An Economic Analysis of the fee schedule system of medical services

―A proposal of price capping as an alternative rate making―

Abstract

In Japan all the prices of medical services are regulated by the government. This system is similar to other regulated industries where prices are determined on the assumption that they are based upon“costs". It is, however, very difficult to define economic costs in those industries because there usually exists common cost. In the case of medical service, hospital facilities, doctors and nurses, for example, are often common costs which can only be distributed artifitially among services according to the accounting principle. It is clear that economic benefits accrue to the society if we can find more efficient way of allocating resources in the medical sector. In this paper we examined the applicability of price capping to the medical services for the pursuit of more efficient pricing mechanism.