Medical services in the Tokyo metropolitan area are facing a serious danger of collapse as hospitals affiliated with private medical universities and private universities' medical schools, the key players in the region's medical services, are finding it increasingly difficult to make ends meet.

These institutions, long beset by higher labor costs than in other parts of the country, have been hit hard by the increase in the consumption tax from 5 percent to 8 percent in April last year. While they now have to pay higher taxes when purchasing pharmaceuticals and medical equipment, they cannot pass that incremental cost on to patients or health insurance associations. This is because medical services are exempt from the consumption tax, so patients and health insurance associations are not required to pay it.

Although the Health, Labor and Welfare Ministry and the Japan Medical Association are aware of the problem, they have not taken any countermeasures.

Topping the list of those on the brink of life or death is Nippon Medical School (Nichii) in Bunkyo Ward, Tokyo, the core institution in emergency treatment of cerebral apoplexy cases and traffic accident victims. Japan's oldest private medical university, boasting a history of nearly 140 years, Nichii posted a deficit of ¥2.9 billion in fiscal 2013 and bled ¥15.8 billion in red ink in 2014.

Its financial leverage ratio (total capital divided by owned capital) stands at 349 percent, indicating its liabilities far exceed its owned capital. Moreover, the current ratio (current assets divided by current liabilities) is 70 percent, showing a low level of cash on hand. These figures have led many to believe Nichii is on the verge of bankruptcy.

Nichii's financial troubles date back to when it invested huge amounts of money to buy large tracts of land to build a general hospital in Chiba Prefecture as the nucleus of a major medical science community, only to find that with the downfall of the nation's economic bubble it had run up huge deficits as the area around the new hospital, opened in 1994, became a ghost town.

Even though the university has taken emergency steps, such as selling one of its hospitals and a plot of land in Kawasaki, and raising tuition fees by a large margin, it still had to borrow additional money to rebuild its main hospital. As a result, its interest-bearing liabilities as of last March had blown up to some ¥60 billion, with the annual interest payments alone reaching ¥730 million.

Then came the consumption tax increase, which cannot be passed on to patients. The tax hike of 3 percentage points boosted Nichii's expenditures related to medical treatments in fiscal 2014 to about ¥23.7 billion, up by ¥260 million from the previous fiscal year. And in April 2017, the consumption tax rate is scheduled to go up another 2 percentage points to 10 percent — which will be unbearable.

If Nichii, a prestigious private medical university, is in a plight like this, it is easy to imagine how bad the situation is for other private medical universities.

Even before last year's consumption tax hike, private medical universities and their affiliated hospitals were fighting an uphill battle. The principal cause is the fact that the medical service fees are fixed by the government uniformly throughout the country. It is only natural that profit margins become much smaller for such hospitals in and around Tokyo, where prices of land, merchandise and labor are all higher than elsewhere.

According to publicly disclosed data, hospitals in the metropolitan area affiliated with Nichii, Kitasato University and St. Marianna University School of Medicine are all in the red. Even at hospitals of private medical universities that are in the black, the recurring profit rate is paper-thin — 1.4 percent at the hospital of Tokyo Women's Medical University and 2.8 percent at the hospital of Kyorin University.

Being victimized by these financial straits are doctors working at such hospitals. At Juntendo University Hospital, reputed to be among the best in terms of its balance sheet, a surgeon in his 40s confided that his take-home pay is less than ¥400,000 a month, a direct repudiation of the popular perception that doctors make a lot of money. Such a situation has forced most doctors at private university hospitals to engage in extra jobs at other medical institutions, causing physical hardships on them.

This abnormal situation cannot and must not last long, because the ultimate victims will be the patients. Treating patients will take a back seat should doctors continue to do extra jobs. These conditions have already led to scandals involving doctors and hospitals. For example, a 32-year-old doctor at the hospital affiliated with Tokyo Women's Medical University was arrested. She had been hurt in a traffic accident and went to a bone-setter's office just once, but then allegedly tried to cheat her insurance company out of some ¥2.65 million by claiming that she went to the clinic 229 times.

Despite these problems, people living in Tokyo are better off than those living in neighboring Kanagawa Prefecture. Tokyo is blessed with a number of public hospitals either affiliated with national universities, such as the University of Tokyo, or run by the Tokyo Metropolitan Government. They can make up for deficits with taxpayer money.

Kanagawa, on the other hand, has no hospitals affiliated with national universities and the prefectural hospitals there are small in scale. The hospitals run by St. Marianna University School of Medicine and Kitasato University, which have played key roles in providing advanced medical treatments in the prefecture, are likely to run into a crisis, with both universities reporting deficits for the 2014 fiscal year. St. Marianna relies heavily on loans, with its financial leverage ratio reaching 209 percent.

Another headache for private university-affiliated hospitals in the Tokyo area is a shortage of nurses. There are about 600 nurses per population of 100,000 in the area — less than half the rate in Kyushu and Shikoku. Intense head-hunting has raised the average annual income of nurses in Tokyo to about ¥5.23 million, more than 10 percent higher than the national average of ¥4.73 million, adding to the negative spiral for hospital management.

Some independent hospitals in the Tokyo metropolitan area that have played crucial roles in providing medical services to their community have also been hit hard by financial problems. Kameda Medical Center in Kamogawa, Chiba Prefecture, is a case in point. A prestigious hospital with some 450 doctors, Kamada is being compelled to reduce its workforce after registering a deficit of around ¥500 million due to the consumption tax hike, according to a hospital insider.

Takaaki Kameda, chairman of the hospital's board of trustees, is said to have instructed his staff to prolong the hospitalization of inpatients as much as possible to keep the bed occupancy ratio high. Such a makeshift step can hardly be expected to help the hospital tide over the crisis. Worse still, this attitude of contempt for patients that came from the top management had the effect of lowering the morale of its entire staff.

Japan may indeed be facing the need to cut down on medical expenditures. But if that results in the destruction of medical services in the Tokyo metropolitan area, it will lead to a total collapse of this aging society. The government has not given the slightest indication of how it will strike a balance between restoration of the nation's fiscal health and maintenance of reliable medical services. This governmental sin of omission is immeasurably grave.

This is an abridged translation of an article from the September issue of Sentaku, a monthly magazine covering the political, social and economic scenes.