論文ID: CJ-22-0412
The first percutaneous coronary intervention (PCI) was performed in September 1977, and after 1980 this minimally invasive treatment was established in Japan. To deliver this treatment to a larger population, a number of cardiovascular clinics emerged across the country in the 2000s, and the number of PCI cases performed has been steadily increasing, to >250,000 cases per year. In the early 2000s, a single catheterization unit was profitable, if it performed a certain number of treatments and was adequately staffed without excessive capital investment. In the late 1990s, the price of a balloon catheter medical device used for PCI was approximately JPY300,000, although the price was reduced to JPY32,000, almost one-tenth in price, in the April 2022 revision of the National Health Insurance. The reimbursement of the mainstream drug-eluting stent has also decreased from JPY421,000, when it was first introduced, to JPY136,000 currently. In addition, the consumption tax and reforms in working hours will have a major impact on clinic management. We present a history of cardiovascular clinics in Japan and their present and future positions under the variable external environment.
The first case of percutaneous coronary intervention (PCI) was performed in Zurich, Switzerland, in September 1977, by Andreas Gruentzig, and by 1980 had became widespread in Japan.1 This minimally invasive procedure is currently performed at more than 1,500 hospitals nationwide,2 with the top 20 facilities performing 10% of the total PCI load.
In the first half of the 2000s, a single catheterization laboratory in a hospital performing hundreds of PCIs was profitable if managed with appropriate personnel and without excessive capital investment, as funding was largely obtained by margins derived from the profits on medical devices and drugs in addition to medical fees.
In the late 1990s, the reimbursement of the balloon catheters used for PCI was between JPY250,000 and 300,000, but in the March 2022 revision of the National Health Insurance (NHI), it was reduced to JPY32,000, almost one-tenth in price. The price of drug-eluting stents (DES), which are now routine practice, has reduced from JPY421,000 when first introduced to JPY136,000.3,4 In addition, an increase in the consumption tax is putting considerable pressure on the management of cardiovascular clinic, and restrictions on overtime work for employees, particularly medical professionals, under work system reforms will have a major impact on clinic management.
We discuss the history of the inception and development of cardiovascular clinics that specialize in the treatment of cardiovascular diseases across Japan since the early 2000s. We also present options available for the management of these cardiovascular clinics in the current environment and discuss issues they will face in the future.
Although it is not certain whether the first PCI procedure performed in Japan was in 1980 or 1981, it is recognized that Dr. Masakiyo Nobuyoshi of the Kokura Memorial Hospital made a significant contribution to the development of this innovative treatment. Before PCI became an established technique, many cardiologists from all over Japan came to the Kokura Memorial Hospital to learn this revolutionary treatment and used the experience gained to improve their clinical practice.
As an indicator of this expansion, the number of cases performed in hospitals increased, as did the number of patients willing to undergo PCI; however, in general hospitals the number of beds assigned to the department of cardiology was so limited that some hospitals were unable to provide adequate medical care to patients with cardiovascular diseases.
Before the introduction of coronary stents, the restenosis rate was as high as 30–50%5 and the repeat PCI rate was also high, so the revenue generated by departments of cardiology became central to hospital profits. At that time, ≥2 balloon catheters were often used, and other medical devices such as sheath introducers, diagnostic guidewires, guiding catheters, and steerable guidewires were required to treat patients. Because the PCI procedure fee was approximately JPY180,000 per case, the large profit margin between the purchase price and insurance reimbursement provided greater revenue than that derived from the medical fee charged per PCI procedure.
From the 1990s to the early 2000s, the PCI industry entered a period of growth, with new devices appearing on the market. An increasing number of foreign manufacturers were offering medical devices for use in PCI procedures in Japan, and domestic manufacturers were also successfully developing devices. This led to a reduction in the costs from the manufacturer to the distributor and then to the hospital, allowing each market player to earn significant revenue.
In the early days of PCI, the price from the manufacturer to the distributor was 85–95% of the NHI reimbursement price, and the price from the distributor to the hospital was 95–99% of its price. However, with the introduction of coronary stents and increased competition as more manufacturers entered the stent market, market prices have currently dropped to less than 50%.
At the same time, the number of PCI cases increased, while the number of cardiologists treating patients on the frontline of clinical practice decreased. Driven by a sense of duty, these cardiologists established a 24/7 system, but the chronic shortage of manpower exhausted the catheterization field. In addition, only a limited number of cardiologists could perform PCI at that time due to the availability of medical devices and adequate training.
Cardiovascular clinics specializing in PCI were opened by local cardiologists all over Japan, represented by the Toyohashi Heart Center, which opened in May 1999 as a 19-bed clinic and operated by full-time cardiologists, co-medical staff, and medical administration staff. The cardiologists had been at the forefront of clinical practice for many years, as PCI was performed by only a few cardiologists, so most patients attended the cardiovascular clinic set up by their cardiologist.
PCI generates average sales of JPY1.4–2.2 million per case,6 so a clinic performing 300 cases per year would make JPY420–660 million. As the number of hospitals performing PCI was limited in the early 2000s, the number of cases per clinic inevitably increased, and it did not take long for cardiologists to repay their establishment costs. The shortage of working capital between the payment of monthly expenses, such as materials, labor, and utilities, and the receipt of cash from insurance payers, which was a problem in the early days of the clinics, began to improve after 1–2 years of operation. As a result, more clinics became profitable.
With the introduction of clinical management, it became easier to recruit a PCI workforce, with cardiovascular clinics attracting young cardiologists who wanted to gain experience in PCI, crossing the boundaries of medical schools. The main focus was on preventing restenosis, and new medical devices such as coronary stents and atherectomy devices were introduced. European and American manufacturers, who dealt with medical devices supported by high reimbursement prices, welcomed the increase in the number of cardiovascular clinics in Japan and established local branches to sell their products directly in an aggressive penetration of the Japanese market.
It is important to understand the Japanese distribution system of medical devices used for PCI. Figure 1 illustrates the business structure or supply chain of the industry during this period.
Supply chain in the cardiovascular field: the medical device manufacturer, which sells the device to a trading company or its Japanese branch, which delivers it to the cardiovascular clinic through the primary and secondary distributors, and it is finally selected by the cardiologist to treat the patient with heart disease. The cost of the device is reimbursed by the National Health Insurance.
For example, major coronary stent manufacturers are foreign companies, with the exception of a domestic supplier that mainly imports its medical device from the USA to Japan. The Japanese branch of the foreign manufacturer or trading company sells the medical device to the cardiologist in the cardiovascular clinic through its sales representative, encouraging the use of its stents. Once the medical device is approved commercially, the sales representative informs the primary or secondary distributor that delivers the medical device to the cardiovascular clinic. The cardiologist uses the medical device to treat patient with heart disease and is then reimbursed by the NHI.
In 2004, the Cypher sirolimus-eluting stent was approved in Japan.7 This DES suppressed restenosis and was widely covered by the media, giving cardiologists performing PCI the opportunity to appear in the media. Furthermore, the number of periodicals such as “A Good Hospital as Evidenced by the Number of Surgery”8 and “Hospital Capacity”,9 which evaluated the quality of clinics and hospitals based on the number of cases, also increased. Due to increased media exposure, patients’ expectations rose and survival was anticipated for procedures performed in hospitals and clinics with the highest number of cases, prompting some patients to travel across prefectures to receive treatment.
In the early-mid 2000s, cardiologists established cardiovascular clinics near the hospitals where they had been working for many years. However, the advent of the Internet and social networking services allowed them to establish clinics in areas with a shortage of catheterization hospitals and gain recognition for the services provided, irrespective of the location of their previous practice. Throughout the 2000s, the external environment encouraged the development of specialized cardiovascular clinics.
Each prefecture calculated the number of beds required in their region using a nationally standardized formula, and in areas where the “number of existing beds” exceeded the “standard number of beds” (i.e., areas with an excess of beds), the opening or expansion of hospitals was not permitted.10
Price revision of pharmaceutical drugs and medical devices is carried out biennially in Japan to reduce public health spending by reflecting the prevailing market prices in a timely manner. A survey of NHI prices has also been conducted for all items in the interim year; based on the results, prices are revised for items with large deviations between the market and reimbursement prices.11 The reimbursement of DES, which was JPY421,000 in 2004 fell by nearly 70% to JPY132,000 in 2022, and the burden was shared by those involved in product distribution. The revenue of cardiovascular clinics is heavily affected by reimbursement and reimbursement margins, and increases in the number of cases were implemented in response to the decline in reimbursement prices.
At the same time, the media became increasingly critical of the implementation of unnecessary treatment for lesions and vessels and the over-expansion of indications (in relation to referrals for PCI). In 2009, a hospital in Nara Prefecture falsely claimed to have performed cardiac catheterization and stenting procedures in a number of cases, while hospital staff visited patients at home to solicit treatment consent admission from welfare recipients. This case represents the worst instance of unnecessary catheterization procedures, with some cases resulting in patient death.12
In 2006, a cardiologist in Hokkaido tried to restructure a cardiovascular clinic under the Civil Rehabilitation Law,13 but failed to reform it. Clinics in Gunma prefecture14 and Tokyo15 also filed for civil rehabilitation in 2018 and 2019, respectively. Other clinics or hospitals specializing in cardiovascular diseases were established across the country, forcing cardiovascular clinics to restructure their entire mode of operation.
Significant changes have occurred in the 40 years since the introduction of PCI in Japan. A remarkable technological revolution occurred between the mid-1980s and mid-2000s, with the introduction of a number of new devices; however, since the introduction of DES, there have been no significant changes in the medical device industry.
Because the industry survives on the margins of medical devices, without new innovative devices this ecology tends to fail, and some small local distributors that emerged between distributors, hospitals, and clinics during the growth and maturation phases have disappeared from the market. Figure 2 shows the transformation of the cardiovascular community along with the history of PCI and the changes in the external environment.16–18 It shows that the number of PCI cases in Japan is slowing and new cardiovascular clinics are no longer being opened while the market continues to shrink.
Transformation of cardiovascular clinics alongside the history of percutaneous coronary intervention (PCI) and changes in the external environment. The first row shows the evolution of stents, the following 4 rows show changes in the external environment by era, divided into politics, economy, society, and technology. In the graph, the blue line is the PCI-related medical device market,17 the red line shows the annual PCI case volumes in Japan,16 and the gray bars are the cumulative number of cardiovascular clinics.18
There are 3 options for the management of cardiovascular clinics under these circumstances: (1) adapt to the external environment, (2) sell the clinic, or (3) close the business.
Should business conditions and the external environment deteriorate, the management of the clinic must fulfill managerial responsibilities or risk insolvency or bankruptcy.
The 7-S for Growth: How the External Environment Leads to TransformationChanges in the external environment require cardiovascular clinics to redefine their management policies and pursue reform in line with current trends.
For restructuring in response to changes in the external environment, it is necessary to analyze the internal organization using McKinsey’s 7-S framework, which is a research tool that takes into account the multidimensionality of an organization, at the level of the organization, team, and individual.19,20 There are 7 elements: Strategy, Structure, Staff, Style, Skills, System, and Shared Values.
Key Success Factors and Role of the 7-S in the Startup PhaseThe external environment in the 2000s was characterized by innovation, with the introduction of new treatment techniques and medical devices. The key success factor (KSF) for cardiovascular clinics in this era was simple: increasing the number of PCI cases.
The 7-S framework can be retroactively applied. During this time, cardiologists in general hospitals dissatisfied with the status quo reached out to others within the profession who shared their aspirations and values, seeking to provide optimal medical care for the greatest number of patients with cardiovascular disease. The “ Strategy” to increase the number of PCI cases, according to the KSF, was possible due to their well-established cardiology practice, which allowed them to establish their own clinics and transfer their patients from the care of the hospital to the clinic. At that time, cardiovascular clinics were rare and often featured only in a periodical named “A Good Hospital, as Evidenced by the Number of Surgery”.8
The organizational “Structure” at this time was equivalent to that of a small company with only few positions, such as President, Vice President, Administrative Director, and Director of Nursing, but no departments, and a flat organizational structure under the President. The organizational “System”, including promotions and salary increases, comprised staff members who understood each other and believed that perseverance would be rewarded in the future.
Most of the “Staff” had worked together at the previous hospital and were all familiar with each other’s “Skills”. The management “Style” that became the organizational culture was based on a group of people who were willing to work 24/7 to achieve success for the clinic. Growth of PCI clinics in the initial stages was significant because all the factors were aligned in the 7-S, with the external environment and the ability to increase the number of cases in line with the KSF.
KSFs in a Stagnant MarketAdaptation to the changing external environment requires an understanding of the KSFs in an area of practice and reform of the internal environment (the 7-S) of the organization to satisfy these external conditions. The KSF of increasing the number of PCI cases no longer applies to the current context in which medical devices and drug prices are falling, and labor costs are rising due to restrictions on working hours under the reform of work patterns in Japan. Due to these changes in the external environment, the KSF has shifted from securing sales by increasing the number of PCI cases to pursuing efficiency. Furthermore, securing profits has become more important than sales by increasing the number of PCI cases. To meet this KSF, cardiovascular clinics must develop strategies aimed at achieving efficiency.
In order to secure profits, it is necessary to review management from the perspective of “People”, “Things”, and “Money”.
“People”: Enhance Motivation of StaffAs discussed earlier, in the early phase of the cardiovascular community, interventional cardiologists were motivated by a desire to develop their own skills. Because increasing the number of PCI cases was defined as a KSF, performing increasing numbers of PCI allowed cardiologists to gain more experience in the field. However, as the number of PCI cases is no longer a KSF in the current external environment, it is important to encourage these cardiologists to become generalists rather than specialists who only perform PCI.
Cardiovascular clinics are increasingly required to focus not only on PCI but also other treatment techniques such as endovascular intervention (EVT), transcatheter aortic valve implantation (TAVI), and catheter ablation (CA), for which similar skills are required to treat patients with other heart diseases, including peripheral vascular disease, aortic stenosis, and atrial fibrillation.
First, it is necessary to change the mindset of the staff (particularly cardiologists) to accept reformation. There will be some resistance from those who intentionally select a highly specialized PCI practice rather than general cardiology practice. However, changes in the KSF due to changes in the external environment require reformation in human resources, capabilities, and the organizational structure within the 7-S framework. Those refusing to change will be forced to leave and be replaced.
Consider Extrinsic and Intrinsic Motivation Staff morale and motivation are affected when the external environment restricts previous activities, and new roles are imposed. Complaints increase when staff are asked to care for patients not within their specialty and some may say that forcing them to do more work because of the clinic’s circumstances interferes with their existing work. Barriers between management and staff are likely to arise and in such cases, how can employees continue to work at a high level of motivation?
Edward L. Deci, a leading motivational theorist, claims that individuals are motivated by “intrinsic motivation” and “extrinsic motivation”.21,22 In his theory, which challenges the mainstream view that extrinsic motivation is what motivates people, Deci argues that “extrinsic rewards reduce motivation”. According to Deci, there are 3 human needs that influence intrinsic motivation: (1) the desire for competence, (2) the desire for autonomy, and (3) the desire for relationships.
The desire to feel competent is the desire for mastery within the sphere of one’s activity. When an individual is aware of competence, the desire for competence is satisfied. For example, a cardiologist will be satisfied when someone recognizes the skill in performing PCI, and thus will be keen to gain further experience. If there is a strong desire for recognition, efforts to meet the expectations of others will be increased.
The desire for autonomy refers to the freedom to make decisions according to one’s own will, which is equal to the delegation of authority. Responsibility arises when an individual has the discretion to make decisions. Morale is further boosted by the desire to fulfill this responsibility.
The last intrinsic reward is the human desire to have a relationship with others. For some individuals, this is so important that they willingly do work others reject. As a result, their intrinsic need will be fulfilled.
Deci claims that these intrinsic motivating factors may be overcome by extrinsic motivators such as money. The management of a cardiovascular clinic should encourage intrinsic motivation among their employees to transform their behavior.
“Things”: Taking Advantage of Economies of Scale and Scope“Economies of scale” refers to corporate activities that take advantage of either scale or volume. An example with respect to a clinic is to increase the number of PCI cases and obtain discounts by purchasing large quantities of medical devices and drugs from manufacturers. Conversely, “Economies of scope” refers to the ability of a clinic to operate more economically by using common resources to perform multiple medical activities. Using a cardiovascular clinic as an example, if a cardiologist who performs PCI can also perform EVT, TAVI, and CA, the same human resources can be used without the need to hire additional professionals, thereby expanding the scope of medical activities and making these more economical.
Distributors act as intermediaries between pharmaceutical and medical device manufacturers and clinics to obtain intermediary margins. Distributors manage the consignment inventory, as is customary in the medical device industry. Clinics purchase medical devices and supplies from distributors, with prices varying according to geographic location and economies of scale and scope.
A single center that only performs PCI may obtain a limited discount rate for medical device purchases in terms of economies of scale; however, if medical devices used for EVT, TAVI, and CA are taken into account, economies of scope will come into play. In addition, because each device has a different purchase price, the clinic’s administrative office must thoroughly manage costs and know which combination has the greatest price advantage. As the number of cases increases, the number of medical supplies used will also increase, and economies of scale will increase. Therefore, in order to secure profit, the purchasing price should be reviewed, and at the same time, economies of scale should be achieved in terms of the number of cases.
Currently, the quality of medical devices used for PCI is such that it is not possible to determine the superiority of one device over another. Therefore, a higher discount rate may be obtained at smaller clinics if the range of manufacturers offering medical devices is reduced.
“Money”: Analysis of Financial IndicatorsBecause clinics have a large amount of fixed costs, including medical devices, promoting a cost-conscious attitude among staff members can eliminate waste through the creation of a more efficient business structure.
As mentioned before, medical professionals setting up cardiovascular clinics started their own practices based on the belief that hard work would be recognized by the local community, resulting in increased patient numbers. Growth and profitability were sustained due to the considerable margins of pharmaceuticals and medical devices, despite a lack of detailed scrutiny of the costs.
Until recently, discussion of profits within the medical care provision context was unacceptable. However, it is reasonable for management to consider profits, and setting the number of patients and cases only as the key performance indicators is no longer sustainable.
How Much Is a Clinic Worth?If a clinic decides not to reform there are 2 options: close or sell the business. Is a loss-making clinic worthless, leaving only a debt? This is the most challenging area for the cardiologists who set up clinics without business management education, and there is a risk that the stress of dealing with an unfamiliar context will result in unwise business decisions.
An alternative to reforming the business is to sell. In Japanese culture, where failure is unacceptable, the terms “going out of business” and “selling the business” have negative implications, compared with Europe and the USA where they are commonly adopted options. Merger with another hospital group, while the business still has some value, or leaving it to a younger generation are options that are good for local residents.
If calculating the value of a clinic is determined through negotiations between the seller and buyer, the potential buyer will make a low offer based on the logic of capitalism. Therefore, the management of the clinic must undergo a valuation of the business. Generally, the cost approach, income approach, or market approach are used to calculate the value of hospitals and clinics (Figure 3).
The approaches to calculating the value of a cardiovascular clinic: Cost, Market, and Income.
Cost Approach This calculates the value of a clinic based on the value of net assets listed on the balance sheet. Net assets are assets minus liabilities. There are 3 techniques: (1) the book value net asset method, (2) the market value net asset method, and (3) the market value net asset method plus goodwill.
As the name implies, the book value net asset method calculates the value based on the book value shown on the balance sheet. In the market value net asset method, the assets held are given a market value. For all the assets including land, buildings, and medical equipment, their market values are calculated and summed, and then the liabilities are subtracted. Therefore, if the value of real estate held is higher than at the time of purchase, this valuation method will give a higher value than the calculation based on the book value. The valuation method based on market value plus goodwill adds “goodwill” as the business rights, which represents the present value of future profits to be generated by the clinic. In practice, goodwill may be calculated as 2–3 years of net income and added to the market value net assets or calculated by multiplying the market value net assets by 0.5–1.0-fold and added to the market value to determine the acquisition price.
Income Approach This approach calculates the value of a clinic as the present value of the business discounting its future stream of income (profit or cash flow) with a discount rate that reflects the degree of risk of the said income stream. This approach includes (1) the direct capitalization method and (2) the discounted cash flow (DCF) method. The direct capitalization method is the most appropriate if the clinic’s income trend is stable each year, and the following formula, where “g” refers to the growth rate of income, can be applied: clinic value (shareholder value) = current year’s net income × (1 + g) / (expected rate of return − g).
The expected rate of return refers to the average future rate of return from the target clinic. The expected rate of return can be calculated using the capital asset pricing model (CAPM), in which the expected rate of return (rE) = risk-free rate (rf) + β × market risk premium.
In Japan today, the risk-free rate is often used as the yield of 10-year government bonds, but 2% is often used as the benchmark. The market risk premium is 5–5.5% for Japan. The β value is a quantitative indicator for the “risk” of clinic business, and because there is no track record of a clinic being listed in Japan, we use the β value of the US institutional business (1.26) as a proxy here.23 Therefore, the expected rate of return = 2% + 1.26 × 5% = 8.25%. Assuming an average growth rate of 1% per year for the clinic with JPY20 million net income, the shareholder value of the clinic = JPY20 million × (1 + 1%) / (8.25% − 1%) = value of ≈JPY279 billion.
The DCF method (future years with the residual value) is used when future earnings are likely to fluctuate widely, but the direct capitalization method may be more suitable than the DCF method for established clinics where earnings do not vary much from year to year. The DCF method calculates the free cash flows for several years from the current point in time, adds a residual value in the final year, and discounts them to the present value, which is the value of the business including the debt as well as the shareholder equity. The discount rate is the weighted average of the costs of borrowing and equity financing. The details of the DCF method have been previously published.24
Market Approach This is the simplest evaluation method for an ordinary clinic. The method uses certain indices, typically the price earnings ratio (PER), price sales ratio (PSR), and earnings before interest, taxes, depreciation and amortization (EBITDA) multiples of similar clinics. All medical institutions in Japan are unlisted. Hence, the multiple methods generally cannot be used to value a clinic due to lack of listed comparable clinics. In such cases, the precedent transaction method can be used for calculations using these multiples.
The precedent transaction method uses, as a reference, the average number of times the price of previously sold clinics at its EBITDA, and this EBITDA multiple is applied to the EBITDA of the target clinic to calculate its value.
For example, assume that Clinic A was sold at JPY780 million in the recent year. If the EBITDA of this clinic is JPY56 million, the EBITDA multiple is 13.9 (JPY780 million ÷ JPY56 million). If the EBITDA of the target clinic for valuation is JPY18 million, its value can be calculated as JPY254 million (JPY18 million × 13.9). Its shareholder value will be JPY244 million if the clinic holds JPY10 million of debt.
Without appropriate knowledge of the valuation, a buyer would probably offer a far lower valuation based on the book value, and the clinic owner has no option but to accept.
Evolution in medical devices as well as in pharmacological treatment has had a significant effect on the management of cardiovascular practice. PCI has been aggressively performed in patients with stable coronary artery disease with moderate and severe ischemia, but since the ISCHEMIA trial25 there has been a worldwide trend toward optimal medical therapy with deferral to cardiologist discretion, except in high-risk patients such as those with left main coronary artery stenosis. We are now in an era in which the discretion of the cardiologist is being questioned more than ever, and the need to face patients as a cardiologist rather than a catheter interventionist is being emphasized. As a result, not only the unit price per catheterization but also the number of PCI cases will decrease, forcing clinics that have relied on catheterization as their main source of revenue to reevaluate their management strategies.
The viability of cardiovascular clinics over the next 10 years depends on whether clinical professionals can take the necessary steps to address the uncertainties ahead. The decision to change must take into account the alternatives of closing or selling the clinic. Change may include the option of hiring someone who understands management or outsourcing this skill. Despite the uncertainties in these challenging times, the difficulties in choosing the right option may be overcome through reasonable advice from qualified individuals and professional.
The authors thank Ms. Rie Arai for her excellent technical support, Ms. Keiko Takahashi and Mr. Shuhei Odagiri for the arrangement of the figures and tables in the article.
There was no financial support associated with this article.
The authors declare no conflicts of interest.
