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Large Korean hospitals mired in chronic deficitAnalysis of 2015 performances negates slogan of ‘Medical Korea’
  • By Song Soo-youn
  • Published 2017.02.23 11:05
  • Updated 2017.02.23 11:05
  • comments 0

Despite various government policies to promote the domestic healthcare industry, their principal beneficiaries -- large medical institutions -- are finding it difficult to get out protracted deficits, industry sources said Thursday.

Policymakers are busy publicizing the excellence of Korean healthcare sector abroad putting forth the slogan of “Medical Korea,” but hospitals’ response can hardly be more indifferent regarding all the fuss by the government as the story of a faraway country, they said.

According to the 2015 statistics for hospital management unveiled by the Ministry of Health and Welfare recently, the profits of tertiary general hospitals were in red figures in that year. The gloomy conclusion bases itself on the management analysis of 3,200 hospitals by the Korea Health Industry Development Institute between May 16 and Sept. 30 last year.

For example, these tertiary general hospitals recorded 2.41 billion won ($2.11 million) in monthly patient revenue per 100 beds, but their net profit to gross income remained at -0.3 percent. That means the more patients they treated, the larger their deficits grew.

On the other hand, general hospitals that have between160 and 300 beds registered 864 million won in monthly patient revenue per 100 beds but showed net profit ratio of 4.2 percent, higher than any other groups of medical institutions by size.

Larger general hospitals, with 300 beds or more, recorded monthly patient revenue of 1.29 billion won and the net profit ratio of 1.4 percent, respectively, reaffirming the conclusion that the larger the hospitals are, the higher their income but, the lower their net profit ratios become, the report said.

Regarding liability to total assets, which refers to the ratio of debt to total assets, tertiary general hospitals showed the highest level of 66.5 percent followed by midsize general hospitals with 160 to 300 beds with 65.6 percent, and larger general hospitals with 300 or more beds with 58.7 percent.

Industry officials attribute the disappointing performance to low medical fees set by the government at what they see as below-cost levels.

In Korea that adopts national health insurance system, the government kept a tight rein on medical fees, and the below-cost prices are forcing hospitals to turn to side businesses, such as operating funeral halls, or increase uninsured treatments, to produce profits, they say.

The Korean Medical Association, for instance, has long called for the government to increase medical fees drastically in annual negotiations, maintaining the low prices have distorted healthcare system, but the increase rate of medical payments has remained in the 2-percent range, lower than the inflation rate.

Critics, including civic groups, are approaching the situation from a different angle.

Some activists say the deficits of tertiary general hospitals are just “paper losses,” deficits only on accounting books. “These large medical corporations may be recording gains but making them appear to suffer from losses by setting aside a large part of earnings as ‘reserve fund for essential business,’” said an official at Citizens’ Coalition for Economic Justice, wanting to remain anonymous.

Under the ministry’s notification, medical corporations can treat part of revenues created from profitable business as tax-exempt expenses by allocating them to reserve funds for essential business, such as building and expanding facilities and purchasing equipment. Hospitals should spend the reserve fund within five years or recount them up as revenue subject for taxation.

According to data the ministry submitted to the National Assembly, tertiary general hospitals set aside an average of 7.7 billion as the reserve fund a year, or 34 percent of their average non-medical revenue, between 2008 and 2012.

NGOs criticize these hospitals have abused the system as a means of reducing their revenues.

Industry officials are hitting back against such criticism, however, claiming hospitals in Korea, most of which are nonprofit institutions that can neither issue stocks nor receive investment from outside, have no other means of raising money for essential projects.

“If hospitals don’t spend the reserve fund within five years, we have to pay back not just the amount but also their interests as fines,” said a statement released recently by the Korean Hospital Association. “Who will accumulate the reserve fund for deflating their revenue even risking such heavy penalties?”

A hospital official also agreed. “Some NGOs tend to mislead the public by turning perfectly legal practices into illegal ones,” he said also wanting anonymity. “Even if we include the reserve fund in revenue, net profit ratio won’t go up much. The fundamental problem lies with medical fees that have hovered below costs for too long.”


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