A 2014 amendment to the Korean Healthcare Act allows for profit-making subsidiaries of hospitals, marking the beginning of healthcare privatization and leading to concerns about weakening publicness, which could threaten the public healthcare system that guarantees the health of the people.
As long ago as June 10, 2014, the South Korean government sparked controversy when it issued a notice of intent to enact the Enforcement Rules for the Healthcare Act, which allows for-profit subsidiaries of hospitals. According to this rule, healthcare corporations can establish subsidiaries within their medical facilities for profit, such as medical hotels, medical devices, health foods, cosmetics, etc. In this article, I will argue that this rule is a step towards the privatization of hospital operations.
Attempts to privatize hospital operations
There has always been a move to privatize hospital operations. In fact, the Roh Moo-hyun government amended the Medical Care Act to allow foreign for-profit hospitals to treat Koreans in free economic zones, and the Lee Myung-bak government allowed domestic for-profit hospitals on Jeju Island. However, the introduction of for-profit hospitals has failed due to public backlash. However, the Park Geun-hye administration’s bill to allow for-profit subsidiaries of hospitals laid the groundwork for healthcare privatization by allowing capitalists to invest in and profit from profitable businesses within hospitals.
The amendment to the healthcare law allows for profit-making subsidiaries in hospitals, which means that investors can make money through the subsidiaries even if the hospital itself is run on a non-profit basis. If a pharmaceutical company or medical device manufacturing company is established within a hospital and becomes the exclusive supplier to the hospital, the hospital cannot be free from its influence. For example, patients may be forced to undergo unnecessary surgeries or tests, such as MRIs or joint surgeries, and people without medical knowledge may be forced to use unnecessary services. This can lead to serious problems, as it not only increases healthcare costs, but can also lead to post-operative sequelae, medical errors, and more. Furthermore, the creation of a subsidiary within a hospital can lead to the privatization of hospital operations by allowing outside capital to flow into the hospital through the subsidiary, which in turn enables the hospital to engage in for-profit activities.
The imbalance that healthcare subsidiaries can bring and the weakening of health insurance
Another concerning aspect of the new healthcare law is that hospitals affiliated with large conglomerates, such as Samsung Medical Center and Hyundai Asan Medical Center, will be excluded from the mutual investment restricted corporate group. The reason for this is that they may not be subject to the natural designation system. Currently, South Korea has a social security system that collects insurance premiums from citizens to fund a fund to reduce the burden on households due to high medical expenses, and shares the risk by paying out insurance benefits in the event of an accident. Health insurance covers the entire population and plays a role in income redistribution by collecting insurance premiums according to each individual’s economic ability. In addition, all medical institutions are enrolled in the national health insurance system under a mandatory system that forces medical institutions to refuse to accept the national health insurance. However, hospitals such as Samsung Medical Center and Hyundai Asan Medical Center will be exempted from the revised healthcare law, allowing them to contract with private insurance companies. This could lead to a reduction in the benefits of the current health insurance system.
The importance of the non-profit rule and the social role of hospitals
According to Article 33(2) of the current Healthcare Act, South Korean healthcare organizations are required to be non-profit corporations, which means that any profits they make cannot be returned to investors in the form of dividends or stock appreciation, but must be invested in medical research or improvements to medical devices and surgical systems. The law also limits who can run a healthcare organization to those with professional licenses. Doctors open 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 practice, Asan Medical Center in Seoul is owned by the Asan Social Welfare Foundation and Samsung Medical Center is owned by the Samsung Life Insurance Foundation. Restricting hospitals to non-profit organizations is the least that can be done to prevent them from becoming overly commercialized. If hospitals were run as for-profit organizations, medical services would be distributed to consumers according to market principles, which would result in only certain groups of consumers who can pay for medical services being able to access them. This is not right from a social security perspective because healthcare is directly related to people’s health and lives, and everyone should have access to healthcare. In my opinion, taking healthcare off the axis of the market economy and making it state-run is the first step to social welfare.
Overseas examples of healthcare privatization: the United States
The United States is the only OECD country to privatize healthcare. For-profit hospitals in the United States are run by businessmen with the goal of making a profit, and the profits from their operations are distributed to shareholders who invested in the hospital’s creation. The reality is that healthcare costs in the United States are very high. According to 2008 WHO statistics, healthcare spending per capita was $7,146, or 15.2% of GDP. With such high healthcare costs, is the quality of healthcare in the US really that good? In 2012, whistleblowers in U.S. hospitals reported that a pay-for-performance system that pays doctors based on their performance often pushes patients into unnecessary hospitalizations and surgeries. In fact, doctors in the U.S. have forced more than 20% of emergency room patients and more than 50% of seniors over the age of 65 to be hospitalized. In addition, healthcare facilities in the U.S. charge high fees for unnecessary services beyond medical care. Healthcare privatization in the United States is a serious problem.
The benefits of healthcare privatization and its limitations
However, this is not to say that there are no positive aspects of healthcare privatization. First, when healthcare privatization occurs and hospitals are allowed to operate for profit, the quality of medical equipment and services can improve. Long-term medical research requires capital, and a hospital’s for-profit status provides an incentive for capital investment, which can lead to improvements in medical technology. In addition, hospitals will provide more advanced services to patients, such as more medical staff and more luxurious rooms, in order to earn greater profits.
However, rather than improving healthcare through market incentives, it is more likely to suffer from market failures, such as over-competition, price gouging, and collusion. Indeed, a natural childbirth in the U.S. can involve a large medical staff and a hotel-like hospital room, but it can cost from an average of $9,775 to a high of $16,650 in 2013, 14 times more than in Argentina, where the average cost is $1,188. These examples illustrate the market failure of healthcare privatization to provide unnecessary services and drive up healthcare costs. Increasing the quality of healthcare beyond what is necessary will lead to fewer choices and less access for the population as a whole, which is why it is not advisable to increase the quality of healthcare through healthcare privatization.
The logic of economic growth and the problems with healthcare privatization
Proponents of healthcare privatization also argue that exposing healthcare businesses to a fully competitive market can have a positive effect on economic growth. They argue that the profits from running hospitals could help the stagnant South Korean economy. As healthcare entities grow in size, they will be able to market and sell higher-end healthcare services to the entire population and expand overseas, which could lead to economic growth.
However, the profiteers of healthcare will be the capitalists, conglomerates, and large hospitals that invest capital in hospitals and medical technology, and the profits will come from the higher healthcare costs paid by the public. Raising the price of essential healthcare services for all citizens may make the economy look stronger on paper, but the burden is shared by all citizens. This is not true economic growth.
Suggestions for restoring the public nature of healthcare
Anyone who is sick should be able to go to the doctor without worrying about paying for it. Healthcare should prioritize saving lives and improving people’s health, and we shouldn’t allow capitalism to erode its original purpose. As a part of the social security system, healthcare is an essential device to protect the health of the vulnerable and the aging society. Therefore, the actual privatization of healthcare through the establishment of subsidiaries of hospitals should be stopped, and the policy should be revised to strengthen its public nature.
