I recently received a request from several embassies, including the British, Norwegian, and Danish Embassy, to introduce Korea’s digital healthcare industry.

The foreign embassies’ interest in Korea’s digital healthcare must have grown, particularly after the nation’s successful response to Covid-19 was lauded globally. The offer was a great opportunity to promote how the nation shaped the “ecosystem of digital healthcare” to many countries.

Unfortunately, however, I had to decline all of their requests. Part of the reason was that I was not confident about my English proficiency. More importantly, I could not find any convincing evidence to say why Korea had an attractive digital healthcare environment or why foreign companies should enter the Korean digital healthcare market. My other colleagues, who are also experts in the sector, told me that they received the same requests but declined them for the same reason.

The Korean digital healthcare market is so isolated that it is like the Galapagos Islands. Thus, it is by no means attractive to multinational firms.

There are many reasons for this.

The market is too small. The Korean healthcare policies are heavily concentrated on welfare rather than industry. The nation has excessive regulations and sets reimbursement rates for digital healthcare products too low. For these reasons, multinational companies put Korea in the lowest bracket in terms of market priority. Apple Watch’s functions to detect the electrocardiogram (ECG) and irregular heartbeats, developed in 2018, have only recently entered Korea after over 30 countries introduced them.

AliveCor, a mobile ECG reader and a symbolic digital healthcare item, had been globally available since the FDA’s approval in 2012. However, the product could arrive in Korea in 2020. These examples show how much the Korean digital healthcare market is lagging.

In contrast, Germany’s digital healthcare policy is highly advanced. At the end of 2019, Germany legislated the Digital Health Act to allow state medical insurance reimbursement for licensed digital healthcare applications for at least 12 months and up to 24 months. In other words, as long as a healthcare app proves safety and efficacy, the German government supports the company to demonstrate the app’s cost-effectiveness in the market for 12 months. Not only Germany but France and Belgium began similar reimbursement policies.

The German government released the new regulation on digital healthcare products in English, as well as German. According to legal experts in Germany, this was to encourage foreign companies to invest in the German market. After the new law, officials in the German digital healthcare sector are voicing for placing Germany as a priority in the global markets. This situation is opposite to that of Korea.

As technological and industrial innovations rapidly occurred in the digital healthcare sector, we need to ponder how to regulate, evaluate, and manage them fundamentally. Even now, new businesses such as digital therapeutics, digital phenotypes, and electronic drugs are emerging. These innovations are accelerating further by converging with telemedicine, the Internet of Things, and the cloud. The massive industrial transformation is just beginning now.

I am not saying that the government should ease regulations on new technologies. What I mean is that as the fundamental properties of technologies are changing, the government needs an entirely new regulatory framework and policy approach to ensure reasonable regulation and maximize the potential of innovations. Advanced nations have already moved fast to do so.

For example, the U.S. FDA is making a fundamental change in regulating manufacturers, not medical devices, given software medical devices' characteristics. The FDA also considers regulatory measures that can utilize changing attributes of artificial intelligence (AI)-based medical devices that continue learning data when used in clinical settings after licensing.

For digital therapeutics, the FDA has also boldly exempted the approval process from maximizing the advantage of non-face-to-face services and their population-level expansion capability in the Covid-19 situation. Unconventional reimbursement policies in Germany and France also reflected the nature of healthcare apps.

In Korea, however, the authorities have not even started to think about these fundamental issues. Over 60 AI-using medical devices have obtained a license from the Ministry of Food and Drug Safety since 2018. However, none of them are eligible for national health insurance coverage. These products were categorized as conventional technologies, and they are not subject to the government’s evaluation of new medical technologies. This is why the world’s top medical AI companies in Korea have a rare chance to survive.

Currently available AI-based medical devices have passed the “existing” criteria of the Health Insurance Review and Assessment Service (HIRA) so far. However, this has made other innovative medical technologies fail to receive insurance benefits. Because everyone has conventionally done their part, they paradoxically hindered the innovation altogether. If the result is different from the intended one even under a normally-operating system, the problem is in the system.

When making policy, it is important to set the purpose and the direction right. However, Korean policies for industrial innovations are contradictory. Although the government advocates the so-called Fourth Industrial Revolution -- AI, Innovation, Growth, and Digital New Deal -- it has sat idle to solve chronic problems and failed to promote digital healthcare devices.

The government is trying out new policies such as the Innovative Medical Device Act and regulatory sandbox, but they are irrelevant to allowing digital healthcare products reimbursements. The so-called Digital New Deal has also missed the point. To make matters worse, the reduction in non-reimbursable services, caused by the enhanced national health insurance coverage, led to fewer opportunities for new technologies to enter the market.

I do not mean that digital healthcare products should get a special favor. I want to point out that the government has to provide consistent support for them by its purpose, direction, and priorities. Germany’s Digital Health Act had a purpose and direction that meant that the country could no longer delay digital transformation in the healthcare sector. As Germany has not been a rapidly digitized country in other industries and could no longer fall behind other nations in the healthcare sector, its government decided to provide full policy support for the healthcare industry.

On the contrary, Korea shouted for the Fourth Industrial Revolution and Innovation on the outside but remained outdated in policies and regulations on the inside. As a result, no Korean company made it within the world’s top 50 digital healthcare unicorns. In the U.S., investors poured in 2 trillion won in ventures and startups for telemedicine. In Korea, however, telemedicine is still illegal. The food and drug safety ministry does not even have a division in charge of digital healthcare. Over 60 AI-based medical devices licensed by the ministry cannot receive a reimbursement and are not eligible for the government’s review of new medical technologies.

If Korea truly wants innovation, it needs a new system that fits innovation. An old system failing to reflect the innovation will rather hamper the innovation. Even if we fix the old system, it will face another limitation soon. It is now time to develop fundamental ideas on regulating and promoting innovative digital health products from scratch.