Japan 2019-2020 Hospital Insights Survey - Special Report - LEK Consulting
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Special Report Japan 2019-2020 Hospital Insights Survey
Contents
Summary................................................................. 2
Pressures on Japan’s healthcare delivery system......... 3
Evolving customer priorities and a shifting
purchase process..................................................... 5
How medtech companies should go to market
now........................................................................ 9
About the authors................................................. 10
About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry
expertise and rigorous analysis to help business leaders achieve practical results
with real impact. We are uncompromising in our approach to helping clients
consistently make better decisions, deliver improved business performance and
create greater shareholder returns. The firm advises and supports global companies
that are leaders in their industries — including the largest private- and public-
sector organizations, private equity firms, and emerging entrepreneurial businesses.
Founded in 1983, L.E.K. employs more than 1,600 professionals across the
Americas, Asia-Pacific and Europe.
For more information, go to www.lek.com.
1
Summary
L.E.K. Consulting recently surveyed 70 decision-makers at especially around customer needs and engagement
hospitals in Japan to gain insight into how their strategic priorities preferences, which differ significantly across hospitals
and purchasing behaviors are shifting, as well as to identify
• Move away from a one-size-fits-all high-touch, rep-driven
any resulting opportunities — and imperatives — for medtech
go-to-market model that treats all hospitals the same; rather,
manufacturers going forward. The effort was part of a broader
allocate investments and resources to accounts that will drive
hospital survey conducted across the Asia-Pacific region; we
the greatest returns and develop go-to-market models that
carried out parallel surveys in the U.S. and Europe as well.
are most relevant to the needs and preferences of different
As the results of our survey make clear, hospitals in Japan are customer segments
looking to decrease and/or redeploy acute bed capacity in the face • Embark on the internal changes that are typically necessary to
of growing financial pressures and a widening range of new and support transformative go-to-market change, whether they
unfamiliar operating conditions. In the meantime, the influence are organizational or cultural, including acquiring new skills
that hospital management and value chain intermediaries have and capabilities
over purchasing decisions is on the rise, and many hospitals are
seeking closer, differentiated partnerships with device-makers, Transformative go-to-market change of this nature can be both
some of which may involve the device-makers themselves sharing costly and challenging to execute. However, such initiatives
economic risk or offering proprietary deals. should be seen as the price of market relevancy and leadership.
Medtech companies that cling to the past and see only risk in go-
With that in mind, we recommend that medtech manufacturers to-market change leave themselves vulnerable to being disrupted
serving the Japanese market revamp how they go to market and by early movers.
do the following:
For further information on this Special Report and its findings,
• Take a refined approach to customer segmentation by please contact lifesciences@lek.com.
basing it on a deep understanding of purchasing behaviors,
2
Pressures on Japan’s healthcare delivery system
The sustainability of operations at Japanese hospitals (i.e., but just one-third of the population. For many hospitals, the
medtech manufacturers’ customers) has come under pressure as resulting low, unpredictable patient volumes lead to operational
a result of broader financial challenges to the country’s healthcare inefficiencies and — given how difficult it is to achieve procedural
system. The primary challenge is Japan’s demographic situation. It mastery in light of such low patient volumes — make variable
is already the world’s “oldest” nation, and the decline and aging clinical outcomes likely. The country’s delivery system is ripe for
of Japan’s population are only going to accelerate over the coming reform, and such change is all the more urgent given the financial
decades. Japan’s demographic challenges are being compounded challenges it is facing.
by a rise in public indebtedness and slow economic growth. So
while the country’s healthcare expenditure is expected to grow Meanwhile, Japan lacks sufficient capacity in nonacute settings,
rapidly in the coming years, its ability to pay for this growing which often results in chronic and/or elderly patients being cared
expenditure is increasingly compromised. (See Figure 1.) for in high-cost acute settings. The result is that, in the face of
increasing cost pressure, the country is not well equipped to
Japan’s delivery system is plagued by overcapacity in the acute manage the needs of a rapidly aging population. Yet given the
setting and as such is inefficient and ill suited to the demographic broader financial pressures facing the system, the ability and
profile of the country. The delivery system is also notoriously willingness of the government to prop up the delivery system as it
fragmented — the country has more hospitals than the U.S.
Figure 1
Forecasted healthcare expenditure in Japan (2015-2040F)
Healthcare payout forecast* Healthcare payout as % of GDP
(2015-2040F) (2015-2040F)
Trillion JPY Percent
12 12
105 Forecast 12
11
95
10
85
9
84 25
9
75 9
22
65
18
63
55 15
6
47 12
42 9
70
63
57
50 3
21 43 Total payout
38 as % of GDP
Long-term care payout
Healthcare payout
0 0
2015 2020F 2025F 2030F 2035F 2040F
*Healthcare payout represents government spending on healthcare and is not equivalent to the total national healthcare expenditure
Source: Ministry of Health, Labour, and Welfare; Nippon Institute for Research Advancement; L.E.K. research and analysis
3currently stands are flagging; instead, the government is trying to sizing their acute-care capacity — while pivoting away from acute
both reduce and redeploy capacity. (See Figure 2.) care to other care facilities. Facilities that fail to streamline and
redefine themselves face the prospect of bankruptcy and/or being
Hospitals are subsequently faced with a monumental task: forced to merge with more sustainable hospitals. (See Figure 3.)
improving the efficiency of their operations — including right-
Figure 2
Current number of hospital beds and government targets by 2025
Current number* of beds vs. goal of consolidation, by functional type
(2015-2017, 2025)
CAGR%
Thousands of beds
(2015-2017) (2017-2025)
1,400
1,251 1,248 1,246 Total (0.2) (1.0)
169 (14%) 170 (14%) 163 (13%) 1,148
1,050 130 (11%) Critical (1.9) (2.8)
596 (48%) 584 (47%) 582 (47%) 401 (35%) Acute (1.2) (4.6)
700
130 (10%) 139 (11%) 152 (12%) 375 (33%) Rehabilitation 7.9 12
350
355 (28%) 354 (28%) 349 (28%)
242 (21%) Chronic (0.8) (4.5)
0
2015 2016 2017 2025 target
*The number of beds is from MHLW survey results of over 7,000 hospitals and 6,700 clinics that are required to report the number of beds by functional category;
the data therefore may not be a full representation of hospital beds in Japan
Source: The Ministry of Finance; MHLW; Nikkei; L.E.K. interviews, research and analysis
Figure 3
Profitability of hospitals in Japan (2013-2017) and outlook for the future (2019-2021)
Proportion of hospitals with positive net profit,* by type** Budget forecast over the next three years
(2013-2017) (2019)
Percent Percent of respondents (N=42)
100 100
18% Do not know/prefer not to disclose
Reimbursement Percentage
80 revision year Point Change 80
(2014-2017) 18% Surplus/profitable
68%
60 Private 15.2 60
31% Balanced/no profit
40 40
3%
20 20
29% 33% Deficit/loss
Public 2.5
0 0
2013 2014 2015 2016 2017 Public Private
(N=31) (N=39)
*Results are derived from surveys and are not a reflection of all hospitals in Japan; subsidies received are removed from the calculation of net profit
**Public hospitals include national and municipal hospitals, privates include medical corporations, and Semipublics include hospitals such as Nisseki and Saiseikai
Source: Japan Hospital Association; MHLW; L.E.K. research and analysis
4Evolving customer priorities and a shifting purchase process
According to the results of our survey, hospitals in Japan are Figure 4
responding to these pressures in a number of ways, notably by: Planned reduction and redeployment of hospital beds in Japan
• Rethinking their strategic priorities Change in proportion of acute beds Estimation of how
in the next 5 years* beds will be reallocated**
• Shifting the relative influence of stakeholders involved in (2019) (2019)
Percent of respondents (N=70) Percent of former acute beds (N=27)
purchasing, most often away from clinical decision-makers
100 1% 100
and toward economic decision-makers 4%
6%
• Shifting their purchase criteria 1% More than 20%
80 increase 80
• Using intermediaries for purchasing 10%-20% increase 55% Redeployed
5%-10% increase
• Opening up to new ways of working with device companies 60
49%
60
2%-5% increase
In many hospitals, the prominence of economic decision-makers is 1%-2% increase
increasing and a growing emphasis is being placed on economic No change
40 40
6% 1%-2% decrease
imperatives vs. clinical considerations, in terms of overall strategic
7% 2%-5% decrease
priorities as well as how purchases are being made. Hospitals
9% 5%-10% decrease 45% Retired
in Japan are also putting a strategic focus on reducing and 20 20
10%-20% decrease
redeploying capacity; nearly half of the hospitals we surveyed 13% More than 20%
expect to see declines in bed numbers. While many of these 0 4% decrease 0
beds will be retired, a meaningful proportion will be deployed to
subacute and longer-term settings. (See Figure 4.) Such efforts are *Question: Please estimate the percentage point change in your estimated
proportion of acute beds in your hospital in the next five years.
being accelerated by government policies designed to enhance
**Question: Please estimate the allocation of how these beds would be retired or
differentiated, community-based care. redeployed (only for respondents who believe hospitals will decrease in bed count for
acute patients).
In the meantime, the influence of economic stakeholders is Source: L.E.K. APAC Hospital Insights Survey 2019
becoming more marked across device types. In the past, the input
of administrators was given little credence when it came to decision- many device categories, save the most innovative ones (highly novel
making for anything except commoditized devices. Now, in certain valve repair and replacement devices, cellular therapies, etc.), where
institutions, administrators are becoming highly influential across clinician primacy still generally prevails. (See Figure 5.)
Figure 5
Shifting importance of hospital decision-makers
Changing degree of influence of key decision-makers
over purchasing decisions*
(2019)
Percent of respondents selecting an increasing influence (N=70)
Hospital management
4% 11% 10% 25%
(e.g., C-suite, VP, director)
Clinical department heads 3% 6% 19% 28%
Procurement department 4% 24% 28%
Clinical staff (i.e., nondepartment heads) 1% 1% 14% 16%
0 10 20 30
1 = losing influence 4 = no change 5 = increasing influence 6 = increasing influence 7 = gaining influence
*To what degree is the influence of hospital administrators, clinical department heads and clinical staff (nondepartment heads) changing with regard to purchasing
decisions for medical products and services in your hospital? (1 = losing influence, 4 = no change, 7 = gaining influence)
Source: L.E.K. APAC Hospital Insights Survey 2019
5According to our survey, when evaluating device purchases, Our survey results also make it clear that hospitals in Japan
including high-value implantables, economic considerations and are increasingly using intermediaries such as group purchasing
standardization are growing in importance. Again, this is not true in organizations (GPOs) to build scale in purchasing, resulting in
highly innovative, novel devices, where clinical considerations and pricing pressures on manufacturers. Approximately half of the
clinician influence are likely to remain paramount. (See Figure 6.) hospitals in Japan belong to at least one GPO. (See Figure 7.)
Figure 6
Hospital purchasing standardization and criteria in Japan
Degree of purchasing standardization within hospitals Top three most important criteria when
(2019) purchasing from a medtech company
Percent of respondents (N=70) (2019)
Percent of respondents (N=70)
100
5%
Help us improve the efficiency of our medical staff 50%
8%
Help us improve the quality of care and patient satisfaction 41%
80 11%
Help us improve diagnosis cost, accuracy and patient
satisfaction 37%
Provide tools and solutions that will help us reduce the 36%
60 31% total cost of our operations
Help us meet required standards, regulations and guidelines 30%
Not at all standardized Provide the best medical equipment and products 27%
40
2 Help us optimize revenue cycle management 26%
28% 3 Provide the latest innovations to significantly improve the
delivery of care 24% Clinical-oriented
20 4 criteria
Improve clinical decisions and patient outcomes by increasing
5 21%
12% the accuracy of diagnosis results Cost- and
6 efficiency-oriented
Provide tools and solutions to optimize resources and 7%
0 5% 7 — Highly standardized increase efficiency of processes criteria
0 10 20 30 40 50
**Question: Please indicate the extent to which you agree or disagree with the following statements regarding your hospital’s relationship with its medtech suppliers.
Source: L.E.K. APAC Hospital Insights Survey 2019
Figure 7
GPO affiliation rates and purpose of joining GPOs in Japan
Number of GPOs that hospitals belong to* Key features of GPO contracts**
(2019) (2019)
Percent of respondents (N=70) Percent of respondents (N=34)
70 31 39
100 100
80 45% 80
51% 56% 71%
60 60
47%
40 40
39%
34%
31%
None
20 1 20
3% 12% 12%
6% 8% 2
9% 13%
5% 3 or more
0 0
Overall Private Public Aggregation of Preferred Exclusivity Limited selection
purchasing volume supplier list (cannot join of brands
with other members other GPOs)
to achieve discounts
*Question: How many GPOs does your hospital belong to? (only for hospitals in Japan and Korea)
**Question: What are the key features of the GPO contract(s)?
Source: L.E.K. survey analysis
6We are also seeing an increasing openness to novel, economically Where the rate of change seems surprisingly muted from an
focused value propositions such as deals and risk-sharing outside-in perspective is around the introduction of digital solutions
agreements, which entail economic wins for both companies and to enhance efficiency and extend nonspecialist capacity. Electronic
their customers. (See Figure 8.) health records (EHRs), for example, show low penetration, with only
modest growth anticipated going forward. (See Figure 9.)
Figure 8
Hospitals’ opinions on relationships with external service providers and medtech companies in Japan
Likelihood of working with an external service provider* Ideal relationship with medtech companies^
(2019) (2019)
Percent of respondents (N=56)** Percent of respondents (N=56)**
100 2% 3% When it comes to working with medtechs,
9% 3% 11% 5%
9% 9% we want partners who can help us achieve 33% 31% 100%
2% 15%
6% our goals, not just provide us with products
80 18%
35% Medtechs can provide valuable services, 5%
21% 2%
solutions and support beyond 5% 34% 40% 100%
20% their products 14%
60 0%
When it comes to working with medtechs,
17% 3% 3%
1 — Not at all likely we just want to get the products we need 19% 34% 23% 100%
40 and are not looking for a deeper relationship 2% 16%
45% 2
43% 3
Medtechs are not well suited to 5%
4 provide services, solutions or support 29% 42% 14% 100%
20 39% 7%
5 beyond their products 3%
9% 6
5%
4% 6% 7 — Very likely 0 10 20 30 40 50 60 70 80 90 100
0
Overall Public Private
(N=33) (N=23) 1 — Strongly disagree 2 3 4 5 6 7 — Strongly agree
*Question: How likely is your hospital to work with external product suppliers/service providers/partners to help address your key needs/priorities?
Fourteen respondents responding “I do not know” have been excluded. **Question: Please indicate the extent to which you agree or disagree with the following statements
regarding your hospital’s relationship with its medtech suppliers (with 1 = strongly disagree and 7 = strongly agree).
Source: L.E.K. survey, interviews and analysis
Figure 9
Penetration of EHR systems and future outlook of adoption in Japan, China and South Korea
Current penetration of EHRs Average penetration and planned change in penetration of
(2019) EHRs in Japan — shown by hospital type
Average penetration (2019)
99% Percent of respondents (N=70)
100 96%
Private hospitals (N=39) Public hospitals (N=31)
85%
80% 79% 100
80
80
52%
60 Stay the same 66% Stay the same
60 56%
40 35% 40%
40
32%
Increase slightly Increase slightly
20 20 31%
Increase Increase
16% significantly
3% significantly
0 0
U.K. U.S. China France South Japan Current Expected Current Expected
Korea penetration change in penetration change in
penetration penetration
*Question: What is the penetration of EHRs in your hospital? **Question: How do you expect EHR penetration to change in the next three years?
Source: ASCII; HHS; OECD; L.E.K. 2019 APAC Hospital Priority Survey
7Telemedicine is also proving slow to take off, partly due to or economic purchasers, in which administrative stakeholders
challenges around reimbursability. (See Figure 10.) are highly influential in purchase decisions — even for high-
value implantables — and purchases are driven by economic
As the data suggests, there are significant differences considerations. In the past, we observed more homogenous
in purchase behaviors across hospitals in Japan. A large purchasing behavior largely driven by clinical decision-makers and
proportion of hospitals can now be classified as transactional clinical purchase criteria.
Figure 10
Current and prospective adoption rates of telemedicine in Japan
Current and planned adoption of telemedicine — Current and planned adoption of telemedicine —
shown by hospital type* shown by geography**
(2019) (2019)
Percent of respondents (N=70) Percent of respondents (N=70)
100 100
80 80
No plans 53% No plans
57% 60% 60% 61%
71% 70%
60 60
40 40
26% Plan to use
29% 20%
27% 28% 15%
20 23% Plan to use 20
21% Currently use 20%
Currently use 14% 13% 11% 15%
6%
0 0
Private Public Chugoku, Hokkaido, Kansai Chubu, Kanto Tokyo
(N=31) (N=39) Shikoku, Tohoku (N=15) area other (N=13)
Kyuushu, (N=10) than Tokyo
Okinawa (N=18)
(N=14)
*Question: Does your hospital/hospital group currently use telemedicine or telehealth (e.g., remote consultation, remote follow-up)? **Question: Do you intend on testing
aspects of telemedicine (or telehealth) in your hospital’s healthcare delivery system?
Source: L.E.K. 2019 APAC Hospital Priority Survey
8How medtech companies should go to market now
As our survey findings reveal, for device manufacturers, the old way the go-to-market model and ongoing management of the
of doing things — an exclusively high-touch, clinician-focused sales revamped organization?
model covering the full universe of customers — no longer makes • What cultural change might we need to implement? What
sense. A new go-to-market approach that better aligns with the adversity do we envision necessitating greater collaboration
realities of the market is necessary. across businesses, greater use of data in decision-making and
resource allocation, and a general acceptance that the world is
Such an approach must start with a detailed understanding of
changing and the company needs to change accordingly?
customer purchase behaviors: who the relevant stakeholders are,
how they make purchase decisions, and what their needs and Finally, medtech companies need to evaluate their go-to-market
engagement preferences are as they move through the process. model by the types of accounts they currently have — and those
This understanding should inform a behavior-driven segmentation, they want to have. Notably:
which should, in turn, inform how companies address each
segment. That includes the channel(s) they use to engage, the • For very small accounts, device-makers should reconsider
content they communicate, how they transact, how they fulfill and the economic rationale for a sales rep-led model and explore
their overall value proposition. whether their sales resources would be better invested in
higher-value accounts, as well as whether requisite servicing
When it comes to serving the Japanese market, medtech levels could be achieved by less resource-intensive sales models,
companies should ask themselves the following questions: such as remote detailing.
• For economically driven accounts, device manufacturers should
• How are our accounts actually purchasing? How would they
assess which stakeholders within these accounts they should be
like to purchase?
targeting and what value propositions they should be delivering
• Which accounts are increasingly economic purchasers? Which
to them. That does not necessarily mean competing solely on
ones remain clinically driven? How does this differ across our
price; manufacturers should offer win-win propositions that
product portfolio?
enable them to gain substantial share and embed themselves
• How valuable or potentially valuable is each of our accounts? in accounts (e.g., through deals and risk-sharing models) while
Which accounts drive disproportionate value to our business? generating meaningful value for their customers.
Which accounts are of marginal value?
• For very large economically driven accounts, they should look
• What segmentation can we discern by characterizing accounts for opportunities to propose enterprisewide deals that enable
along the two axes of purchase behavior and value? substantial market share gains while at the same time locking
• How should we configure our go-to-market model to better out any competitors. (See Figure 11.)
suit our customers’ needs and preferences? How could we
Figure 11
do so by using sales models that are more efficient than the
Approaches and key considerations for go-to-market change
traditional high-touch model? How should we reallocate
for medtechs in Japan under current trends
commercial resources to more rationally reflect the distribution
Go-to-market process
of value in the marketplace?
Characterize, segment and prioritize accounts
Medtech companies should also think about how to put in place 1
Tailor go-to-market models to segments’ needs and preferences
an organization that is ready to deliver the envisioned go-to-market 2
Determine appropriate resourcing, including for new engagement models
model. Questions they should consider include:
3 (e.g., remote detailing)
• How should we redesign the organization to enable the 4
Specify the organizational change, value chain redesign imperatives and
capability/skill upgrades required to enable the proposed go-to-market model
envisioned go-to-market model? What might we need to
5 Plan the change initiative required to introduce the new go-to-market model
separate? What might we need to combine? How will we
redesign incentives?
The nature and degree of change required are significant, especially
• How might we need to change the nature of our relationships
in large, complex and often highly siloed device companies.
with value chain partners such as dealers to enable the new
Nevertheless, companies that stand still risk becoming increasingly
model?
irrelevant in the eyes of the stakeholders who drive purchasing
• What new skills may be required to engage with economic decisions. In the meantime, medtech companies that fail to embark
stakeholders, put together economic value propositions, etc.? on this change risk being disrupted by more forward-thinking
• What new capabilities will we need, especially around the competitors that are already thinking strategically about — and are
aggregation and analysis of data, to drive the redesign of bold enough to revamp — the way they go to market.
9About the Authors
Patrick Branch
Partner
Patrick Branch is a Partner in L.E.K. Consulting’s Tokyo office and a member of the firm’s Life Sciences
practice. He works with businesses and investors in the biopharmaceutical, medical device and broader
healthcare sectors. He advises clients on a range of topics, including commercial strategy, corporate and
business unit strategy, pricing and market access, and M&A.
Sam Wilson
Principal
Sam Wilson is a Principal based in L.E.K. Consulting’s Tokyo office. He joined L.E.K. in 2008 and has worked
in the Sydney, Melbourne, Auckland and Los Angeles offices. Sam brings extensive experience in assisting
organizations with strategic and opportunity assessments, including market entry strategies. His experience
includes advice to the healthcare, medical technology and life sciences sectors.
Luke Mills
Senior Associate Consultant
Luke Mills is a Senior Associate Consultant in L.E.K. Consulting’s Tokyo office. Luke works with clients in the
biopharmaceutical and medical device sectors on a range of topics including pricing and market access and
go-to-market strategy.
10L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners. © 2020 L.E.K. Consulting LLC. All rights reserved.
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