The Effect of Cost Containment on the Outpatient in Japan: A VAR Approach

This paper examined the effects of restrictions on both the demand and supply sides of the health sector in Japan over a certain time period. Because the effect of supply side restrictions could not be taken into account in previous studies, we employed econometric time series techniques to develop a four-variable VAR model of the health sector over a sample period from November 1999 to March 2004. We used a first-difference series regarding the number of general beds to capture productivity shock. By using impulse response functions and a forecast error variance decomposition, we found that a price shock dominated the behavior of both patient and physician at forecast horizons, although in the short run the rise in the intensity of treatment leads to a decrease in the rate of doctor consultations. By estimating the structural VAR model under a recursive constraint, it was found that all of the causal links in the model constituted an invalid specification. We concluded that the increase in the patient's coinsurance rate had the effect of restraining health care costs but that a labor productivity shock did not have a permanent effect on the doctor consultation. The supply side of the health sector might absorb the change that occurred in the demand side.