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.

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

Links from the Founder

Everything you ever wanted to know about Next Innovation Friend Ken on Facebook Check out the Sumashin app The Osaka Innovation Hub is the center of Osaka's startup scene

[shareaholic app="share_buttons" id="7994466"] Leave a comment 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

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[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?

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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."