South Korean healthcare could be moving toward profit-driven model

Posted on : 2014-01-15 15:44 KST Modified on : 2019-10-19 20:29 KST
Experts say health care costs could rise, increasing burden on patients and eroding service quality
 Jan. 14. (by Kim Kyung-ho
Jan. 14. (by Kim Kyung-ho

By Son Jun-hyun, senior staff writer

Government plans to pave the way for medical corporate affiliates to engage in various for-profit activities have critics concerned that external investors in South Korea and abroad could hurt the public service character of health care in their search for high profits.

With external capital allowed to own up to 49% of an affiliate, the fear is that their money-making quest could send medical costs skyrocketing, hurting healthcare finances and eroding security.

Despite the government’s claims that it is not making “for-profit health care,” members of the public are growing increasingly concerned.

In its fourth investment promotion measures announced on Dec. 13, the government said financial (i.e., profit-motivated) investors, including investment management and venture capital firms, could invest up to a 49% stake in for-profit affiliates of medical corporations. The affiliates would be able to distribute any profits to the parent corporation and to financial investors.

Current regulations do not limit the amount of external capital that can be invested in for-profit affiliates. This means that even foreign investors can own a share.

“There are 847 medical corporations that get to set up affiliates with this measure,” said Hong Heon-ho, who heads the People’s Institute of Economic and Social Studies. “We’re going to be seeing thousands of affiliates from them. So there’s a possibility hospital owners could set up proxies at collective investment companies or more foreign capital, like Macquarie Infrastructure, could come in.”

A collective investment companies is one that solicits and investment money then distributes any profits earned. Hong‘s concern is that patients could end up experience something along the same lines as Seoul subway riders when Macquarie Infrastructure attempted a major fare hike on Line 9 in 2012.

The government’s measures would also permit mergers and acquisitions between healthcare institutions. This has some worried South Korea could be treading the same path as the US, where private equity funds have taken over hospitals.

Originally, many of the US hospital were doctor-owned, but mergers and acquisitions left the company HCA Holdings - controlled by the private equity fund Bain Capital - in charge of the country’s biggest network of for-profit hospitals.

“We could be seeing the same types of investors here,” said Woo Seok-gyun, head of the policy office for the group Korean Federation Medical Activist Groups for Health Rights. “HCA Holdings ended up at the center of a controversy when it demanded large payments from low earners. There’s a chance of the same thing here - using the for-profit affiliates to make excessive health insurance demands.”

Civic groups are worried that patient healthcare costs will go up because of the for-profit affiliates, where concerns about dividends and other investor profits result in an earning-centered management approach. The argument is that if the affiliates are allowed to rent out hospital buildings and equipment, the pursuit of profit could result in higher room costs and more circulation of equipment regardless of patients’ needs. Patients could also be compelled to pay for new equipment that has not been tested for effectiveness or safety, along with other healthcare products, items to protect joints, blankets, pillows, and even clothing.

Affiliates would also be able to encourage patients to buy health foods, supplements, and cosmetics. This too could lead to rising patient healthcare costs, placing a further strain on increasingly strapped healthcare resources.

“Supposing the permissions for for-profit affiliates result in a proliferation of commercially motivated treatment, or otherwise excessive or unjustifiable treatment, the result would not just pose a bigger financial burden on the patient, but also hurt healthcare finances,” said Nam Eun-kyung, who heads the society and economy bureau for Citizens’ Coalition for Economic Justice.

During a debate on for-profit healthcare policy at the National Assembly on Jan. 14, Woo Seok-kyun produced a 2009 report by the Korea Health Industry Development Institute and Korea Development Institute on the need for healthcare corporations that were open to investment. According to its findings, the total personal healthcare burden on individuals would rise by anywhere from 700 billion to 2.2 trillion won (US$660 million-2.1 billion) if 20% of individual hospitals became profit-driven. Experts, noting that the report came out five years ago, predicted the projected increase would be even greater if current conditions were reflected.

 

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