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Health Industry Development

Country: 
South Korea
Partner Institute: 
Department of Health Policy and Management, School of Public Health, Seoul National University
Survey no: 
(7)2006
Author(s): 
Soonman Kwon
Health Policy Issues: 
Role Private Sector
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? yes yes no no no no no

Abstract

Ministry of Health and Welfare launched a committee on health industry development, which aims to examine policy options to strengthen the competitiveness of medical service and hospital industry. Hospital industry and insurance industry maintain that privatization and deregulation, such as an extended role of for-profit hospitals and private health insurance, is the best way to health industry development, but many are worried that those changes will result in a two-tiered health care system

Purpose of health policy or idea

Government wants to strengthen the competitiveness of health care industry, to induce more innovations, to increase export in the area of medical technology and pharmaceuticals, and to increase patients from abroad in the area of medical service and hospital industry. Government also expects that health industry development can help import substitution, such as reducing imports of medical technology and pharmaceutical or reducing the flow of domestic patients going abroad for treatment (although the number of that types of patients is always controversial).  

However the Achilles hill of the agenda of health industry development is the role of private sector in health care, particularly private health insurance and for-profit hospitals. Hospital sector and insurance industry regard the agenda of health industry development as a crucial means to extend the role of private sector in health care, namely, allowing for-profit (investor-owned) hospitals and extend the market share of private health insurance. They maintain that more active role of the private sector is the most effective way to develop health care industry and increase its competitiveness.

Main points

Main objectives

Develop health care sector as industry for innovations and competitiveness.

Type of incentives

Non-financial and financial

Groups affected

Hospitals, Health insurance industry, Consumers

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Characteristics of this policy

Degree of Innovation traditional innovative innovative
Degree of Controversy consensual highly controversial highly controversial
Structural or Systemic Impact marginal fundamental fundamental
Public Visibility very low very high very high
Transferability strongly system-dependent neutral system-neutral

Political and economic background

With moderate performance of economy, unemployment has been a lingering problem. Traditional manufacturing sectors such as electronics and automobile have failed to increase employment in spite of its good performance in export. Government now turns to biotechnology or service sector such as health and education to strengthen the competitiveness and improve employment opportunity.

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? yes yes no no no no no

Origins of health policy idea

Private sector in Korean health care has played a key role in the agenda setting for health industry development and competitiveness. Hospital industry has long criticized that government regulation and tight fee scheduling are the major cause of low quality of medical care, and maintained that deregulation and privatization is the solution to health industry development. They view that for-profit hospitals, which is currently not allowed, is a way to opt out of social health insurance system that is subject to tight regulation. They maintain that for-profit hospitals are much better than its not-for-profit or public counterparts in the area of technology innovation and service quality.  

Insurance industry also has a major stake in health industry development. Currently private health insurance pays lump-sum to enrollees based on diagnosis or inpatient days, rather than reimbursing the actual cost of medical care. Private health insurance industry thinks that policy for health industry development will lead to the increased role of private sector in Korean health care, and an extended market for private health insurance. For example, for-profit hospitals, if they are allowed to opt out of social health insurance, will be a big business market for private health insurance.

Ministry of Finance and Economy (MOFE) supports the idea of health industry development and private health insurance because it can help ease the financial burden associated with social health insurance, for which MOFE subsidizes contribution (government subsidy accounting for about 25% of total revenue of social health insurance).

Although Ministry of Health and Welfare (MOHW) launched the committee on health industry development, it has a neutral position toward privatization in health care, but it wants to pre-empt the agenda by instituting the committee. Development of health industry itself is good news, but if it is related to privatization, it can be bad news for the MOHW.

Initiators of idea/main actors

  • Government
  • Civil Society
  • Private Sector or Industry

Approach of idea

The approach of the idea is described as:
new:

Stakeholder positions

Idea of health industry development and competitiveness has called for hot debates. Progressive civic groups are strongly opposed to for-profit hospitals and the increased role of private health insurance. They maintain that the policy has the risk of the collapse of public health insurance and public health care system because government will no longer be willing to put more resources in the public health financing and delivery system. By the same token, National Health Insurance Corporation (insurer of social/public health insurance system) is opposed to it.  

Korean Medical Association (KMA) had been a strong supporter of the idea of health industry, like Korean Hospital Association, but it has recently changed its position to ambivalent or no official position. Initially, KMA thought that health industry development and privatization will give them more profit opportunity. However, they have realized that private health insurance can be a tough negotiator in fee setting and claim reviews, as in the case of  

Actors and positions

Description of actors and their positions
Government
Ministry of Health and Welfarevery supportiveneutral strongly opposed
Ministry of Finance and Economyvery supportivevery supportive strongly opposed
Civil Society
civic groupsvery supportivestrongly opposed strongly opposed
progressive academicsvery supportivestrongly opposed strongly opposed
Private Sector or Industry
Hospital Associationvery supportivevery supportive strongly opposed
Insurance Industryvery supportivevery supportive strongly opposed

Actors and influence

Description of actors and their influence

Government
Ministry of Health and Welfarevery strongstrong none
Ministry of Finance and Economyvery strongstrong none
Civil Society
civic groupsvery strongneutral none
progressive academicsvery strongneutral none
Private Sector or Industry
Hospital Associationvery strongstrong none
Insurance Industryvery strongstrong none
Ministry of Finance and Economy, Hospital Association, Insurance IndustryMinistry of Health and Welfarecivic groups, progressive academics

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

Government decided to allow foreign (for-profit) hospitals in the free-trade zone near Incheon International airport. However, more detailed issues remain to be decided, e.g., whether to allow domestic for-profit hospitals in the free-trade zone, whether patients to those for-profit hospitals should pay 100% of the cost out of their own pocket or social health insurance should cover a given proportion of the cost, etc.

Expected outcome

The key issue of the new committee on health industry development is private health insurance and for-profit hospitals. The impact of allowing for-profit hospitals and increasing the role of private health insurance on the efficiency and equity of Korean health care system will be fundamental although it is still uncertain whether they are positive or negative impacts. Many agree that for-profit entities in health care can result in health care cost inflation, but controversies continue over its impact on quality or consumer satisfaction. Service aspect of quality may improve but objective measure or outcome-based quality may be worse in for-profit hospitals because they may sacrifice quality to maximize profit. Hospital rating/evaluation and information dissemination can be more effective than allowing for-profit hospitals in improving health care quality.

Critics also maintain that privatization will result in unequal access to medical care, and public support for social health insurance system erodes as more people purchase private health care, eventually decreasing government resources to health care and leading to a two-tiered health care system.

Impact of this policy

Quality of Health Care Services marginal fundamental fundamental
Level of Equity system less equitable system less equitable system more equitable
Cost Efficiency very low low very high

References

Author/s and/or contributors to this survey

Soonman Kwon

Suggested citation for this online article

Soonman Kwon. "Health Industry Development". Health Policy Monitor, April 2006. Available at http://www.hpm.org/survey/kr/a7/3