracies and policy experts in market-oriented reforms 134 The organizational strength of the Administrative Reform Council . 135 The impact of the Administrative Reform Council 138 Origins of Hashimoto's reform policies 140 Economic planners in market-oriented health policies.... 143 Executive appeal for reform 150 The Ministry of Finance in health care reforms 152 Origins of reforms in the Ministry of Health and Welfare 153 Impetus from the Administrative Reform Council 156 Conclusion 157 Chapter 7. Reforming the medicine pricing system 160 Medicine prices determination mechanisms 160 Policy competition on medicine pricing systems 165 Attempt to re-institutionalize the decision-making process 168 Physicians-LDP decision-making 170 Reformist alliance and final outcome from the Central Medical Council 174 Conclusion 176 Chapter 8. Information disclosure: Patient right or mechanism of market competition? 178 Historical sources of medical supervision 180 Kenporen demands and media pressure on the MHW 181 MHW guidance and opposition to reform 185 Insurers supervision on medical institutions 186 Increasing patient control over health care through information disclosure 189 Patient files: the influence of the Medical Association 193 Publicity rules 197 Evaluation mechanisms 201 Conclusion 202 Chapter 9. Reforming doctor's taxation and fee schedule system 204 The fee schedule in perspective 205 The creation and elimination of the preferential tax treatment 206 Tax reforms and the influence of the Ministry of Finance 208 Eliminating doctor abuses: Attempts to reform the medical fee schedule 211 Pressures from the Ministry of Finance to reform the fee schedule 212 LDP opposition and partial adoption of a comprehensive system 215 Minor changes in the fee schedule system 219 Re-institutionalization of the reform process under the Reform Council 222 Coalition change and JMA control 226 Economic planners in contractual and profit-oriented services 228 Conclusion 230 Chapter 10. Conclusive remarks: The institutional complementarity of policy competition mechanisms 232 Health care reforms: The impact of vertical committees versus national councils 232 National councils as complementary institutions 238 The suitability of national councils for specific regulatory transactions 239 The role of policy competition mechanisms in regulatory adaptation 241 Appendix 1: A game-theoretical interpretation of policy-making in Japan 243 List of interviews 258 Bibliography. 259 List of tables. Table 1. Regulatory safeguards and the organization of political interests 31 Table 2. Advantages and disadvantages of two types of public institutions of governance 35 Table 3. Political Interests in Health Care Regulations 37 Table 4. Main decision-making bodies in health policy. Japan and Germany... 62 Table 5. Five main official contributors to the LDP. 1998 68 Table 6. Total political contributions from major health care related interest groups 69 Table 7. Targeted political contributions of the Japan Medical Association and the National Federation of Health Insurance Societies-1999- 70 Table 8. Top ten contributions from the Japan Medical League to political organizations 71 Table 9. Factional strength and zoku members in six fields (1986) 73 Table 10. 1999-2000 Faction membership and Health care related LDP representatives 74 Table 11. Employment transition in Japan 1960-1996 144 Table 12. Employment development 1992-2010 146 Table 13. Average number of medicines per prescription in three countries 163 Table 14. Drug costs in proportion to the total cost of healthcare in five economies (% 1993) 164 Table 15. Information disclosure regulations in selected countries 195 Table 16. Health care publicity regulation in four economies 200 Table 17. Policy commitments under the ministerial and the party committee structures 233 Table 18. Regulatory adaptation under national