Will allowing for-profit subsidiaries of hospitals lead to healthcare privatisation?

The South Korean government’s notice of proposed legislation for the Enforcement Rules for the Medical Act has sparked controversy over a proposal to allow for-profit subsidiaries of hospitals. Concerns have been raised that the bill could lead to healthcare privatisation and negatively impact the public’s health.

 

As long ago as 10 June 2014, the South Korean government sparked controversy with a legislative notice of the ‘Enforcement Rules for the Medical Act’ that would allow 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, and cosmetics. I would like to argue against this rule, arguing that it is a step towards the privatisation of hospital operations.
There has always been a move to privatise hospital operations. In fact, the Roh Moo-hyun government amended the Healthcare Act to allow foreign for-profit hospitals to treat Koreans in free economic zones, and the Lee Myung-bak government allowed a domestic for-profit hospital on Jeju Island. However, the introduction of for-profit hospitals has failed due to public opposition. However, the Park Geun-hye administration’s bill to allow for-profit subsidiaries of hospitals can be seen as a cornerstone of healthcare privatisation, as it allowed capitalists to invest and make profits in 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 may not be free from the company’s influence. For example, patients may be forced to undergo unnecessary surgeries or tests, such as MRIs or joint surgery, 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. In addition, the creation of subsidiaries within hospitals can lead to the privatisation of hospital operations by allowing external capital to flow into the hospital through the subsidiary, which in turn enables the hospital to engage in commercial activities.
Another concerning aspect of the Healthcare Act Implementation Rules is that hospitals affiliated with large conglomerates, such as Samsung Medical Center and Hyundai Asan Medical Center, will be designated as a group of companies that are restricted from mutual investment. This is concerning because 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 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 not to refuse 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.
According to Article 33(2) of the current healthcare law, South Korean healthcare organisations are required to be non-profit corporations, meaning that any profits they make are not returned to investors in the form of dividends or stock appreciation, but must be invested in medical research, medical devices, and improvements to surgical systems. The law also limits who can run a healthcare organisation to those with a professional licence. Doctors open hospitals and pharmacists open pharmacies. Therefore, if a general company wants to open a medical institution, it must establish a separate non-profit organisation. In practice, Asan Hospital 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 organisations is a minimum measure to prevent them from becoming overly commercial. If hospitals were run as for-profit organisations, 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 in terms of social security because healthcare is directly related to people’s health and life, and everyone should have access to healthcare. I believe that taking healthcare out of the hands of the market economy and putting it in the hands of the state is the first step to social security.
The United States is the only OECD country to privatise healthcare. For-profit hospitals in the US are run by entrepreneurs 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 per cent 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 accused doctors of being paid on a pay-for-performance basis, often forcing unnecessary hospitalisations and surgeries. In fact, doctors in the US have forced more than 20 per cent of emergency room patients and more than 50 per cent of people over the age of 65 to be admitted to hospital. In addition, healthcare facilities in the US charge high fees for unnecessary services beyond medical care. The state of healthcare privatisation in the US is a serious problem.
However, this is not to say that there are no positive aspects of healthcare privatisation. Firstly, healthcare privatisation allows hospitals to operate for profit, which can lead to improvements in medical equipment and quality of care. 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, shilling, and collusion. Indeed, a natural childbirth in the United States can be attended by a large medical team and stay in a hotel-like room, but can cost an average of $9,775 to a high of $16,650 in 2013, 14 times the price in Argentina, where the average cost is $1,188. These examples illustrate the market failures of healthcare privatisation in providing unnecessary services and demanding higher healthcare costs. Increasing the quality of healthcare services beyond what is necessary will result in fewer choices and less access for the population as a whole. Therefore, it is not advisable to increase the quality of healthcare through healthcare privatisation.
Proponents of healthcare privatisation also argue that exposing healthcare to a fully competitive market can have a positive effect on economic growth. They argue that the profits from running hospitals can help the stagnant South Korean economy. As healthcare corporations grow in size, they will be able to market and sell higher-end healthcare services to the entire population and expand overseas, which will 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 healthcare, which is essential for all citizens, may appear to boost the economy on paper, but the burden is shared by all citizens. This is not true economic growth.
Anyone who is sick should be able to go to the doctor without worrying about paying for it. Healthcare should be about saving lives and improving people’s health, and we shouldn’t allow capitalism to erode that purpose, which is why the actual privatisation of healthcare through the creation of subsidiaries of hospitals should be stopped.