Japan: Message Co.

For seniors, good care at good prices

In Japan, no subject preoccupies health-care professionals more than the rapid graying of the population. The proportion of over-65-year-olds is already 20%. By 2020, it will approach 30%. Most of the elderly will be taken care of by their children, in traditional Japanese fashion. But Japan is becoming less family-oriented, and millions of the elderly will land in nursing homes and assisted-care facilities.

This has become both a wrenching social problem and a business opportunity. In the past five years, hundreds of facilities for the elderly have opened their doors. And few nursing-home entrepreneurs have been more successful than Dr. Toshiaki Hashimoto. Hashimoto, a stomach surgeon, began noticing a decade ago how poor institutional care for seniors was around Okayama, in western Japan, where he owned a private hospital. "Old people were made to play childish games or stay in bed," he recalls. So in 1997, Hashimoto, now 57, opened a 36-bed assisted-care facility not far from his hospital.

The home advertised high-quality care, with a focus on individual freedom, at reasonable prices. It was an immediate success. Now, Hashimoto's Message Co. runs 102 nursing homes across Japan. He has given up medicine to run his thriving enterprise full-time. "I found this business more interesting," he says.

"A PIONEER"

Message Co. proves that providing decent care for seniors doesn't have to be a loss-making business. The company more than doubled its profits, to $5.8 million, for the fiscal year ending last March. Sales jumped 66%, to $92.6 million. In April, 2004, Message listed on the Jasdaq, one of Japan's new-company exchanges. The stock has dropped recently, but Message still boasts a market cap of $281 million.

At Message facilities, staff are required to treat residents with respect. No one barges into a patient's room without an appointment, and residents can schedule meals, baths, or recreation when they wish. The price: a move-in fee of $3,500, plus $1,200 to $1,650 per month to cover rent, utilities, and food -- quite reasonable, by Japanese standards. "Message is outstanding," says Hidekatsu Watanabe, an analyst at Mizuho Securities in Tokyo, who covers the sector. "Hashimoto is striking the appropriate balance between costs, quality, and making profits."

Hashimoto keeps the quality of care high and costs low by running an ultra-efficient outfit. Stopwatch-wielding managers follow workers around the facilities, then use the data to work out detailed schedules so no time is wasted. "Mapping out schedules is technically quite difficult," says Hashimoto. "But this system has helped boost efficiency." Another cost-saver: Hashimoto leases, rather than buys, most facilities. And he has cut the cost of patient meals by 30% by outsourcing food preparation, though some critics charge that this sacrifices food quality.

During his first few years of operation, Hashimoto used cash flow to fund new facilities. Not until 2002, when he was already operating 54 homes, did he invite private equity firm JAFCO to make a $513,000 investment. That put Message on the road to its 2004 IPO. "We used Jafco to improve the company's prestige with investors," says Hashimoto, who owns 40% of the company.

Message could run into some headwinds. Competition is growing: In the past five years the number of nursing homes has quadrupled, to 1,200. And because local governments defray the costs -- Message gets 51% of its revenues from taxpayers -- analysts warn that high profits in the sector could lead to cuts in reimbursement. That's one factor in the company's depressed stock price. Rising real estate costs are a problem, too. Hashimoto, though, is confident Message has a secure future. He has proved nursing homes can be profitable, and the grayer Japan gets, the more they'll be needed.

By Ian Rowley in Tokyo and Hiroko Tashiro in Okayama

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