How to Solve Japan’s Innovation Bottleneck in Healthcare

Startups are changing how business is done in Japan, but medicine remains stubbornly resistant to innovation.

In some ways, that’s good. We are literally experimenting with peoples lives, so caution is definitely warranted. We don’t want to rush things. However, Japan’s national health insurance acts as a single buyer, and sometimes the only way to innovate is to go around them.

That’s exactly what Kenichi Ishii, the founder of Next Innovation has done. Their long-term strategy involves creating widespread and comprehensive telemedicine in Japan, but right now they have developed a basic approach that has reduced the cost of some medical treatments by more than 70%

And business is booming.

Ken and Next Innovation are both proudly from Osaka, and we also talk a lot about the state of the Osaka startup ecosystem.

It’s a great conversation, and I think you’ll enjoy it.

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Show Notes

• Why medical startups need to innovate around Japan’s national health insurance
• How to cross-sell in the medical market
• Why Osaka offers a competitive advantage to some kinds of startups
• What is holding back telemedicine in Japan
• The culture of secrecy in Japanese medicine
• The most likely source for innovation in Japanese medicine

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Transcript

Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for joining me.

The medical industry is one of the hardest to disrupt and in some ways, that’s a good thing. I mean, we’re literally experimenting with people’s lives here so there’s a good argument to be made for being conservative and taking things slowly, but you know, looking at the national health insurance system in Japan and the health systems of all developed nations, it becomes pretty obvious that not only can improvements be made but that improvements must be made.

Well, today, we talk with Kenichi Ishii, the founder of Next Innovation. Their long-term strategy involves increasing the use and acceptance of telemedicine in Japan in general but right now, they’ve developed a basic approach to telemedicine that enables them to sell prescription drugs over the I, and business is booming. Oh, and Next Innovation is a proudly Osaka-based startup. Ken and I talk a lot about the challenges Osaka has faced in developing a startup ecosystem and why it seems that those problems might be over, and you’ll be hearing from more and more Osaka startups on the show.

During the interview, Ken and I talk about value-based medicine and price-based medicine. It’s not really intuitive so it’s probably best if I explain it to you now. When Ken talks about cost-based patients, he means those who see medical treatment as a means to an end and they want it done simply, cheaply, and quickly. The value-based patients are those that want to be involved either because of an interest in the treatment or for other social reasons that we’ll talk about.

Ken will explain why this difference is important, how Japan’s tight control over the medical industry forced him and his team to be very resourceful in launching this product, the crisis Japanese hospitals are facing now and why we can’t stay on our current path; we need to innovate our way out of this situation.

But you know, can tells that story much better than I can, so let’s get right to the interview 

Tim: So I’m sitting here with Kenichi of Next Innovation, a true telemedicine startup in Japan. So thanks for sitting down with me.

Kenichi: Thank you, nice to meet you.

Tim: Telemedicine covers a really broad area, so can you just briefly explain what Next Innovation does?

Kenichi: Our products, we call it smashing, it means smart and of course, the clinic, and there are three unique points. The first, main content is text-based communication.

Tim: So not video? Text-based?

Kenichi: Yeah, it’s not video. We have a video, it’s available but almost doctors, not choice. Second, we never use Japanese insurance systems.

Tim: So you don’t use the national healthcare system.

Kenichi: Yes, yes, because we target all over the world. If we use the Japanese unique insurance system, we can’t –

Tim: It will be hard to go global?

Kenichi: Yes, yes, yes.

Tim: That makes sense but – well, so basically, you’re providing online consultation for things like flu shots, erectile dysfunction drugs, hair loss, hayfever, and cat allergies, right?

Kenichi: Yes, yes, yes.

Tim: So if national health insurance doesn’t cover your service, how can you compete with all of the clinics where –

Kenichi: Yes, exactly.

Tim: The cost must be much higher.

Kenichi: Yes, we never use the insurance system but some customers, payment money is almost equal insurance system use.

Tim: So it costs the same to use your service as the co-pay of someone using the national health insurance?

Kenichi: Yes, yes, yes.

Tim: How do you do that? Because Japan has a pretty good national health insurance so where is your cost savings on this?

Kenichi: One point is, doctor’s fee. For example, a doctor and patient appointment is same time, but it is hard to each people and our products take text-based communication. So each people don’t have to admit at the same time.

Tim: Okay, so it’s more efficient for the doctors, it uses less of their time?

Kenichi: Yes, yes, yes. The next one, almost Japanese insurance systemic including the pharmacist fee, drugstore, our product omit this system.

Tim: So you deliver the drugs by postal mail?

Kenichi: Yes, from clinic to patient. So it is a second cost down point.

Tim: And the third one?

Kenichi: We can only use generic medicines.

Tim: So no brand-name drugs?

Kenichi: Yes, yes.

Tim: Alright, but that means that this efficiency drops your cost to 30% or so, right?

Kenichi: Yes, yes, almost 30%, likely 30%.

Tim: 30% of the standard – or it seems to be exactly why we need more innovation in medtech.

Kenichi: Yes. For example, a patient with hayfever, around 4,000 yen each visit. So our target wants to buy the prescription drug but never go to the clinic.

Tim: So I do decide on these specific types of medical problems?

Kenichi: We think of the development, each categories, doctors and the customers, so we focus on the first time, the doctors – they don’t know how to use telemedicine. So at first, we target low-risk disease and low-risk solutions. This is very important. That’s the first time, I take the ED market. Viagra is small risk and it is easy to diagnose.

Tim: Alright, and the same thing with the same thing with hayfever and cat allergies. That makes sense. I really like this because when people think of telemedicine and innovation, we tend to think of video consultations or high-tech but this is actually a pretty low-tech approach and it’s a just very efficient.

Kenichi: Yes, I think so.

Tim: Well, tell me about your customers. So erectile dysfunction and hair loss seems to target a very specific demographic, but cat allergies and hayfever seem to be targeting a very different group of people.

Kenichi: For example, ED service to 50 years and men and hayfever and allergic market is 20s or 30s female. It is a separate market with right to the cross sale in the markets, ED and AGS, and including the allergic market to, for example, the pills.

Tim: So for example, hair loss, electrical dysfunction, that’s probably an easier cross-sale. So do you use different marketing channels to reach the erectile dysfunction and hair loss customers than you use to reach the car allergy customers?

Kenichi: So I hope to engage with the customers by internet. It is very easy to collect information, just lots of information on the website.

Tim: Very much like any other kind of e-commerce.

Kenichi: Yes, yes, like e-commerce.

Tim: So search engine optimization, some social media…

Kenichi: Yes, yes, that’s right.

Tim: That makes sense. Before we get into the details of the product and the business model, let’s talk a bit about you. You actually grew up in the Tokyo area and you went to university in Tokyo, but you moved to Osaka in 2013. What was the reason for the move?

Kenichi: I love Osaka and Kansai area, there is no competitor in this market.

Tim: But I mean, this was back before you started Next Innovation, so 2013.

Kenichi: Oh, okay, I understand. I have belonged to the pharmaceutical company from 2001 to 2013 and this is twice location from Sapporo to Osaka at 2005.

Tim: Okay, so the company transferred to you? And actually, I mean, you had a really long and successful career in the pharmaceutical industry. So what made you leave and want to start a startup?

Kenichi: I think some pharmaceutical companies, very, very great company but limited. There’s a lot of regulations and innovation. For example, we have to talk about no license drug with the doctors. We cannot speak with customers. I think this is very frustrating, medical players changing very, very slowly.

Tim: Yeah, it’s a very conservative industry.

Kenichi: Yes. If I want to change it, it couldn’t change including the player.

Tim: So it has to be changed from the outside.

Kenichi: Yes, yes.

Tim: That makes a lot of sense. What did your colleagues think of your decision? Were they supportive of you deciding to leave the company and start your own business?

Kenichi: Almost of my colleges and the boss said to me, “It crazy. Don’t do it.”

Tim: Too risky? They thought you’d go out of business?

Kenichi: Yes, that’s right but I think if people stopped at this business model, I have to go there.

Tim: Right, right. If someone says that’s impossible, never do that, that means there is an opportunity there. Thinking about telemedicine in general, with Japan’s aging population, there is a real shortage of doctors and especially nurses in Japan. So telemedicine should be something that’s much more common in Japan but it’s not that common. Why is that?

Kenichi: Telemedicine is one of the method for the innovation of medical scene. As you know, all the people is now customers in each hospital but we target – 40 and 50 years person is our target. It is changing.

Tim: Well, that makes sense. I mean, it’s harder to get older people to change their behavior than younger people.

Kenichi: Exactly.

Tim: But since there is so much need for innovation in telemedicine here, and since you are able to cut costs by 70% just by using some basic technology and a streamlined workflow, why don’t we see more medical startups in Japan?

Kenichi: They cannot survive because Japanese medical insurance system is a very good system and if the player can get that money, government changes the rules.

Tim: Okay, that makes sense. So yeah, in a sense in Japan, you only have one customer, it’s like the government is the customer and if the government doesn’t approve it, only startups like yours that can reduce costs by 70%, those are the only ones that make sense. 70% is a pretty high barrier, I think. Alright, you guys have been getting a lot of media coverage over the last year. This is a new concept in Japan. So what’s been the reaction from consumers and what’s been the reaction from doctors in the medical establishment?

Kenichi: Inside was loud, so loud because I don’t know how to use these systems of each user and from the doctors.

Tim: So both the doctors and consumers were opposed to it just because it was a new and different?

Kenichi: Yes, yes, yes. For example, so online was very uncomfortable experience of each side.

Tim: Okay, so was the resistance just people were not familiar with doing conversations this way or did you get some resistance from doctors who said that this is not a proper way to do medicine?

Kenichi: Yes, so we designed that text-based communication. I think there is a lot of time delay is okay, but for the users doctor cannot return the mail, in only this time.

Tim: So that makes sense from people who are trying to use the platform but did you have doctors or hospitals say that text based communication is inappropriate or that this is not the right way to prescribe?

Kenichi: Yes, yes, but almost customers, if they have the experience, this is cool. Everyone says it’s the same, it’s cool and very comfortable.

Tim: Both the consumers and other doctors are slowly changing their attitudes towards this?

Kenichi: Yes, yes, yes, right.

Tim: Did you have to get any regulations or laws changed? Were there any regulations that said the consultation has to be face-to-face?

Kenichi: Three years ago, it has changed the regulation and recently, it is changing. Almost doctors think that their medicine is video-based communication. It is one of the Japanese regulation and written in the guidelines but it is not a law. It’s only guidelines. It says not law.

Tim: Okay, so if you’re operating outside of the national health insurance, you’re free to do things differently?

Kenichi: Yes, that’s right.

Tim: Alright, talking about the culture of medicine in Japan, one of the things I was most surprised at when I moved to Japan is Japanese doctors don’t share a lot of information with their patients. A lot of times, they won’t tell them directly what the disease is or why exactly they are giving the medication but your team seems to have taken the opposite approach. So your website has a huge amount of information on cat allergies and why this specific drug is useful, and so I’m curious, was this style of providing information, was this kind of part of your company vision?

Kenichi: Yes, exactly. Some of the clinics and the doctors cannot use advertising for patients but we are without serving the insurance. We can inform the patients as each information. We can’t advertise it.

Tim: Do you think that attitude is changing in Japan? Do you think patients are asking their doctors for more information about their condition and the drugs?

Kenichi: I think that the patients who think that medical is value and there are patients who think medical is cost. I think that this segment, medical is a value segment is including your situation.

Tim: Oh, okay, so the patients who view medicine more as a value will tend to want more information and want to be more involved in their treatment and diagnosis?

Kenichi: Of course, and this segment is hope to more information, and more conversations, and more communication. These segments, low communication and low conversation.

Tim: So the other had – they want to be efficient and get their drugs.

Kenichi: Yes.

Tim: Alright. Do you think Japan is shifting one way or the other? Are more people becoming value-oriented or are more people becoming cost-oriented, or is it sort of staying the same?

Kenichi: Well, apart of doctors, never output the information but 40 or 30 doctors, maybe share the information with patients.

Tim: Okay, so it’s more of a generational thing.

Kenichi: Yes, yes, yes, and I think it is very important that key device is the smartphone.

Tim: Why is that?

Kenichi: Up to 10 years ago, we cannot accept and we don’t have that device, what can receive the big data.

Tim: So until smartphones, there was just no way to access medical records and things like that? It is interesting how it’s changing because I remember when I first moved to Japan, they just changed the law so that – it used to be that the medical records were the property of the hospitals and that the patients had no right to see their own medical records, and it’s only been kind of recently that that’s changed.

Kenichi: We hope to make the personal health record in this project.

Tim: In the future, you plan on expanding the services not just for telemedicine and consultation but to include medical record access and things like that?

Kenichi: Yes.

Tim: Alright. Let’s talk a bit about Japan in general. I think it’s obvious Japan needs more innovation in medicine and more telemedicine but how do you think telemedicine will be rolled out? What’s kind of the future of telemedicine?

Kenichi: I think that we are one of the major solution in the medical system is because telemedicine is one of the technologies that is at communication with doctors and patients and there is no limit in price and time.

Tim: Well, one thing I’ve heard a lot about the problem with medical costs in Japan is that a lot of times, hospitals almost become social gathering places that some people, especially elderly people actually enjoy going to the hospital so they can meet their friends, and do you think that’s true and do you think that’s going to change?

Kenichi: I think more than 50%. Yes, more than half.

Tim: So more than half want to go to the hospital?

Kenichi: Yes, that’s right, yeah.

Tim: I can’t imagine that. I hate going to the hospital.

Kenichi: I think so. So for example, in India, more than 8% of people convert to telemedicine these days. 8%.

Tim: Well, that’s still a very small number.

Kenichi: But there’s 1.5 billion people.

Tim: That’s true, so it’s a big number – small percentage but a big number of people.

Kenichi: Yes.

Tim: Alright, in Japan, so you think about 50% will accept telemedicine and 50% still want to go?

Kenichi: Yes, and I think it is harder to change from going to hospital to telemedicine but combination with go to hospital, visit, and telemedicine. I think this is very, very important point.

Tim: That’s true. There are some things where you definitely have to go to the hospital.

Kenichi: Yes, first time, go to hospital and diagnosis to be the doctors. After that, convert to telemedicine and they can take the same medications next month,

Tim: We talked before about your frustration with the national health insurance and some of the regulations on medicine in Japan. So what do you think the ministry of health, labor, and welfare should be doing to promote medical innovation and startups in Japan?

Kenichi: We have to think for the patient and never think the doctors. This is a very important point.

Tim: What do you mean? Okay, what’s an example of that?

Kenichi: Okay, some of the players at the first step think how to get some money from the doctors or hospitals because Japan has very good insurance system. Next, the players think how to provide to the patient, but it is very limited. We never think for doctors.

Tim: Yeah, that makes sense as a startup. As a startup, you always want to focus on your customers but can you think of anything that the government should be doing to encourage more medical startups in Japan?

Kenichi: Japanese regulations is established as very rigid and almost patient around the country is easy take into the market. I think the startup stage, the business model is a turnaround in Japan’s market and the scale as a company.

Tim: Okay. Let’s talk about Osaka. So I love that you are running the company in Osaka and I love Osaka. I always enjoy myself when I’m going there but despite the fact that it’s a really big city, it doesn’t have much of a startup community in Osaka. In fact, when Osaka startups start to get big, they tend to leave Osaka and come to Tokyo.

Kenichi: Yeah.

Tim: Why did you decide to stay in Osaka?

Kenichi: Because I love Osaka, I think. So it is easy to get information, the money from the capitalists. Almost company go to Tokyo and very close to the government, I think.

Tim: Well, yeah, I mean, we were talking – so we’re in Tokyo now and you were saying you come to Tokyo three or four times a month.

Kenichi: Yes, yes. So – yes, I meet the venture capitalist customers but I think, and this is one of the unique points, we live in Osaka. I think it is a lot of a business chance in the Osaka communities. For example, and as you know, Osaka city and Osaka perfectors support venture companies like us. We are take into the community and we were supported as members. I don’t know what is Tokyo’s ecosystem, I don’t know but I feel Osaka’s ecosystem is very comfortable and very cool. For example, I love the passion of the leaders in Osaka.

Tim: Alright. Well, listen before we wrap up, I want to ask you what I call my “Magic Wand” question and that is, if I gave you a magic wand and I said that you could change one thing about Japan, anything at all – the regulations on medicine, the way people think about taking risks, the education system – anything at all to make things better for startups in Japan, what would you change?

Kenichi: Change people way of thinking so they will take more risks.

Tim: Okay. So that goes back to what you were saying when you were quitting your job at the pharmaceutical companies and everyone around you was saying don’t take that risk, and why do you think people are afraid to take the risk?

Kenichi: It is comfortable.

Tim: Ah, that’s true. You can have a very comfortable life in Japan.

Kenichi: Yes, almost people feel comfortable.

Tim: Yeah, innovation and change happens based on uncomfortable people.

Kenichi: Exactly. I love to take the risk because risk has happy over there.

Tim: Yeah, you can look into the future but I think there’s something to that because I think innovators and people who create companies are never really comfortable where they are. Even if they’re very wealthy or famous, they’re never quite happy or comfortable with their situation. So that might be a really good thing for society but it sounds like a bad thing for the person.

Kenichi: Yeah, some people envy the successful player in Japan but I think it is a fault.

Tim: Right, because they just envy, they don’t take action to change the situation. Alright, do you think it’s changing? Because we see a lot more startups these days. Do you think people are willing to take more risks or is it just getting less risky to start a company?

Kenichi: We have to take risk, everyone, because Japanese market is absolutely shrinking in these years. So established players are not available in the future.

Tim: Yeah, that’s true. A shrinking market means that the big companies who are optimizing to run their current business model will not work. It has to be new business models.

Kenichi: And almost the business model was aged for 30 years or 40 years. There are a lot of chances in Japanese market because Japanese people are very honest and Japanese people have good concentration.

Tim: But that’s interesting because you mentioned like, the last 30 years, I think that big Japanese companies in the 50s and 60s, maybe even the 70s, were very innovative with the business model.

Kenichi: Okay, I see.

Tim: And they’ve stopped being innovative. So do you think that Japan’s big companies will be uncomfortable enough to start innovating again or do you think that Japan’s future really lies with startups?

Kenichi: Japanese big-company is fit to the continuous innovations model but they are not the fit to the disruptive innovations model. I like that one so I leave it.

Tim: So you think the future of innovation in Japan is going to be the startups and not the big companies?

Kenichi: Yes, yes.

Tim: Okay. Well, excellent, Ken, I want to thank you so much for sitting down with me today.

Kenichi: Thank you, thank you.

And we’re back.

One of the most important aspects of this story is how very difficult it is for a startup to build a viable business model in medicine. Next Innovation had to operate completely outside the national health system and that meant that they had to provide their services for 70% less than the going rate, and they did.

Now, this is a statement not just about the ingenuity of Ken and the team at Next Innovation but at how inefficient some parts of the healthcare industry are and how badly innovation is needed. If a relatively simple platform is accepted by doctors and patients and it reduces overall cost by 70%, that’s something the government needs to look at mainstreaming.

And to be fair, perhaps the government is looking at it. Japan is facing both a rapidly aging population and rapidly rising medical costs. Innovation is not going to come from within the system. The clear answer, the only answer really is being open to the innovations and progress that is being made by medical startups in Japan today.

If you’ve got an opinion about medicine or startups in general, Ken and I would love to hear from you so come by disruptingjapan.com/show121 and let us know what you think. When you come by, you’ll see all the notes and links that Ken and I talked about and much, much more in the resources section of the post.

Oh, and by the way, please feel free to get in touch and connect with Disrupting Japan on Twitter and Facebook, or even drop by our LinkedIn group. A quick search for Disrupting Japan on any of those platforms will take you right to us. I’d love to hear from you and we’ve got a lot more information on Japanese startups in innovation on the social sites and on our website as well.

But most of all, thanks for listening and thank you for letting people interested in Japanese startups know about the show.

I’m Tim Romero and thanks for listening to Disrupting Japan.