In this blog post, I would like to examine the trend of privatization of Korean healthcare and the resulting weakening of public nature.

 

Korean healthcare on the threshold of privatization

Long ago, on June 10, 2014, the Korean government caused a stir by announcing a legislative notice to allow for-profit subsidiaries of hospitals under the “Enforcement Rules of the Medical Service Act.” According to this rule, medical corporations can establish subsidiaries within medical facilities for the purpose of earning profits from medical hotels, medical devices, health foods, cosmetics, etc. The author would like to express his opposition to the enforcement rules of the Medical Service Act, which he claims are a step toward the privatization of hospital operations.

 

Attempts to privatize hospital operations

There have always been moves to privatize hospital operations. In fact, the Roh Moo-hyun administration amended the Medical Service Act to allow foreigners to be treated at foreign for-profit hospitals in free economic zones, and the Lee Myung-bak administration allowed for-profit hospitals in Korea on Jeju Island. However, the introduction of for-profit hospitals has failed due to national opposition. However, the Park Geun-hye administration’s bill to allow for-profit hospital subsidiaries can be seen as laying the foundation for the privatization of healthcare by allowing capitalists to invest in and profit from profit-making businesses within hospitals.
If the Medical Service Act is amended to allow for-profit subsidiaries within hospitals, investors can generate profits through subsidiaries within hospitals even if the hospitals themselves are run as non-profits. If a pharmaceutical company or medical device manufacturer is established in a hospital and supplies its products exclusively to that hospital, the hospital cannot free itself from the influence of that company. For example, it may be forced to undergo unnecessary surgery or tests, such as MRI or joint surgery, and people without medical knowledge may have no choice but to use unnecessary services. This can lead to serious problems, as it not only increases medical costs but can also lead to post-operative sequelae and medical accidents. In addition, if a hospital subsidiary is established, external capital will flow into the hospital through the subsidiary, which will enable the hospital to engage in for-profit activities through the subsidiary, which may lead to the privatization of hospital operations.

 

Imbalances and the weakening of health insurance that medical subsidiaries can bring

Another concern with the enforcement rules of the Medical Service Act is that large company-affiliated hospitals such as Samsung Medical Center and Asan Medical Center are excluded from the scope of the rules because they are designated as cross-shareholding restricted companies. The reason for this concern is that it may not be subject to the mandatory insurance system. Currently, South Korea has a social security system that collects insurance premiums from the public and funds them to reduce the burden on households due to high medical expenses, and shares the risk by paying insurance claims in the event of an insurance accident. Health insurance is available to all citizens and plays a role in income redistribution by collecting insurance premiums in a graded manner according to each individual’s economic ability. In addition, all medical institutions are enrolled in the national health insurance system under the mandatory national health insurance system, which forces medical institutions to accept the national health insurance. However, Samsung Medical Center and Asan Medical Center are excluded from the revised Medical Service Act and will be able to contract with private insurance companies. This may be an opportunity to reduce the benefits of the current health insurance system.

 

The importance of non-profit operation regulations and the social role of hospitals

According to Article 33(2) of the current Medical Service Act, medical institutions in Korea must be non-profit corporations. In other words, the profits earned by medical institutions must be invested in medical research, medical devices, and improvement of surgical systems, rather than being returned to investors in the form of dividends or stock price increases. In addition, the law restricts the entities that can operate medical institutions to those with professional licenses. Doctors open and operate hospitals, and pharmacists open and operate pharmacies. Therefore, if a general company wants to open a medical institution, it must establish a separate non-profit organization. In fact, Asan Medical Center in Seoul is established by the Asan Social Welfare Foundation, and Samsung Medical Center is established by the Samsung Life Insurance Public Welfare Foundation. Limiting hospitals to non-profit corporations is a minimal measure to prevent hospitals from pursuing excessive commercialism. If hospitals are run as for-profit institutions, medical services will be distributed to consumers according to market principles, which will result in only certain groups of consumers who can pay for medical services being able to access medical services. Medical services are directly linked to the health and lives of the people, and since all people should receive medical services, this is not right from the perspective of social security. I believe that the first step towards social welfare is to remove medical services from the axis of the market economy and have the state operate them.

 

Overseas examples of medical privatization: The current state of medical privatization in the United States

The United States is the only OECD country that has implemented medical privatization. For-profit hospitals in the United States are run by businessmen who aim to make a profit, and the profits from hospital operations are distributed to shareholders who invested in the establishment of the hospital. In fact, medical expenses in the United States are very high. According to WHO statistics from 2008, the per capita expenditure on medical care was $7,146, which means that 15.2% of GDP is spent on medical care. Is the quality of medical services in the US, which charges such high medical fees, really that good? In 2012, whistleblowers in US hospitals accused doctors of frequently forcing unnecessary hospitalizations and surgeries due to a system that paid them performance-based bonuses. In fact, US doctors forced more than 20% of emergency room patients and more than 50% of 65-year-old patients to be hospitalized. In addition, medical facilities in the United States charge high fees for unnecessary services in addition to medical services. The current state of medical privatization in the United States is a serious problem.

 

The benefits and limitations of medical privatization

However, it cannot be said that there are no positive aspects of medical privatization. First, if the privatization of medical services is carried out and hospitals are allowed to engage in profit-making activities, the quality of medical equipment and medical services can be improved. Long-term medical research requires capital, and the hospital’s commercial activities provide incentives for capital investment, which can lead to improvements in medical technology. In addition, hospitals will provide more advanced services, such as assigning more medical staff to patients and upgrading hospital rooms, in order to generate greater profits.
However, there is a greater chance of experiencing market failures, such as excessive competition, bundling, and collusion, rather than improvements in medical services driven by market incentives. In fact, when a woman gives birth naturally in the United States, a lot of medical staff are involved and she can stay in a hospital room like a hotel, but she has to pay an average of $9,775 and a maximum of $16,650 as of 2013, which is 14 times the average of $1,188 in Argentina. This case shows a market failure of bundling, which provides unnecessary services and demands higher medical expenses. If the quality of medical services is improved beyond necessity, the range of choices will be narrowed, and more people will be unable to use them, reducing the benefits for the entire population. Therefore, it is not desirable to improve the quality of medical services through medical privatization.

 

The logic of economic growth and the problems of medical privatization

In addition, those who favor medical privatization argue that exposing the medical business to a fully competitive market can have a positive effect on economic growth. They argue that the profits earned from running hospitals can help the stagnant Korean economy. As the size of medical corporations grows, they will be able to provide high-quality medical services to the entire population, expand overseas, and achieve economic growth.
However, the entities that will profit from medical services will be hospitals, capitalists who invest in medical technology, large corporations, and large hospitals, and these profits will come from the increased medical expenses paid by the people. When the price of medical services that all people must use increases, the economy may appear to be more active on paper, but the burden will fall on all people. This cannot be called true economic growth.

 

Recommendations for restoring the public nature of medical services

Anyone who is sick should be able to go to the hospital and get a medical examination without worrying about medical expenses. Medical services should prioritize saving lives and promoting the health of the people, and capitalism should not obscure the original purpose of medical services. As part of the social security system, medical services are an essential tool for protecting the health of the socially vulnerable and an aging society. Therefore, the actual privatization of medical services through the establishment of hospital subsidiaries should be stopped, and policies should be revised to strengthen the public nature of medical services.