[The Korea Herald] Should for-profit hospitals be allowed?

By John Power

To many, profit is something to be regarded with suspicion. But it’s rarely more controversial than when associated with health care. Unsurprisingly, then, a decision by the Ministry of Health and Welfare to introduce regulations for the operation of foreign, for-profit hospitals in the country’s six Free Economic Zones at the start of the month has polarized opinion.

To its supporters, the move gave long-overdue effect to the government’s aims to increase investment and competition in the health-care industry. Officially, foreign hospitals have been permitted since the latter days of the Kim Dae-jung administration, which opened the zones to such facilities in 2002. But no such hospital has yet been established, with the previous lack of clear procedures having been cited as an impediment to potential investors. Songdo, the planned city outside of Incheon recently selected to host the United Nation’s Green Climate Fund, is expected to be the site of the first of the hospitals in 2016.

As per the new regulations, at least 10 percent of its staff and almost half of its capital will have to be foreign. This and similar hospitals will also be separate from the Korean national insurance system. Wholly domestic entities will still be prohibited from operating for-profit hospitals.

These government restrictions aren’t just bad for business, say some investors, but for the health-care system itself.

“The real issue in Korea is lack of capital,” a member of a global private equity firm with eight years’ experience in the health-care sector told The Korea Herald. He wished to remain anonymous because of the sensitivity of the issue.

“Most of the medium to small-sized hospitals ―- usually the hospitals with 100-300 beds -― the bankruptcy ratio of those small hospitals is 9-10 percent per year. They definitely need the cash from other investors, but the government made it impossible to do that.”

A surgeon performs spinal surgery on a patient at a hospital in Incheon. Recent moves by the Ministry of Health to allow for-profit hospitals have spurred concerns about the impact on the public health system. (Yonhap News)

What is a very high standard of health care in Korea is not being matched by the funding necessary for ever more advanced technology, he claimed.

“Without capital, it is very difficult to have a high-quality service; high-quality hospitals and more and more hospitals will be in trouble, simply because of a lack of equity. That happened also in the U.S. in the ‘80s.”

Some doctors agree that the present health-care system is too inflexible. Park Han-son, a psychiatrist at Saint Andrew’s Neuropsychiatric Hospital in Icheon, Gyeonggi Province, said that while they had their downsides, for-profit hospitals would benefit Korean health care.

“Basically, I think that more flexible approaches for the future of Korean medical system are highly needed,” said Park.

“The Korean medical insurance system is too rigid. A lot of medical reformers have difficulty making a breakthrough due to legal limitations. The health and medical industry is one of the most conservative fields. All changes can be harmful to someone, and can be beneficial to someone. But we need to make some changes.”

Distinct roles

While indispensible health care should continue to be provided to all through the public system, Park said, profit-seeking operators could have an important role in specialized care and medical innovation.

“Indispensable medical supports like vaccination, maternal health or nutrition should offered evenly by government funding,” he said. “Cutting-edged medical science or special care could be paid by ‘the benefit principle.’ The public health system and private health system have their own distinct roles.”

Critics of the concept of profit-seeking in health care fear that the presence of for-profit institutions will undermine the entire national health insurance system by luring wealthy patients away from the scheme, depriving it of funds. A report by the Hyundai Economic Research Institute forecast that the introduction of for-profit facilities, while having a potential economic effect equaling as much as 1 percent of GDP, would weaken the public health-care system.

Lee Yong-kyoon, a senior researcher at Korea Institute of Hospital Management, said that the recent moves by the Health Ministry mark a fundamental shift in the delivery of health care in the country.

“Currently, South Korea’s health insurance price follows a single insurance price system which is a controlled payment system,” said Lee.

New territory

“On the other hand, foreign for-profit hospitals allowed to enter the Free Economic Zones are not subject to the obligatory contract of the national health insurance. Since these hospitals are outside the boundary of the controlled payment system of national health insurance, they can differentiate medical services offered in South Korea and are expected to be a turning point of activating the market price mechanism in the domestic health industry.”

Lee said this change of approach in health care could lead to tension and alienation between different strata of society.

“The introduction of expensive foreign for-profit hospitals in the zones may possibly draw social conflict and marginalization between the rich and poor. So, public medical support for the socially neglected people should be reinforced.”

Another argument by critics of liberalization of the sector is that doctors could be lured by higher salaries away from national insurance-covered hospitals to money-making facilities, a concern shared by Park.

“It is a major concern when it comes to the introduction of profit-making medical cooperation. We should not rely on the sense of doctor’s Hippocratic duty in maintaining a modern public health system. If we want for more talented doctors to work for public hospitals, we have to pay for it. There is no such thing as a free lunch.”

Inequality in provision of services is another concern. A study in 2010 by the Korea Institute for Health and Social Affairs predicted that the public would be saddled with an extra 1.5 trillion won ($1.4 billion) in health-care costs were 20 percent of the country’s private hospitals to become profit-seeking.

For Park, the solution to concerns regarding health-care polarization is to be proactive in funding for the disadvantaged, rather than restricting certain types of involvement in health care.

“Everyone has a right to get enough food to live regardless of his or her economic status. But it doesn’t mean everyone has to eat the same foods.

The gap between the rich and the poor is an undeniable fact. So, the limited budget of government should be invested for social and economic minorities, not for all people.”


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