Japan's Abe battles doctors' lobby over 'Third Arrow' reform TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe wants to promote the advanced medical technology industry as part of a plan to breathe new life into the economy - but the country's doctors' lobby is opposing what they say is risky surgery. Health care has become the latest battleground in Abe's efforts to craft a strategy to engineer growth in the world's third biggest economy, the so-called "Third Arrow" of his economic turnaround plan. The plans include changes to the country's universal health insurance system - as cherished in Japan as the National Health Service is in Britain - in order to boost growth by increasing demand for innovative drugs and medical devices. The debate is being cast as a litmus test of Abe's commitment to deregulation as he attempts to revitalize Japan's stagnant economy. It also illustrates the opposition that Abe, who returned to power after his Liberal Democratic Party's (LDP) big election win in December, faces from within his own camp. "The idea of the growth strategy is ... for the private and public sectors to get together and promote innovation, We agree with that," Takashi Hanyuda, an LDP lawmaker who is also vice president of a powerful doctors' lobby, told Reuters. The growth strategy also aims to promote exports of advanced medical technology and speed approval of new drugs and devices. "But we have to protect the universal health insurance system to which everyone belongs," said the 65-year-old ophthalmologist, elected to parliament last month after running with the support of the Japan Medical Association (JMA). If the system starts to break down a little, it will turn into a flood and it would be extremely hard to halt the trend. On one side of the argument is the 165,000-member JMA and health ministry officials, who say they want to protect the cherished principle of universality in a system that has been the envy of much of the developed world. Lined up against them, and pushing Abe to go further, are advocates of more radical reform who accuse the small family doctors who make up the bulk of the JMA's membership of wanting protection from competition from larger clinics and hospitals. Reformers say the changes would give patients more choice and allow doctors more discretion. The JMA, the health ministry and some experts counter that the reforms would widen healthcare gaps between rich and poor. Critics also question just how much economic growth the changes proposed in a growth strategy unveiled in June would generate. The JMA also worries that Abe's push for Tokyo to join the U.S.-led Trans-Pacific Partnership (TPP) free trade pact would give impetus to such changes if Washington pushes in negotiations for market-oriented reforms to healthcare, although U.S. officials deny they have such an agenda in mind. Organized interest groups and the "zoku giin" ("tribal lawmakers") who represent them have staged a comeback since the LDP returned to power in December after a three-years gap and cemented its grip on government in a July upper house poll. So although opposition parties have been badly weakened, Abe faces tough policy battles with forces inside his own party. The organized vote is definitely making its presence known. The 'zoku giin' are feeling empowered," said Steven Reed, a political science professor at Chuo University in Tokyo. At first blush, the proposed reform hardly appears the stuff of a political battle royal. All Japanese are enrolled in one of four health insurance schemes that provide the same level of cover at the same prices. But because of a ban unique to Japan, patients who want to combine a new drug or treatment not included in the official health insurance package with a treatment that is ordinarily covered must pay out of their own pocket for both. That means they are faced with an "all-or-nothing" choice - relatively low-cost treatment inside the public insurance scheme or relatively high-cost treatment without any public cover. That ban on so-called "mixed medical treatment" was imposed because the system, whose roots stretch back before World War Two, is based on the premise of ensuring equal access for all Japanese to the full range of safe and effective treatments. Exceptions have been made for some advanced treatments - such as cancer drugs approved overseas but not yet in Japan - on the assumption that effective drugs and devices will eventually be covered by public insurance. Critics say the system is too slow and exceptions too few. Abe returned to power for a rare second term pledging to revive Japan with a radical economic policy - known as "Abenomics" - comprising the "Three Arrows" of drastic monetary easing, fiscal stimulus and a growth strategy that includes structural reforms such as deregulation. Unveiling his "Third Arrow" in June, Abe promised to "dramatically" expand mixed care in health by increasing the range of treatments included and reducing approval times. On Thursday he reiterated that the change should be a top priority. Advocates of more radical change want a complete end to the ban. "The current system is unfair," said Haruo Shimada, president of the Chiba University of Commerce and a former an adviser to then-premier Junichiro Koizumi, a privatization fan, during his 2001-2006 term. It's an institutional defect. Some even want to deregulate public health insurance and widen the scope for private providers, reducing the burden on public finances already heavily strained by Japan's ageing population and spurring growth of innovative medical treatments. "The government should abandon 100 percent control over the medical industry, especially insurance," Shimada said. Liberalization of the differential in terms of quality and price would give tremendous growth power for the medical industry. Doctors at large hospitals that would benefit most from the change also favor a complete end to the ban, pitting them against self-employed physicians operating small clinics. "The JMA says they are protecting patients' interests, but in fact, it is the patients who are crying," said former surgeon Ryosuke Tsuchiya, a member of the board at the Japanese Foundation for Cancer Research and an expert adviser to Abe's panel on regulatory reform, who wants the ban lifted entirely. Critics say the doctors' group is trying to protect the interests of its members who won't be able to compete against bigger hospitals offering advanced care in a deregulated system, while health ministry officials want to maintain their control. "They are protecting their turf, power and influence," Shimada said. Health ministry officials counter that leaving healthcare to market forces threatens both quality and equal access. Some outside experts agree that lifting the ban, or even easing it, would be a move towards creating a two-tiered medical insurance system in which expensive, advanced treatments would increasingly be left outside universal coverage. "Universality of access is the "holy grail' of healthcare in Japan and they (the JMA and health ministry) don't want to see anything that would fundamentally undermine that commitment to universal access," said one foreign medical industry expert. Given the tangle of conflicting interests, the outlook for drastic reform is dim. The prime minister already faces a politically fraught decision on whether to implement a planned sales tax rise next year and is pushing controversial changes to Japan's security policies, so may have little political capital to spend on deregulation, those involved in the process said. Still, with no election set until 2016, the next three years may offer the best chance to push deregulation. "If we want to promote growth, we need to deregulate where possible since the scope for fiscal measures is limited," said Yuri Okina, a Japan Research Institute economist and member of Abe's regulatory reform panel."For deregulation, now is our only chance." Editing by Alex Richardson