This blog post examines the trend toward privatization in Korea’s healthcare system and the resulting erosion of public healthcare.

South Korea’s Healthcare System Stands at the Threshold of Privatization

Long ago, on June 10, 2014, the South Korean government sparked controversy by announcing a legislative proposal for the ‘Medical Service Act Enforcement Rules’ that would allow hospitals to establish for-profit subsidiaries. According to these rules, medical corporations could establish subsidiaries within medical facilities for the purpose of generating profits from ventures such as medical hotels, medical devices, health foods, and cosmetics. The author argues that this amendment to the Medical Service Act is a step toward the privatization of hospital operations and presents an opposing viewpoint.

Attempts to Privatize Hospital Operations

Movements to privatize hospital operations have always existed. In fact, the Roh Moo-hyun administration amended the Medical Service Act to allow foreign for-profit hospitals within economic free zones to treat domestic patients, and the Lee Myung-bak administration permitted domestic for-profit hospitals on Jeju Island. However, due to public backlash, the full-scale introduction of for-profit hospitals has consistently failed. Nevertheless, the Park Geun-hye administration’s bill permitting for-profit subsidiaries within hospitals can be seen as laying the groundwork for healthcare privatization by enabling capitalists to invest in and profit from revenue-generating activities within hospitals.
If the Medical Service Act is amended to permit for-profit subsidiaries within hospitals, investors could generate profits through these subsidiaries even if the hospital itself operates non-profit. If pharmaceutical or medical device companies establish subsidiaries within hospitals and exclusively supply goods to that hospital, the hospital cannot remain free from the company’s influence. For example, unnecessary surgeries or tests like MRIs or joint replacements could be forced upon patients, and those lacking medical knowledge would have no choice but to use these unnecessary services. This not only increases healthcare costs but can also lead to post-operative complications, medical accidents, and other serious problems. Furthermore, the creation of a subsidiary within a hospital allows external capital to flow into the hospital through that subsidiary. This enables the hospital to engage in for-profit activities via the subsidiary, potentially leading to the privatization of hospital operations.

Imbalances and Weakening of Health Insurance Caused by Medical Subsidiaries

Another concerning aspect of the recent Medical Service Act enforcement regulations is that hospitals affiliated with large conglomerates, such as Samsung Seoul Hospital and Hyundai Asan Hospital, are designated as mutual investment-restricted corporate groups and thus excluded from the scope of application. This is worrisome because it means they may not be subject to the mandatory designation system. Currently, South Korea operates a social security system to reduce household burdens from high medical costs. This system collects premiums from citizens to fund a pool, distributing insurance payments when claims occur to share risks. National Health Insurance covers the entire population, collecting premiums differentially based on individual economic capacity, thereby serving as a means of income redistribution. Furthermore, under the mandatory designation system, which prevents medical institutions from refusing national health insurance, all medical institutions are enrolled in the national health insurance program. However, institutions like Samsung Medical Center and Hyundai Asan Medical Center are excluded from the scope of the revised Medical Service Act, allowing them to contract with private insurance companies. This could become 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, Paragraph 2 of the current Medical Service Act, medical institutions in Korea must be non-profit corporations. This means that profits earned by medical institutions must be invested entirely into medical research, medical equipment, or improvements to surgical systems, rather than returning to investors as dividends or through increased stock value. Furthermore, the Act restricts the entities permitted to operate medical institutions to licensed professionals. Physicians establish and operate hospitals, while pharmacists establish and operate pharmacies. Therefore, for a general corporation to establish a medical institution, it must establish a separate non-profit organization. In practice, Asan Medical Center in Seoul is established by the Asan Social Welfare Foundation, and Samsung Medical Center is established by the Samsung Life Public Welfare Foundation. Restricting hospitals to non-profit corporations is a minimal safeguard to prevent hospitals from pursuing excessive commercialism. If hospitals were operated as for-profit entities, medical services would be distributed to consumers according to market principles. This would result in only specific consumer groups capable of paying for medical services being able to access them. Medical services are directly linked to the health and lives of citizens, and since all citizens should receive medical care, this is unacceptable from a social security perspective. I believe separating medical services from the axis of the market economy and having the state operate them is the first step toward social welfare.

Overseas Examples of Healthcare Privatization: The Reality of Healthcare Privatization in the United States

The United States is the only OECD country implementing healthcare privatization. For-profit hospitals in the US are operated by entrepreneurs aiming to generate profits, and the profits earned from hospital operations are distributed as dividends to the shareholders who invested in establishing the hospital. In reality, healthcare costs in the US are extremely high. According to 2008 WHO statistics, per capita healthcare expenditure was $7,146, with 15.2% of GDP allocated to healthcare costs. But is the quality of healthcare services in the US, which demands such high costs, truly commensurate? In 2012, whistleblowers within US hospitals reported that the system of paying performance-based bonuses to doctors based on their outcomes frequently led to unnecessary hospitalizations or surgeries being forced upon patients. In fact, American doctors forced hospital admissions on over 20% of emergency room patients and over 50% of seniors aged 65 and older. Furthermore, American medical facilities charge exorbitant fees by providing unnecessary services beyond actual medical care. The reality of healthcare privatization in the United States is undeniably a serious problem.

Advantages and Limitations of Healthcare Privatization

However, it cannot be said that healthcare privatization brings no positive aspects. First, as healthcare privatization progresses and hospitals are allowed to engage in for-profit activities, it can lead to qualitative improvements in medical equipment and healthcare services. Capital is essential for long-term medical research, and hospitals’ for-profit activities provide incentives for capital investment, potentially advancing medical technology. Hospitals may also offer higher-end services, such as assigning more medical staff to patients and upgrading hospital rooms, to maximize profits.
However, the likelihood of experiencing market failures like excessive competition, bundling, or collusion is greater than the potential for improved healthcare services driven by market incentives. Indeed, in the United States, natural childbirth involves significant medical staff and hotel-like hospital rooms, but costs range from an average of $9,775 to a maximum of $16,650 as of 2013. This is 14 times the average cost of $1,188 paid in Argentina. This case demonstrates a market failure of bundling, where privatization provides unnecessary services and demands higher medical costs. When the quality of healthcare services is elevated beyond necessity, choice narrows, leaving many unable to access it and reducing the overall public benefit. Therefore, improving healthcare quality through privatization is undesirable.

The Logic of Economic Growth and the Problems with Healthcare Privatization

Furthermore, proponents of healthcare privatization argue that exposing the healthcare industry to a perfectly competitive market can have a positive effect on economic growth. They claim that profits generated from operating hospitals could help the stagnant Korean economy. As healthcare corporations grow in scale, they could offer high-end medical services to the entire population and expand overseas, thereby achieving economic growth.
However, the entities profiting from healthcare services would be hospitals, capitalists investing in medical technology, large corporations, and major hospitals. These profits would arise from the increased healthcare costs paid by the public. While rising prices for essential healthcare services that all citizens must use might appear to stimulate the economy on paper, the burden falls on every citizen. This cannot be considered genuine economic growth.

Proposals for Restoring the Public Nature of Healthcare Services

When anyone is sick, they should be able to go to the hospital for treatment without worrying about medical costs. Healthcare services must prioritize saving lives and promoting public health above all else; capitalism must not allow the inherent purpose of healthcare services to be diminished. As part of the social security system, healthcare services are an essential mechanism for protecting the health of the socially vulnerable and in an aging society. Therefore, the de facto privatization of healthcare through the establishment of hospital subsidiaries must be halted, and policies need to be revised to strengthen public ownership.