Melco Management Accounting Research
Discussion Paper Series
No.MDP2019-005

Private Management and Governance Styles in a Japanese Public
Hospital: A story of West meets East
September 2019

Shahzad Uddin
Professor of Accounting and the Director of Essex Accounting Centre,
University of Essex, UK
e-mail: snuddin@essex.ac.uk
Yuji Mori *Associate Professor of University of Shizouka, Japan
52-1, Yada, Suruga-ku, Shizuoka-shi, 422-8525, JAPANe-mail: yujimori@u-shizuoka-ken.ac.jp
Khandakar Shahadat
Lecturer in Accounting at Hull Business School,
University of Hull, UKe-mail: k.shahadat@hull.ac.uk*corresponding author

The Melco Foundation
Nagoya, Japan
Discussion Paper Series of the Melco Management Accounting Research, in order to promote
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Private Management and Governance Styles in a Japanese Public
Hospital: A story of West meets East

Shahzad Uddin
Professor of Accounting and the Director of Essex Accounting Centre, University ofEssex, UK
snuddin@essex.ac.uk
Yuji Mori *Associate Professor of University of Shizouka, Japan
52-1, Yada, Suruga-ku, Shizuoka-shi, 422-8525, JAPANyujimori@u-shizuoka-ken.ac.jp
Khandakar Shahadat
Lecturer in Accounting at Hull Business School, University of Hull, UK
k.shahadat@hull.ac.uk*corresponding author

Abstract
This paper examines a case of healthcare governance reform in a Japanese hospital todemonstrate how historical, institutional and cultural values interact with governancereforms. We find that the governance reform departed significantly from its idealized
form, resulting in symbolic compliance with ministerial conditions. The intended
structure of decentralized governance was ruptured by the CEO, with unanticipatedconsequences. The power of the medical profession was played out in the hospital, withcost management taking a back seat, and a high level of power distance was noticeable
between the physicians and the patients and adminstrators. This paper contributes todebate on the role of healthcare professionals and reforms in broader sociocultural,
historical and institutional contexts.
Keywords
Public hospital, governance, accountability, cost management, public reform
Acknowledgement: This project is financed by MELCO foundation, JSPS KAKENHI (Grant
number JP18K01914) and University of Shizouka.

11 Introduction
Healthcare reforms relating to governance and management have been widely
undertaken by governments worldwide (Mattei et al., 2013). The major aims of thehealthcare reforms driven by New Public Management (NPM) ideals rested on
productivity but arguing for equity and quality (Martinussen and Magnussen, 2011;
Maupin, 2009; Zhou et al., 2014). Nevertheless, these claims have been scrutinised byresearchers predominantly in Western countries (Dan and Pollitt, 2014; Wallace andSchneller, 2008). Previous studies have attempted to understand the health care reforms
from macro persoectives such as the role of the state (Fredriksson and Winblad, 2008);
engagements of NGOs (Maupin, 2009); an outcome of hegemonic struggles (Filc, 2014);
and the introduction of neo-liberal ideology (Walker, 2017). Micro processes such as
managerial accountability, performance management, the role of key actors have also
been examined (Ferlie et al., 2016; Waring, 2015). Nevertheless, very few have engaged
in deeper analysis of how underlying institutional and cultural conditions constrain or
enable key actors in shaping healthcare governance mechanisms at the organizational
level. We believe that such analysis will provide deeper explanations of why reforms suchas healthcare governance often produce a variety of unanticipated consequences.
Healthcare governance reforms in Asian countries have been limited. Japanese
healthcare reforms are of particular interest, as debate about healthcare costs has beenhigh on the agenda of recent Japanese governments (Otaki, 2017). This debate has been
directed partly toward the medical insurance system, which has led to overuse of tests
and drugs, affordability gap increased between rich and poor, unconstrained demand frompatients, spiralling costs and imbalanced geographical distributions of healthcare service
providers (Nomura and Ishikawa, 2005; Watanabe and Hashimoto, 2012). It has also been
directed toward the recruitment politics in local public hospitals (Takaku and Bessho,2018). Nevertheless, academic research on healthcare governance reforms in Japan is
scarce.
The existing literature calls for country-specific analysis of NPM implementations tobuild a better understanding of the dynamics of underlying conditions that lead to successor crisis (Reiter and Klenk, 2018). Responding to this call, we examine healthcare
governance and its implementation in the historical, institutional and cultural context ofJapan. In particular, we examine the role of key actors, and specifically physicians, in
accepting, adapting or rejecting healthcare reforms at the organizational level.
The next sections provide a brief review of healthcare reforms, and present thecultural political economy of health care reforms and research methods employed in thisstudy. Empirical findings are then presented. The paper finishes with a discussion andsome concluding remarks.

22 Healthcare governance reforms and Medical Professionals
The role of medical professionals including physicians in healthcare is crucial andhas been studied extensively (Smith et al., 2016). They are viewed as facilitators and key
change agents (Collyer et al., 2017; Lockett et al., 2012). Studies have focused on how
reforms articulate patients as clients (Millar and McKevitt, 2000), or as public citizens to
be engaged in decisions on the planning and development of health provision (Hardyman
et al., 2014), thereby buying into private-sector ideals. The role of healthcare
professionals in NPM driven reforms has also been studied (Dahan, 2015; Turner et al.,2016). Andersen’s (2009) study of Danish GPs, surgeons and dentists reveals that
healthcare professionals’ values often outweigh NPM-driven financial incentives. Turner
et al. (2016) find that healthcare professionals, and especially frontline managers in NHS
England, are more resistant to reforms owing to their autonomous, highly creative andenduring professional associations. Similarly, doctoral training in France has been found
to exhibit strong professional autonomy and values that create inflammatory discourses
and tensions between healthcare professionals and academics (Dahan, 2015).
Accountability and governance in healthcare is one of the key aspects of reforms
reflected in previous studies (Pérez Durán, 2016; Greer et al., 2014). Various
consequences of these reforms have been reported (Simonet, 2016; Mattei et al., 2013).
Simonet (2016) argues that the strong presence of an ‘elite’ civil service diverts
accountability toward managers rather than the public. Similarly, Mattei et al. (2013)
report that, in Germany, Norway and Denmark, as a consequence of reforms to hospitalfunding motivated by the corporatization and professionalization agenda, hospitalmanagers find themselves in an ever-increasing web of accountability to bureaucrats invarious layers of government. An NPM reform initiative in Dutch healthcare has createdan additional ‘institutional layer’ redefining the power dynamics of key actors (Van deBovenkamp et al., 2014).
However, how do the healthcare professionals such as physicians respond toreforms is not well researched. Such research is important, as NPM reforms spread
progressively into the conduct of actors and associated governing structures (Osipovič etal., 2016). Any form of healthcare reforms requires, Martinussen and Magnussen (2011)
argues, due considerations of key actors’ embeddedness in historical, cultural andinstitutional conditions. Thus, building on studies of healthcare professionals’
accountability and governance, we examine the role of healthcare professionals such as
physicians in diverting, accepting or resisting healthcare governance reforms in hospitals.
Adopting a cultural political economy (CPE) approach, we interrogate how institutional,
historical and cultural values shape healthcare professionals’ responses to reforms.

33 Japanese healthcare reforms
Since the 1980s, Japan has faced increasing healthcare spending and growing
regional disparities in access to healthcare. In the 1990s, the average rate of real growth
in Japan’s total healthcare expenditure started to exceed the rate of real GDP growth.
Economic pressures, an aging population and rising costs led to a call for radical reforms(Hashimoto et al., 2011). One focus of the reforms has been the healthcare delivery
system, especially public hospitals.
Two government ministries, the Ministry of Health, Labour and Welfare (MHLW)
and the Ministry of Internal Affairs and Communications (MIAC) have been involved in
the healthcare reforms. The MHLW has initiated most reforms, ranging from redeploying
hospital bed functions from acute to long-term care stages, to implementing home care,maintaining quality of care and establishing future regional medical plans. On the other
hand, the MIAC has been involved only with public hospitals and their reform, mainly
because public hospitals are owned by local governments, which in turn are supervisedby the MIAC. In this paper, we focus mainly on local public hospitals, as they are one of
the main providers of critical care serving approximately 67% of infectious disease beds,
23% of emergency beds, and 30% of tuberculosis beds whilst only accounting for
approximately 15% of the total hospital beds (MHLW, 2011).
A major reform was brought in by the MIAC in late 2007 in the context of increased
outlays and huge debts of local public hospitals. The latter have been targeted mainly
because more than three-quarters of public hospitals operate at a loss (The Economist,2011). Comprehensive measures aimed not only at enhancing fiscal soundness, but also
at improving hospitals’ governance and accountability. Local governments were asked totake measures such as corporatization of public hospitals, followed by a review ofgovernance and management mechanisms; regular performance reporting on occupancy
rates, the ratio of ordinary revenues and remuneration to expenditure; and concentrating
beds in well-functioning ‘magnet hospitals’ and building ‘satellite clinics’ to safeguard
healthcare services in rural areas. Local public hospitals with occupancy rates of less than70 per cent in the last three years were also expected to reduce their number of beds or be
replaced by clinics. Financial incentives were introduced to encourage local governments
to be fully engaged in the reforms.
Within a year, by 2008, 22 local public hospitals had been transferred from local
governments to independent local administrative corporations (Zhang and Oyama, 2016).
This was supposed to allow them to be more independent and financially solvent.
However, only 10 per cent of local public hospitals were generating surplus according to
the survey conducted by MIAC. These reforms began to filter into all local hospitals,
including our case study which was formed as a corporation in 2013. A second wave ofreforms began in 2015. These were formulated on the basis of NPM ideals as before, but
gave more specific directions to local governments. The reforms were to focus on private

4style governance assuming this will lead to cost management efficiency, reduction in
deficit and increasing engagement with citizens. We aim to understand how the new setof governance reforms has played out in the new hospital.

4 Cultural political economy of medical education and physicians inJapan
We conceive the healthcare system is a socio-cultural system. Cultural
constructions of health and illness is not new. Medical anthropologists through the lensof ethnography have been studying culture and illness and healthcare since 1950s and1960s (Good et al., 2010; Kleinman, 1995). Since then a plethora of studies dealing withhealth, illness, life and death in deeply rooted cultural contexts such as CrandonMalamud’s work (1991) on viewing medicine as social idiom, Frankel’s work (1986) on
Huli’s response to illness and other works (see for details, Scheper-Hughes, 1992; Good,
1994; Young, 1995). Similarly, the study of health and illness in Japan has also beenstudied thoroughly inspired by notions of ‘meta-medical’ and ‘medical plularism’(Worsely, 1982; Ohnuki-Tierney, 1984). Seminal works by Lock (1993) and OhnukiTierney’s work (1984) have been invaluable in laying the groundwork for a culturally
informed analysis of heath and illness in Japanese context.
Inspired by these works and extending this to the domain of policy but building on
previous studies in health governance literature (Osipovič et al., 2016), we believe CPE
as a methodological approach would be useful to provide a point of departure for ananalysis of health care reforms in Modern Japan. This approach considers the cultural
turn (meaning-making) to the analysis of the articulation between the economic and thepolitical and their embedding in broader sets of social relations (Jessop, 2010). Following
the CPE tradition, we consider both extra semiotic (historical and institutional conditions)features of health care in Japan and semiotic (cultural norms and values) features, and theinteractions of social actors in assessing the limits of NPM style governance in Japanese
healthcare. This will provide us a broader understanding of the role of healthcare
professionals in resisting, adopting and adapting a particular reform agenda. Our aim here
is not to develop a particular model but explore how social actors interact with the new
economic imaginary (such as NPM governance) in the given context of institutions andcultural conditioning. Thus, an examination of socio-cultural health system including the
medical education and profession, Japanese cultural values and ideologies is apt.
The Japanese medical education system was compared to the Galapagos Islands for
its unusual and singular evolution (Kuwabara et al., 2015). During the Meiji period (18681912), Japan began to move from the Chinese traditional to the Western medical systeminfluenced by the visits of medical professors from the German Military from 1871. The
extent of German Military Medical unit’ influence on Japanese medical education canstill be seen today (Kira, 2010).

5

After graduation from university, medical graduates were traditionally enrolled
into the trainee programme called ikyoku (literal translation is work place) (Otaki, 1998).
The ikyoku is extremely important for understanding the power of medical professors andschools. In the Ikyoku system, the professor is at the top of the hierarchal totem pole often
make many career decisions for the trainees (p.101, Kuwabara, 2015). It works as a
specialist training programme as well as an employment agency/internal labour market
benefiting its members. This is consistent with ancient medical tradition in Japan,
whereby the teachers used to send students (physicians) to specific communities on thebasis of the latter’s needs. Now hospitals, especially hospitals in small cities and rural
areas send requests to multiple ikyoku systems to recruit physicians.
In 2004, the New Postgraduate Medical Education Programme (NPGME) was
introduced to bypass the ikyoku system of training (Iizuka and Watanabe, 2016;
Kuwabara et al., 2015). Consequently, the professors at the university hospitals lost
control over entry-level physicians but still attracting 45.2% of the total new trainees tothe ikyoku sysem (Kuwabara et al. 2015). However, the power of ikyoku system, thoughwaning, remain significant as trained physicians find it advantageous to join the ikyoku
system for specialist training, career choices and referrals (Iizuka and Watanable, 2016).
MHLW’s recent surveys on all newly trained physicians revealed that most of thephysicians wishes to the Ikyoku - 80.6% in 2018 and 85.9% in 2017 (MHLW, 2018).
The power of the medical schools and physicians must also be understood in
relation to the respect held by physicians in Japanese society (Davies and Ikeno, 2002;
Sunda, 2015). Commentators argue that their methods and mistakes are barely questioned– they are, after all, sensei, a title of respect used for teachers, academics and others who
are looked to for guidance (Watts, 2000). This was reflected in the patient-doctor
relationship even in the recent past as Ohnuki-Tierney, (1984) argues: ‘in Japanese
doctor-patient relationship, patients place the entire responsibility for their wellbeing in
the doctor’s hands, giving in turn a deep sense of trust, especially in the case of serious
illness’ (p.177). Nevertheless, in modern Japan, the physicians are now forced to provide
explanations to patients due to patients’ education and rights among other factors.
Increasingly, patients seek second opinions and rankings before choosing physicians.
Studies have also showed Japanese physicians are losing trusts from patients (Murata andAramaki, 2014), yet they still enjoy a revered status.
The above historical and institutional conditions of the medical profession andphysicians need to be understood in conjunction with Japanese cultural norms (semiotic)
where the social actors operate. We draw heavily on Nakane’s (1970) work, as well as onother studies of Japanese culture (Davies and Ikeno, 2002; Jun and Muto, 1995) to makesense of how ingrained cultural orientations defeat the purpose of NPM styles of reformin public hospitals. Some of the cultural norms such as group consciousness and wa(harmony) or oneness, senpai–kōhai (senior-junior) relations, and seken (common
interest group or informal personal relationship in workplace) are significant especiallyin organizational contexts. These three are interrelated and complementary.

6

Maintaining wa or oneness is the most important element of Japanese society.
Maintaining silence (chinmoku) helps to preserve harmony in groups and public meetings.
Losing face is inconceivable and deters members from opening up. Tatemae (façade) isused to maintain this harmony and create a comfortable atmoshphere. Honne (true sound)is applied in one own’s space, whereas tatemae is used in more public forums. Skillfulplayers use it without even realizing it. This goes against the notion of seeking accounts
from the accountable, and especially the powerful. Hierarchy or vertical relationship is
important for group coherence and survival (Nakane, 1970, p. 39).
In vertical group formation, senpai–kōhai (senior–junior) relationships are crucial.
The rules of superiority between a senpai and a kōhai are analogous to a teacher–student
relationship, in which the age and experience of the teacher must be respected and neverquestioned (Davies and Ikeno, 2002). The ikyoku system is embedded in the senpai–kōhai
relationship. Although these relationships have not been strictly observed in recent times,
they remain strong in Japanese minds (Davies and Ikeno, 2002). These vertical
relationships last for life, emphasizing respect for authority and chains of command. Thisis clearly visible in meetings, as employees are rarely willing to express opinions without
prior consent from their seniors. Challenges in meetings are rare and has negative
consequences (McVeigh, 2015). This is also connected to the notion of being in seken
which means that all members of the group should act cohesively, so seken will purge
individual differences to impose wa (oneness or unity). This is not as strong as before as
Kokami (2009) refers to this loosely coupled seken as ‘kuki’ (mood of surroundings).
Whatever form seken or kuki, it still contributes to maintaining wa (harmony) within thegroup. In summary, a deeply-embedded Japanese consciousness of vertical relationships
and oneness or wa has serious implications for governance and accountability
mechanisms in Japanese organizations.

5 Research methods
Following the research tradition of a CPE approach, we not only wished to draw
on historical literature and previous studies to understand the structural conditions(material/historical and cultural) affecting agents’ (key stakeholders) actions but alsosought to trace these structural conditions from actors’ own accounts. Thus, this research
employed data triangulation conducting documentary research, observations and semistructured interviews following the ethical approval guidelines of University of Shizuoka.
Data for this case study were collected in 2018 over a period of six months.
Important data sources for identifying societal and cultural conditions included apreliminary review of the historical literature on the medical profession and hospitals, aswell as broader politico-economic and historical literature. As a next step, in order todevelop a better understanding of the structural conditions faced by key actors in two city
councils, we collected annual statements, official documents and minutes of meetings
relating to the hospital. One of the authors attended some governance meetings. This7

provided a deeper insight into intricate relationships between board members and thehospital authority.
To supplement the observational and documentary evidence, semi-structured
interviews were conducted. This was one of most important sources of data, contributing
to an understanding of how key actors shape the hospital’s governance mechanisms. Two
authors (one native speaker) were involved in facilitating the interviews. One had beenan advisor to the city council, and his contacts were useful in gaining access to these key
interviewees.
Using one of the author’s knowledge about the key stakeholders of hospital’s
governance mechanisms and health sector, we interviewed 28 individuals in total, andcontacted them again to ask follow-up questions where necessary. Our interviewees
included one community leader, one current and two retired city council officials, Mayorof the city council, one assembly member of the city, the CEO/Director of the hospital,
the Deputy Director of the hospital, Head of nursing, two hospital officials, ex CEO of anold hospital, one academic (advisory committee member), one ministry official and thephysicians (13) working in the case hospital, clinics and university hospitals in the region.
We also engaged in email correspondence with the hospital’s CEO and other interviewees.
We fully explained the projects and assured the interviewees of their anonymity before
setting up the meetings.
The interviews were conducted mainly in Japanese, but translated immediately into
English so that the non-Japanese author could follow them. Most interviews lasted around60-120 minutes and were digitally recorded. These were later transcribed by one of theco-authors. Various issues were discussed during the interviews, including the context ofhealthcare and the social status of medical physicians; Ikyoku system, control of thehospital by two central government ministries; accountability and levels of participation
by citizens and politicians; the governance and management structure of public hospitals;
and financial conditions pre- and post-merger, and the hospital’s cost control andmanagement.
At the end of each interview, we shared with respondents our understanding ofwhat they had said during the interview to provide them with an opportunity to endorseor amend anything that they had said. These interviews were further corroborated andcomplemented especially by documentary evidence collected throughout the period. Oneof the authors had access to city council board meetings, observations and minutes of themeetings provided a great insight into the perceptions, intentions, and actions of the
Mayors and Physician-cum-CEO of the hospital and other key actors. Thus, three sourcesof evidence (data triangulations) complemented each other to make sure we receive
reasonable accounts of governance mechanisms.
After the collection of data, the next stage was the analysis. This analysis took two
forms: one that led to uncovering the historical and cultural conditions and another thatinvolved the key actors’ strategies and actions. First, for understanding/interpreting thehistorical and cultural conditions, we drew on our knowledge of the historical and8institutional context of Japanese society, as well as cultural values such as senpai–kōhai
relationships and maintaining wa and seken. The second line of analysis involved theidentification of key actors’ interpretations of these institutional conditions and theirstrategies. In this line of analysis, we developed codes (manually) that captured thecontextualized interpretations of agents and their actions (Mason, 2002; Miles andHuberman, 1994, p.56). Our data analysis helped us understand the differences between
intended and actual governance structure.
Our final analysis involved converting all data relating to contextual conditions andagents’ actions into a deeper and more meaningful theoretical narrative (Miles andHuberman, 1994, p.91). In order to do this, we developed a coding scheme that would
capture the empirics of the case study (Mason, 2002; Miles and Huberman, 1994, p56).
While developing this coding scheme, we had to keep in mind the broad theoreticalframework, i.e., historical conditions of healthcare and cultural norms of Japanese society.
For this purpose, we used a coding scheme borrowed from Strauss (1987).
According to Strauss (1987), a researcher should start with a coding scheme thatdifferentiates between ‘conditions’, ‘interactions among actors’, ‘strategies’, and‘outcomes’. The benefit of this coding scheme is that it fits in very neatly with the tenetsof CPE, which analytically categorise the flow of social action into structural conditions
and agents’ actions that cause outcomes. The next two codes, i.e., ‘(inter)action amongst
actors’ and ‘strategies’ helped us see different strategies and actions of agents in thecontext of intended governance framework. The last coding scheme, i.e., outcomes,
would capture the consequences such as the actual form of governance structure. As weanalysed the data, we constantly reworked our coding scheme to capture the nuances ofthe data and to understand the process of conditions, (re)actions, strategies, and outcomes.
For example, during our data analysis, we realised that the condition such as ikyoku isboth constraining and enabling the recruitments of physicians. As a final step, we rechecked the consistency between the data sources, the data codes, and the implications
we had drawn.

6 Case study: New hospital
Our case – new hospital came into existence in 2013 as a result of a merger of two
old hospitals managed by two different city councils (local government units). Bothhospitals were running below capacity, and at times below 70 per cent occupancy
triggering the MIAC and the city councils to adopt remedial measures. The new 500-bed
hospital began to operate in 2013 replacing the old hospitals funded by the city councils
issuing public bonds.

96.1 Governance structure
The new hospital’s governance structure was conceived as a private-corporationstyle of governance, as expected by the NPM ideals taken up the MIAC following the2008 and 2015 reforms. The underlying idea was that both councils would stay awayfrom running the hospital, and there would be a corporate board to oversee operations.
The intended/ideal form of governance is presented in Figure 1.

The structure presented in Figure 1 was conceived in the spirit of NPM. The
Mayors – key stakeholders - (in this case, two mayors from two cities), though not
involved in the corporate board, has the right to appoint and remove the president/CEO.
The president was the Chief Executive Officer (CEO) of the hospital and supposed to be
responsible for strategic matters (clinical and non-clinical), and the COO (chief
operations officer – Incho) was to run the hospital day-to-day, focusing only on clinicalmatters.
It was conceived that citizen were the primary shareholders. Like a private
corporation, they were accountable to shareholders. The president/CEO was supposed to10

directly report managerial and business conditions to the citizens. However, it was notexactly specified how this should be done.
The corporate board – seen as a representative of stakeholders/shareholders - wasformed for the hospital also known as a corporate assembly. It was formed, with fiveassembly members from each city. The president was to report to the board twice per year.
The board was expected to interrogate the president/CEO on strategic matters and budgets.
The president was also needed the board to approve the budget. The hospital was also
supposed to be audited and approved by the board.
In addition to the corporate board, an advisory committee was also formed toprovide support to the president, consisting of two assembly members from each city, themayors, one academic, and two physician representatives from the regional physicians’
association. The advisory committee was to meet twice per year. The function of thiscommittee was conceived as advisory (not mandatory) but an important committee as it
involved wider stakeholders and the two Mayors. The Mayors saw the committee as avehicle to pass on the concerns of citizen and other strategic matters to the President/CEO.
Nevertheless, the above governance was never operational in its exact/idealised
form. As we gleaned from the interviews, observations and documentation, the actual
form of governance structure is different in both form and spirit (see Figure 2).

11

The structure presented in Figure 2 is markedly different than the intended structure.
Accountability to citizen is non-existent, COO and President posts are merged and much
more lowly status of the advisory committee. The following further discusses the actual
form of governance:
First, rights of appointments and removal of top executives of the hospitals by two
Mayors are severely curbed in reality. According to the Medical Service Act, the head of(usual) medical corporation must be physicians or dentists (Article 46-6). One comment
was that ‘it is partly because of the respect and the status that physicians have in Japanesesociety’. It is partly because of the ikyoku system where the physician cum CEOs havemuch more clout to attract and appoint other physicians in Hospitals. The challenge isexperienced physicians are not readily available to work in smaller city hospitals such as
our case study.
Thus, Mayors had to participate in a labour market governed by the ikyoku system.
This is also because as one interviewee suggested that ‘a high-level appointment in thehospital is an important signal of the regional ikyoku system and the medical schools’.
One physician commented on the clout of the head of the ikyoku system: Recruitment
depends on the chief professor. Orders from the chief cannot be refused. All personnel
replacement of Ikyoku members are under his control. Recently one doctor wanted tomove to a larger hospital, but he was ordered to go different hospitals which he finally
had to accept it. The ikyoku system, in particular, is influential when it comes to thesmaller hospital. The interviews with number of physicians revealed that smaller
hospitals such as our case hospital are not especially a lucrative destination. Exploiting
traditional cultural values senpai–kōhai relationship, heads/professors of the ikyoku in the
medical school encourage physicians to join the hospital. This is also backed up by thebetter compensation packages than the other big city hospitals reflected in our interviews
and previous studies (Iizuka and Watanabe, 2016).
The consequence of the power of the ikyoku system and medical schools puts city
council mayors in a precarious position when it comes to appointing or removing public
hospital chiefs. This was no different in our case. For instance, the first COO was not
keen on someone else supervising him, so he took over the post of president (firstpresident/CEO) as well. Thus, the first president covered not only strategic matters but
also daily matters. The mayors had to agree. The removal of the first president is a good
example of how difficult for Mayors to deal with the powerful physicians rested on ikyoku
but exacerbated by a lack of physicians. According to law, the mayors have the authority
to hire and fire the president. Interestingly, rather than firing the president directly, they
adopted an indirect process by going back to the same the medical school and asked his
senpai (who recommended him at the first place!) to persuade him to resign, which hedid in 2017. At the same time, the senpai promised to send the next candidate, who is
now the hospital’s CEO. The current (recently recruited) head of the hospital identifies
himself as CEO (President’s Job) and Director (doing the COO’s job) continuing the12similar structure. The concentration of power has continued even though the titles of theposts have changed.
Second, formal accountability to citizens is lacking. The hospital currently engages
with citizens in two ways. One is through feedback boxes placed in hospitals, and theother is through physicians’ attendance at meetings organized by an NGO to meet withcitizens. Our interviews with hospital employees and the CEO indicate that this is not a
critical part of their activities. The CEO revealed: ‘No. I do not meet with the patients’group directly. I do not have a formal way to get their opinions, but we put an opinions
box in our hospital. And we set up several lectures for citizens, we hear requests in Q&A
sessions.’ This was corroborated by senior managers: ‘Almost no chance [to get feedback
from stakeholders such as citizens and the local community]. One hospital administrator
commented ‘citizen and patients only complain to the assembly members but not to thehospitals or physicians.’ This is confirmed by other interviewees including assembly
members.
We discovered that since 2009, before its establishment of the new hospital, the oldhospitals have been publishing a glossy brochure for patients and citizens monthly. Thishas continued under the new Hospital. Nevertheless, there have not been any form of
substantial dialogue between patients and citizen with the hospital. The ex-chief of an old
hospital reflected: physicians are sent by the ikyoku, so their primary obligations to theikyoku not to the hospital! There have no strong incentives for them engage with thecitizen. Hospital administrator candidly commented: engagements with patients are very
superficial but in fact these kinds of activities will be unattractive to physicians. Lack of
accountability to external constituents is unsurprising, as the Japanese healthcare system
has been constantly criticized for its lack of quality assurance systems (Arai and Ikegami,1997).
Third, the board (corporate assembly) is unable to hold the hospital management
to account. The president/CEO report to the corporate assembly twice per year to give an
account of the hospital. Our interviews with corporate assembly members and publishedminutes of meetings indicate that these meetings have turned into monologues. Audit
reports are submitted to this meeting for discussions and approval. Usually no questions
asked about the reports with one exception in 2014. There were heated exchanges
between the corporate assembly members and the then president at the second meetingon 20 August 2014. The meeting began with introductory comments from the president,
followed by the administrator’s presentation of financial data and the auditors’ comments.
A question and answer session then began. One exchange (extracted and translated frompublished minutes) went as follows:
An assembly member: I am very concerned about the payroll cost. According to thereforms of MIAC, the payroll cost should be 50 per cent of your revenue. At the
moment, it consumes 63.4 per cent of your revenue. According to your plan it
remains over 50 per cent even 10 years down the line. How do you plan to control
this cost?

13

President: You have absolutely no logic in your argument. This is a nonsensicalargument. You said the payroll ratio is 65 per cent, but after August it goes down to56 per cent as patient numbers increase. So you talk about revenue; we need to walkfirst before we run.

According to one assembly member, the president then continued angrily, which is veryrare in Japanese meetings.
President: Do you remember what this project is? We open a new hospital and run it
properly. If we save money on hiring, nobody will join the hospital. The crucial thingis we must recruit physicians, nurses, staff to run our hospital properly. So stop thesefinancial matters now. We should talk about financial matters three, four years later.
I said we struggle to run this hospital. We do. I have never seen this kind of hospital,
I must emphasize. You should understand this. We have not done nothing. We havefully engaged with all our duties. … Your logic is only for normal situations. Your
logic is nonsense. That’s all from me.
Administrator: As the president said, this year is a special year as we have just started.
This first financial data should be compared with other good hospitals at the samestage. The comparison is not like with like.
President: As I said before, I want you to understand our effort. We are doing everything
we can. We have emphasized hiring staff in the first year. Then this year, we aretrying to improve the quality of care and managerial matters in this second year. So,
based on this first-year conclusion, do not complain at all. That is all.

The assembly member responded defensively:
Assembly member: This is the corporate assembly. We can discuss freely and I do notintend to criticize you. I took part in this merger process. This is special for me. I
understand the first year is very hard … So, I intended to ask about your orientation
for the following years. If you say my question is nonsense, I need to ask what is ourassembly role? I note that your plan is for it to be 56 per cent of total income in future.

Our examination of the minutes of subsequent meetings suggests that there have been no
discussions or dialogue in any meetings held since, even under the new CEO. This has
been a one-way process. The hospital administrators present their information tocorporate assembly members, and the assembly accepts the budgetary statements withlittle or no discussion (see Figure 3 - an example of monologue).

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This is similar to Arai and Ikegami’s (1997) finding that physicians are simply
unaccustomed to outside criticism, no matter how well-intended. The role of corporateboard – voices of the city councils – is clearly overpowered by the Physicians.
Fourth, the role of the advisory committee is superficial. The advisory committee
was originally seen as a forum where the committee would provide candid advice to thepresident/CEO of the hospital. It was expected that the committee would play a stronger
role, given its membership, but it has become subservient to the president/CEO. By law,
the president/CEO and his staff do not need to accommodate the committee’s demands
nor heed its advice. The place of the advisory committee was defended by one of themayors, who argued that, within the governance structure, the advisory committee is the
only place where the two mayors sit together. This offers them opportunities to convey
citizens’ demands to the hospital authority. Several committee members, including themayor, expressed doubts that this committee has any meaningful vitality. The Mayors
often advice the hospitals to keep the short waiting time and maintain good relationshipwith the local physicians for referrals.
The role of the advisory committee was called into question during the firstpresident’s term in office. Acting on serious concerns from employees and otherstakeholders, including board members, on several occasions the mayors, through theadvisory committee, sought to pass these concerns on to the president, with little success.

15

Rather, the acrimonious relationship between the president and the mayors and othermembers continued to deteriorate. They decided to fire the first president in 2017.
Nevertheless, the role of advisory committee remained the same as before.
6.2 Cost and financial performance
Cost management or reduction in public hospitals is a key aim of the reform. The
new hospital with private sector style governance model was established to achieve theaim. The Mayor commented: ‘Financially, I set an upper limit of 10,000 JPY per citizen
to give out to the new public hospital. They were also asked to serve the residents in bothcities for emergency care and achieve patient satisfaction.’ The new hospital, formed asa corporation, has independence to run its affairs, although it depends entirely on the
councils financially to fund the deficit. Table 1 shows the profit and loss statements forthe pre- and post-merger periods.

In the post-merger period since 2013, financial performance has not improved andthe deficit is still large. However, operational aspects such as the number of physicians
and capital utilization rate are much higher in the new hospital (see Table 2).

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By 2015, the number of physicians had risen to 107 and the bed utility rate had
increased to 86.3 per cent. This is on a par with or better than the national average forsimilarly sized hospitals. The bed utility rate usually keeps the bottom line positive, but
this has not happened in our case. The current CEO threw interesting light on his views
on cost management and deficit reduction efforts. The CEO commented: ‘I feel burdened.
To cover costs, we need to get more physicians … The payroll rate at this hospital isrelatively high, at 57 per cent, so we should have decreased it. But if so, it would cause adecrease in physicians.’ He went on to say:
We need 30 more physicians. New physicians mean revenue is up. … If physicians are
scarce, if physicians are tired from too much extra work, then they quit. First, we must
invite more physicians to keep the minimum number of physicians, and then think about
effectiveness.

The approaches adopted by the current and previous CEOs are similar. Thereappeared to be a general understanding among our interviewees that recruiting more
physicians is way to attract more patients, generate revenues and ensure quality of care.
The new CEO aims to recruit 30 more physicians to take the number of physicians to 137.
When we questioned whether the hospital would reach the saturation point in generating
revenues, he answered negatively. This is at odds with our calculations, since the national
average for physicians is 112 for a 500-bed hospital, and the new hospital already has
107.
A similar discourse of preferring revenue generation over cost reduction was foundin conversations with the hospital’s senior managers. One manager said: ‘cost matters are
not discussed directly in internal management meetings.’ The management meeting
involves the CEO, deputy directors and other departmental heads of the hospital. He
further stated: ‘We do not emphasize cost itself. Moreover, we put emphasis on thenumber of patients, operations, length of hospital stay, from the point of view of revenue
and profitability.’ This is partly because managers see no scope for reduction strategies,
as argued by one manager:
Of course, we pay much attention to cost. We always buy cheaper medicine and goods.
We use nationwide benchmarks for price negotiations on medicine and goods. We
search all over for the best price and negotiate with sellers to the bottom … We did do
outsourcing, but we have a limit, so we must see revenues go up. This is a message from[the CEO]. Before the merger, the old hospitals suffered from a shortage of patients, so
at first, we are focusing on getting more and more patients.

Interestingly, the new hospital has reached almost 90 per cent occupancy, which isa relatively high capacity rate, so there is little room for revenue generation. This does
not seem to be deterring the current CEO and his team from recruiting more physicians.
On the point, one of the Mayors commented: The reason we established new hospital is17to provide emergency cares to the citizen. So, as long as the hospital never refuses to
accept emergency patients and absence of complains from citizen, we are happy with thehospital. The Mayor of the city council wishes to keep the expenses under control but
the most important criteria for them is hospitals offer good services to the citizens.
6.3 Evaluation and reporting
Evaluation and periodic reporting to both the ministries are an essential part of thereform. These evaluations must be organized by the hospital, involving external
stakeholders such as advisory committee members. In our case, the hospital asks theadvisory committee to conduct evaluations. The evaluation seems to cover many aspects,
such as operational and financial data, future plans, clinical functions, trials and futureplans. However, it is questionable to what extent these evaluations are taken seriously.
As one manager reported: ‘Unnn. Would I say honestly? … Beforehand we prepare thisevaluation, then circulate the evaluators and get their opinions.’ Our conversations withmanagers revealed that this is seen as a symbolic practice. The CEO was not even aware
fully what’s on the report.
The focus of the report is mainly to prepare a wish list. Evaluative aspects of thehospital are clearly missing from the reports. For instance, the reports from 2014 to 2017never reflected on the circumstances under which the post of president had become
untenable. The evaluation score was “A” overall, yet the CEO/president was asked toresign in 2017. The MIAC’s 2015 reform required hospitals to publish the report andsubmit it to the MIAC and city councils. Our interviews with a ministry official suggestthat the ministry is not in a position to evaluate public hospitals’ reports. In fact, thesereports do not seem to have any feedback system.

7 Discussions
To sum up, first, the intended governance structure in the new hospital has not
emerged. The corporate assembly does not seem to be able to hold the hospitalmanagement to account. Second, absence of engagement with citizens is very noticeable.
Third, cost management and reduction efforts are absent, and the focus on revenue
generation continues. The deficit seems to be increasing rather than decreasing, and selfsustainability is still a distant target. Fourth, reporting and evaluation are symbolic.
Reporting has become a vehicle for seeking more resources from city councils in the formof subsidies. Thus, the NPM-style agenda of reforms is still far from reality. We havesought to understand why this is so. How do reform agendas interact with the Japanese
way of doing things?
Drawing on CPE, we have argued that we need to understand both cultural
traditions and the historical and institutional context of the medical profession andeducation. We find that medical professionals, and especially physicians, are key actors

18

in executing hospital reforms in Japan. The history of the medical profession indicatesthat the ikyoku system work as an internal labour markets is central to physicians’ careersand professional lives. Hospitals in small cities need to attract physicians who areembedded in the ikyoku system controlled by the medical schools. Similarly, physician
themselves find the ikyoku system or being in senpai–kōhai useful for the advancementof their careers. Thus, it is natural for the two mayors to go to the regional medical school
to persuade it to nominate a president/CEO and send more physicians to the hospitalinstead of attempting external labour markets.
The ikyoku system plays, we find, both as enabling and constraining roles at thesame time. Two mayors in our case hospital exploited the system in their favour, in someways, to appoint CEOs. Without the ikyoku in place, it would have been much moredifficult for them to attract experienced physicians. Subsequently, the appointed CEOs
also played a strong role to attract other physicians to join the hospitals. Ikyoku is also
constraining as the new hospitals have little opportunities to use the external labour
markets. It is also difficult, as the ex-directors and the current CEO/COO commented, tohave strong controls over physicians as they see their careers linked with the ikyoku
instead of the hospitals they are working.
Historically, Japanese medical education is based on creating experts in a particularfield. They see themselves as part of a scientific research community, and the practicaltraining they receive at the hospital is interspersed with scientific research. Any job
opportunities at the university hospital even with lower salaries is perceived to be a far
better option than the joining the ‘new clinical training system for physicians.’ Given the
shortage of physicians, keeping physicians at the university hospitals, the ikyoku systems
creates further constrains the supply of physicians for local public hospitals, aphenomenon that had a severe impact resulting in the closure of the old hospitals in thetwo-city council. This, in turn, creates panic among hospitals, who will do anything tokeep the physicians in the hospital, strengthening the physicians’ power while raising
payroll costs.
We argue that medical schools’ power via the ikyoku system resides not only in thecontext of chronic shortages of physicians, but also arises from the respect afforded tophysicians by wider society. This has implications for the hospital’s management andphysician-patient relationships. NPM advocates private-sector governance in publicsector hospitals, which inevitably leads to the introduction of non-physician/professional
managers in the hospital administration (Garman et al., 2010; Kirkpatrick et al., 2009)and should create space for accountability and transparency. This was not the case inJapan. Physicians remain the key actors in governance riding on the legal bindings that
only medical professionals (dentists and physicians) can be the head of a hospitalreflecting their status in Japanese society. We argue that this status and respect coupledwith their careers being linked with ikyoku may have led to a lack of interest in engaging
with citizens.

19

At the same time, the aura and power of physicians create tensions in the corporateboard, where corporate assembly members find it difficult to ask questions of thephysician-cum-CEO. The angry response from the then President reflected his awarenessof his position in wider society and unwillingness to be questioned. The lack of strong
voice of the city councils in the corporate board is also linked with the fact that ultimately
the councils will be blamed for lack of medical services. They are also fully aware thefact the level of difficulty to attract physicians in the hospitals outside the big cities.
The above structural/material conditions do not take away the role of Japanesecultural norms and values played in seeking accounts from the hospital management by
the corporate board members. The case in point the way two Mayors went about firing
the previous president of the hospital. They refused to fire the president directly. The
desire of maintaining social order through wa is reflected in the whole process. This isalso reflected in the board meeting monologues and the passive responses of council
members. Silence or chinmoku is part and parcel of maintaining this harmony. No
member wants to be the one who sticks out (deru kui wa utareru - sticks out getshammered in), which prevents them from seeking accounts from others. The heatedexchanges in the second corporate board meeting at the new hospital was the defining
moment. Angry dialogues, direct verbal expressions, refusals, disagreements anddefiance are avoided at all costs (Davies and Ikeno, 2002). Where people wish to identify
themselves primarily as members of certain groups, not asking questions or keeping
silence plays a very important role in creating harmony and avoiding conflict. According
to Davies and Ikeno (2002, p.53), many people in Japan think that it is better to say
nothing than to cause misunderstandings or trouble.
Among the Japanese, social position, age and job status receive the highest
consideration in social interactions such as board meetings (Davies and Ikeno, 2002). An
explanation for this is given by Ishii and Bruneau (1994, p.250):
Ideas and feelings that might hurt the other person or damage the general atmospherewhen expressed are carefully sent back for reexamination in an internal self-feedback
process. Only those ideas judged safe and vague are allowed to be sent out through thesmall exit that functions as a screen filter. This message screening process … is enryo(restraint); it makes the Japanese appear silent, vague, and awkward in communicatingwith superiors, strangers and people from different cultures.

This desire to maintain wa or harmony and avoid seeking accounts may havecontributed to the series of monologues rather than dialogues in formal board meetings at
this hospital. We do not wish to claim that all Japanese public hospital governanceexhibits exactly the same feature, but the general patterns of interaction between andamong key stakeholders in relation to accountability and the governance process areperhaps likely to be shaped by some form of verticality, monologues rather than dialogues,
indirectness and silence.

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8 Concluding remarks
The paper provides some explanations of why physicians may resist NPM ideals
in healthcare complementing previous studies (Dahan, 2015; Turner et al., 2016;
Andersen, 2009). CPA approach guided us to examine both semiotic and extra semiotic
features and their dialectical moments with key actors in assessing the limits of NPMs in
non-Western contexts. In doing so, it contributes to debate on the role of healthcare
professionals in reforms in light of broader socio-cultural, historical and institutional
contexts (Martinussen and Magnussen, 2011). We argue that the social embededness ofphysicians is an improtnat factor to consider. For instance, the power and constraints ofphysicians cannot be fully understood without invoking the concept of the ikyoku systemand the historical power position of physicians in Japanese society. At the same time, theevolution of the ikyoku system, despite originating from Germany, has been shaped bycultural norms such as the senpai–kōhai relationship. Thus, both cultural norms andhistorical and institutional contexts provide us with some sense of the unanticipatedconsequences of Western-centric NPM ideals in Japanese hospitals.
The paper also contributes to a critique of the unquestioning adoption of NPM
styles of governance without considering the local context. Researchers have alreadyhighlighted the unanticipated consequences of unmodified adoptions of NPM reforms. It
might be argued that, in Japan, economic and political certainties are relatively similar toWestern countries, yet the institutional context, historical legacy and cultural attributes
are far from similar. Although Japan has a strong tradition of borrowing rich cultures,
religions, philosophies and technologies, it has also been through a process of iitoko-dori,or adaptation rather than adoption (Davies and Ikeno, 2002). Appreciation of these
conditions is key to a better understanding of the (un)intended consequences of healthcare
reforms in Japan and worldwide (Ashraf and Uddin, 2016).
Finally, the paper has practical implications as it provides some explanations ofhow, for instance, key social actors interact with the healthcare reforms. Theoretically,
we are arguing identifying these cultural and historical conditions will provide healthcare
policy makers with a better understanding of unintended consequences and perhaps
possible remedies. Health care professionals such as physicians in Japan do not appear toengage with the cost management ideals as perceived by policy makers. Healthcare
bodies need to engage with medical and business schools to popularize the costmanagement reform agenda. The findings suggest that reforms may be less controversial
if their dynamics arise from the healthcare professionals themselves rather than being
imposed upon them.

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