I OVERVIEW

The healthcare industry of South Korea is mainly governed by the Ministry of Health and Welfare (the MOHW) and the Ministry of Food and Drug Safety (the MFDS). These governmental authorities are concerned with the healthcare service at large, including the enforcement of healthcare-related laws and regulations, administrative review of healthcare professionals, certification of medical institutions, mediation of medical disputes, sanctions on illegal rebates involving pharmaceutical products and medical devices, national health insurance, pricing and reimbursement, safety management of pharmaceutical products and medical devices, and the overall management of clinical trials. The MOHW and the MFDS work together with related organisations, including the National Hospital, the National Health Insurance Service (the NHIS), the National Medical Center, the Korea Institute of Drug Safety and Risk Management, and the Health Insurance Review and Assessment Service (HIRA).

Healthcare services can be provided by a variety of healthcare providers, including clinic-level medical institutions and hospital-level medical institutions, and citizens can choose the providers from which they wish to receive their healthcare services. The licensing, establishment and operation of healthcare providers are also governed by the MOHW and the MFDS pursuant to relevant laws and regulations.

The National Health Insurance is the central component of the operation and funding of healthcare services in South Korea. Under the National Health Insurance system, insurance enrolment and payment of insurance contribution is mandatory, and the amount of insurance contribution is determined based on the respective income level of the insured.

II THE HEALTHCARE ECONOMY

i General

Healthcare related laws in South Korea include (1) the Pharmaceutical Affairs Act (PAA), (2) laws and regulations relating to medical devices, (3) the Medical Service Act (MSA) and (4) the laws and regulations relating to health insurance.

There are various stakeholders involved in the healthcare industry in South Korea, which include:

a medical institutions;

b healthcare professionals;

c patients;

d manufacturers, importers and sellers of medical devices and pharmaceutical/ biotechnology products;

e insurance companies;

f government authorities, including the MOHW, the NHIS, HIRA and the MFDS; and

g academic institutions for healthcare professionals.

The roles played by the various government authorities in relation to the National Health Insurance are as follows.

a The MOHW: The MOHW is ultimately responsible for making policy decisions regarding the National Health Insurance system. For example, the MOHW determines the insurance contribution rate, the standards for imposition of insurance contribution, and the scope of healthcare benefits subject to insurance, and approves the budget and regulations of the NHIS, which is the authority managing and operating the National Health Insurance system.

b The NHIS: As the insurer of the National Health Insurance, the responsibilities of the NHIS include:

  • the management of qualification criteria of health insurance subscribers and their dependants;
  • the imposition and collection of insurance contribution;
  • the management of insurance benefits;
  • the implementation of national health check-ups, disease prevention and health promotion related work;
  • payments to medical institutions;
  • the determination of drug prices through negotiations with pharmaceutical companies; and
  • the execution of pricing contracts with pharmaceutical companies.

c HIRA: The responsibilities of HIRA include (1) the assessment of medical care costs and the appropriateness of the healthcare benefits and (2) the development of such review and assessment criteria.

d The Health Insurance Policy Deliberative Committee: As a committee under the MOHW, the Health Insurance Policy Deliberative Committee makes decisions on long-term comprehensive planning for the National Health Insurance system, the implementation, timing and method of such comprehensive plans, and the various standards applicable to benefit qualifications and the level of insurance contributions and benefits.

ii The role of National Health Insurance

National Health Insurance under the National Health Insurance Authority

The National Health Insurance programme in South Korea is a public insurance system that spreads the burden of medical expenditure to all residents under the mandatory National Health Insurance coverage. The resources required to run the National Health Insurance programme are derived from insurance contributions paid by the insured and their employers (as applicable), government subsidies and other income (such as fees for delinquent payments and other penalties).

The National Health Insurance programme is governed by the National Health Insurance Act and the key features of this statute are as follows:

a the National Health Insurance programme is compulsory when certain legal requirements are met, and the payment of insurance contribution becomes mandatory;

a insurance contribution is imposed based on the capability to pay the contribution, such as the income level;

a regardless of the level of insurance contribution, the insurance benefits are paid equally with regard to the scope and level of insurance coverage.

Non-resident foreign patients are not eligible for National Health Insurance coverage under the National Health Insurance Act.

Medical benefits

The medical benefits system is a public assistance system that provides support with respect to medical problems of low-income citizens. It is a social security system that works together with the National Health Insurance system to support public health. Specifically, the medical benefits system is under the responsibility of the MOHW, and provides medical cost assistance to the low-income class pursuant to the Medical Care Assistance Act.

In principle, the medical benefits system provides support for medical expenses for items specified in the National Health Insurance Medical Benefits Criteria published by the MOHW. Certain co-payment requirements may apply as well as restrictions on the number of days during which medical benefits or treatment procedures can be received.

Private insurance

Citizens may also enroll into private insurance in addition to the National Health Insurance system. Private insurance differs from public insurance in that (1) enrolment is optional, (2) insurance contribution is imposed by the private insurance provider based on their risk analysis, (3) insurance benefits are paid differently based on the level of insurance contribution of the insured, and (4) the insurance contribution is collected pursuant to private contracts rather than by requirement of laws and regulations. In South Korea, insurance companies offer a variety of insurance products, such as cancer insurance, death insurance and co-pay expense insurance.

iii Funding and payment for specific services

Under the National Health Insurance system of South Korea, the insured usually pays a part of the healthcare expense as co-payments, and the insurance proceeds are reimbursed directly to the medical institutions and pharmacies that provide healthcare services to insured patients. The co-payment rate of the insured is affected by multiple factors, such as, the type of treatment (for example, inpatient service or outpatient service) and the identity of the medical facility providing the treatment.

Certain treatments are non-benefit items, which are not covered by the National Health Insurance programme. These include medicine, medical material, or medical service that is provided or used for a disease that does not seriously affect a patient's daily life, and residents must pay for the cost of such non-benefit items, either personally or through enrolment in private insurance. Medicine, medical material or medical service that does not improve essential bodily functions, such as cosmetic surgery, freckle treatment and snoring treatment, are examples of non-benefit items that are not covered by the National Health Insurance programme.

III PRIMARY / FAMILY MEDICINE, HOSPITALS AND SOCIAL CARE

i Classification of medical institutions

Medical institutions are classified as follows:

a Clinic-level medical institution:

  • outpatient care for simple and common diseases;
  • patient care for those who do not need to be hospitalised for a chronic disease requiring long-term treatment;
  • simple outpatient surgical operation or treatment; and
  • treatment of patients who have returned after treatment of general care at a general hospital or tertiary hospital (advanced-care general hospital).

b Hospital or general hospital:

  • general hospitalisation and surgical treatment;
  • patient care that requires more specialised management by area;
  • patients with chronic disease requiring long-term care and hospitalisation;
  • patients who have been hospitalised at the medical institution concerned and need direct observation of progress at such medical institution after discharge; and
  • medical treatment for patients requiring long-term hospitalisation.

c Tertiary hospital (advanced-care general hospital):

  • treatment of serious diseases that require highly specialised treatment techniques;
  • treatment of patients with a condition carrying a high risk of mortality and complications;
  • treatment for patients involving multiple medical specialty areas and the use of special facilities and equipment;
  • treatment of patients with a rare or incurable disease;
  • operation of specialised medical treatment centres for specialised medical services for severe diseases;
  • treatment of patients who have been hospitalised at the medical institution concerned and need direct observation of progress at such medical institution after discharge; and
  • performance of medical training of healthcare professionals and research and development of medical services.

Although, in principle, a patient should be transferred to a general hospital or a tertiary hospital pursuant to a referral from a physician at a clinic, there are no direct restrictions preventing a patient from initially visiting a general hospital or tertiary hospital without such referral from a clinic. That said, if the subject treatment is covered by the National Health Insurance, the patient's copayment may increase upon such direct visit to a general or tertiary hospital.

ii Primary/family medicine

In Korea, a family doctor or individual doctor system is not prevalent. The proportion of specialists is very high, and doctors who open clinics are either specialists or those who practice medicine for only certain diseases. Therefore, patients choose their doctor according to their symptoms and receive primary care from the clinic with the relevant specialisation.

On the other hand, Korean medicines are classified as either over-the-counter drugs, which do not require the prescription of a doctor, or ethical drugs that require prescription by a physician. Additionally, medicines can be sold only by pharmacists in principle; however, certain over-the-counter drugs designated as home emergency drugs under relevant regulations can be sold in 24-hour convenience stores.

iii Social care

According to the Regional Public Health Act, public health centers are established in municipal units and form a part of government agencies. Doctors and nurses at these public health centres are in charge of vaccination, treatment and patient education in the local community. A patient must pay a prescribed fee in order to visit a public health center, but this fee is less than the cost of visiting a private clinic or hospital.

Medical assistance is provided to the low-income class pursuant to the Medical Care Assistance Act. If you are covered by the Medical Care Assistance Act, this fee for visits to public health centres may be exempted or discounted under the National Health Insurance Act.

IV THE LICENSING OF HEALTHCARE PROVIDERS AND PROFESSIONALS

i Regulators

The MOHW regulates the social welfare and healthcare systems through the enforcement of relevant laws, such as the MSA, the PAA, the Medical Care Assistance Act, the National Health Insurance Act and the National Basic Living Security Act. For reference, the government authorities working together with the MOHW include the MFDS, National Health Insurance Service, and the National Medical Center, and institutions under the MOHW include the National Hospital for each district, and the South Korea Centers for Disease Control and Prevention.

The MFDS enforces the PAA together with the MOHW, and the enforcement of the Medical Devices Act is also under the responsibility of the MFDS. Institutions under the MFDS include the Medical Device Information Support Center.

ii Institutional healthcare providers

General

According to the MSA, medical institutions in South Korea are classified under the following categories: (1) clinic-level medical institutions, (2) midwifery clinics and (3) hospital-level medical institutions. Clinic-level medical institutions consist of medical clinics, dental clinics, and oriental medical clinics, and hospital-level medical institutions consist of hospitals, dental hospitals, oriental medical hospitals, intermediate care hospitals and general hospitals.

On the other hand, if classified by function, medical institutions can be classified as general hospitals or advanced care hospitals, as explained above.

Establishment of medical institution

A healthcare professional cannot engage in healthcare service business without establishing a medical institution, and except for certain specified exceptions, all medical services must be performed within such medical institution. The qualification criteria of those who can open a medical institution in accordance with the MSA are limited. Medical institutions can be established only by licensed healthcare professionals, local governments or entities of public nature specifically permitted under the MSA.

The procedure for opening a medical institution can be roughly classified into filing a 'report of establishment' for medical institutions at the clinic level, and the application for an 'establishment permit' for medical institutions at the hospital level. Any person who intends to open a medical institution must file a 'report of establishment' or apply for an 'establishment permit', as applicable, to the relevant local municipality depending on the type of medical institution.

Prohibition on the establishment of medical institutions

Non-healthcare professionals are prohibited from establishing medical institutions. The penalty for violating this restriction may include the invalidation of relevant contracts and administrative as well as criminal sanctions.

iii Healthcare professionals

The MSA prohibits, in principle, any person who is not a healthcare professional from engaging in medical activities, and any medical professional from engaging in medical activities other than those for which they are licensed. A person who violates the above may be subject to criminal sanctions, and if a healthcare professional has caused a non-healthcare professional to perform medical activities, such healthcare professional may be disqualified. In order to become a healthcare professional, a person must pass a national examination and obtain a licence from the MOHW after completing their studies in the relevant healthcare field at a qualified institution.

The MSA and the Pharmaceuticals Affairs Act sets forth instances where a healthcare professional's licence may be suspended or revoked. Grounds of suspension or revocation include the violation of relevant laws and regulations and ethical rules.

V NEGLIGENCE LIABILITY

i Overview

In the case of claims for medical negligence, case law provides that, in order to be liable for breach of the duty of care in medical practice, a causal relationship between the breach of duty of care in medical practice and the damages incurred must be found. Case law further provides that, in order to find such causal connection, the plaintiff has the burden of proving that: (1) medical malpractice has occurred and (2) there are no causes other than the medical malpractice for the resulting damage at case.

On the other hand, if a medical treatment may result in negative consequences to the patient, physicians have the obligation to explain the symptoms of the disease, the details of the treatment method and the necessity of the treatment and the risks associated with such treatment to the patient (or the legal representative of the patient), such that the patient is able to sufficiently compare the necessity or risks of the treatment and make an informed decision whether or not to receive the medical treatment. In the event of a serious negative consequence of a treatment for which the relevant physician failed to properly inform the patient, the physician may be liable for damages. In this case, if the patient claims only damages for the lost opportunity to make a choice, the patient is only required to prove that it had lost such opportunity because of lack of explanation by the physician. If the patient claims compensation for damages as a result of the serious negative consequence, the patient has to prove causality as well. In practice, patients are required to sign a prior consent form describing, for example, the details of treatment and the risks associated with the treatment.

ii Notable cases

Recently, there was a case in which a nine-year-old who visited an emergency room at a university hospital died because of the failure to receive an emergency blood transfusion and treatment from the paediatric haematologic tumour/paediatric neurology, and a case in which a celebrity died of perforation in the small intestine and pericardium in the process of receiving a gastrointestinal adhesiolysis. In the case of the former, civil and criminal lawsuits are both ongoing and final judgment of the Supreme Court is pending. In the latter case, the civil lawsuit is still in progress, but the criminal lawsuit was concluded by the Supreme Court decision in May 2018, in which a sentence of one year's imprisonment by the trial court was confirmed by a finding of professional malpractice resulting in death.

As a result of the above cases, issues relating to the dispute procedure for medical accidents were raised, and in consequence, an amendment to the Act on Remedies for Injuries from Medical Malpractice and Mediation of Medical Disputes was passed. Pursuant to the amended Act on Remedies for Injuries from Medical Malpractice and Mediation of Medical Disputes, effective as of 30 November 2016, if the medical accident results in death or unconsciousness for more than a month, the mediation process will be initiated regardless of the consent of the hospital.

VI OWNERSHIP OF HEALTHCARE BUSINESSES

i Medical institutions

Both private parties and public parties (entities) can establish medical institutions such as hospitals and dental clinics, but as above-mentioned, the qualifications of those who can establish medical institutions are limited pursuant to the MSA. In other words, medical institutions can be established only by licensed healthcare professionals, local governments or entities of public nature specifically permitted under the MSA.

ii Pharmacies

Similar restrictions apply to pharmacies. That is, according to the PAA, no person, other than pharmacist or oriental medicine pharmacist, can establish a pharmacy. According to the above provision, it can be construed that only a pharmacist or oriental medicine pharmacist who is a natural person can open a pharmacy and that a corporation or an entity cannot open a pharmacy. In this regard, the Constitutional Court explained that, while the above provision does not permit the establishment and operation of a pharmacy by a general person or regular corporation who is not a pharmacist, the prohibition of establishing a pharmacy even to a corporation whose members are all pharmacists unduly violates the freedom of occupation of such pharmacists. However, despite this decision of the Constitutional Court, it is still controversial whether a corporate pharmacy is permitted.

VII COMMISSIONING AND PROCUREMENT

In Korea, all citizens are enrolled in National Health Insurance, and all medical institutions must provide medical services under this National Health Insurance system. However, there are also medical services that are not covered by the National Health Insurance. In the case of these services, (1) the patient directly pays or (2) a private insurer will bear the costs if the patient has private health insurance coverage. However, in the case of the medical services covered by the National Health Insurance system, the patient pays a small amount of co-pay to the medical institution and the remaining amount is paid directly to the medical institution by the National Health Insurance Corporation. In the case of medical services covered by National Health Insurance, the price is controlled by the state, and although prices are determined through consultation between the state, medical organisations and civil groups, there is always a conflict among the respective interests of stakeholders.

Also, in the case of medicines that the patient purchases or that which is prescribed according to a physician's prescription, the benefits are provided according to the National Health Insurance Act. Whether or not the drug can be covered by the National Health Insurance is determined by the Health Insurance Review and Appraisal Center, and drug prices are determined based on negotiations between the National Health Insurance Corporation and the relevant pharmaceutical company. Because drug prescription is not practicably possible unless covered by National Health Insurance, the original drug manufacturer pays great attention to National Health Insurance coverage and pricing negotiation. For reference, Korean drug prices are usually determined at less than 75 per cent of the OECD average price.

VIII MARKETING AND PROMOTION OF SERVICES

i General

In South Korea, marketing and promotion of healthcare services and products are mainly regulated by the MSA, the PAA, the Medical Devices Act (the MDA) and supervised by the MOHW and the MFDS. In addition, the Fair Labelling and Advertising Act that governs advertising activities in general and the Monopoly Regulation and Fair Trade Act that governs fair competition in the market, both of which are supervised by the Korea Fair Trade Commission (the KFTC), may also apply.

ii Medical services advertisement

The MSA prohibits advertising of medical services of a non-healthcare professional or non-medical corporation/institution. In addition, advertisements consisting of the following are prohibited: (1) guaranty of treatment effect, (2) comparison of the quality of treatment with treatments by other medical institutions or professionals, (3) criticism of other medical institutions or healthcare professionals, (4) direct exposure of treatment process and (5) omission of important information. Further, if a medical institution or healthcare professional intends to advertise using newspapers, outdoor advertisements, electronic signboards, etc., such person or institution needs to obtain prior review from the MOHW regarding the content and method of the advertisement.

iii Pharmaceutical advertising

In the case of pharmaceuticals, the PAA prohibits false advertising or exaggerated advertising regarding the name, manufacturing method, effectiveness of the pharmaceutical product. In addition, the advertising of products that have not obtained MFDS approval, the use of news articles or media publication that may be misunderstood as providing a guarantee of the effectiveness of the drug by a healthcare professional, and the advertisement using photographs or articles that suggests effectiveness or performance are all prohibited.

Furthermore, when a manufacturer, importer or the market authorisation holder of a pharmaceutical product intends to advertise the pharmaceutical product manufactured or imported by such person, review and approval of the advertisement by the MFDS is required.

Finally, in the case of ethical drugs, direct-to-consumer advertising is prohibited.

iv Advertisement of medical devices

The MDA regulates the advertising of medical devices. Specifically, the following information should not be indicated anywhere on the product or its packaging: (1) any false or misleading information, (2) information on the effectiveness or performance of the product for which approval or certification has not been obtained and (3) information on the method of use or period of use that may cause health or hygiene issue. The following types of medical device advertisements are also prohibited: (1) false or exaggerated advertising of the name, manufacturing method, effectiveness or performance of the medical device, (2) advertisement that uses news articles or media publication that may be misunderstood as suggesting that a healthcare professional is guaranteeing or recommending the medical device in relation to its effectiveness or performance and (3) advertisements which use articles, photographs or drawings that suggest performance or effectiveness of the medical device. Those who wish to advertise medical devices are required to obtain review from the MFDS.

v Marketing activities of pharmaceuticals and medical devices

Unless specifically permitted by the PAA or the MDA (such as sample provision, clinical trial, post-market surveillance, product presentation, sales call, sponsorship of academic congress or otherwise), the provision of hospitality or economic benefit for marketing purposes is prohibited.

The MOHW has the general authority under the PAA, the MDA and the MSA to regulate these marketing activities. However, the KFTC can investigate pharmaceutical companies, medical device companies and healthcare professionals under Article 23 of the Monopoly Regulation and Fair Trade Act, which prohibits unfair inducement of customers, such as the provision of kickbacks. In addition, given that certain criminal sanctions can be imposed, the Prosecutors' Office can also conduct an investigation into these activities.

If a pharmaceutical company or medical device company provides undue economic benefit to healthcare professionals, administrative sanctions (which may consist of revocation of product approval of the drug or medical device at issue) or criminal sanctions can be imposed. Healthcare professionals who are provided with such illegal rebate are also subject to criminal penalties and the economic benefits obtained via such rebate must be disgorged, and where disgorgement is not possible, the equivalent amount must be paid..

vi K-Sunshine Act

The PAA and the MDA have been amended to adopt record-keeping requirements similar to the US Physician Payments Sunshine Act. Under the amendments, drug providers (including market authorisation holder, importer, wholesaler of drugs) and medical device providers (including manufacturer, importer, seller or lessor of medical device) are now required to keep records of economic benefits given to medical institutions and healthcare professionals beginning 1 January 2018 (regardless of when their accounting year begins) through sample provision, clinical trial, post-market surveillance, product presentation, sales call, sponsorship of academic congress or otherwise. Companies must maintain such records for five years. Companies must maintain a template expense form prepared by the MOHW for each expense item and must submit such records to the Ministry upon request.

IX FUTURE OUTLOOK AND NEW OPPORTUNITIES

The South Korean government released the Health Insurance Protection and Enhancement Measures in August 2017 aimed at raising the National Health Insurance coverage rate from approximately 60 to 70 per cent. To this end, the government has considered converting non-salaried employees into salaried persons, mitigating the medical burden of vulnerable groups such as the elderly, children and women, and institutionalising disaster-related medical expenses support and expanding the target of health insurance. The necessary funding is planned to be covered by the cumulative reserve of health insurance contribution and the increase of contribution rates. However, there is a view that that medical expenditure may increase more than expected considering the increase in the use of medical services when the patients' own burden falls. And in this regard, the predominant view is that effective management of medical expenditure and the reorganisation of the medical payment system must accompany the change to the health insurance system.

Recently, the MOHW announced an amendment proposal that includes an expansion of the coverage of National Health Insurance to include epigastric ultrasonography. However, many stakeholders have differing views with respect to such expansion of coverage, and as such, it is uncertain whether this amendment proposal will be signed into law.

X CONCLUSIONS

The healthcare industry of South Korea is an industry in which government regulations affect various aspects of the industry, such as National Health Insurance coverage, commercial activities and advertising. As such, there are many cases in which regulations change according to government policy, and as a result, conflicts among stakeholders such as healthcare professionals, patients, the NHIS and the government authorities often arise. As discussed above, various issues relating to the current healthcare system, including dispute resolution in case of medical accidents and the scope of health insurance coverage, are being discussed, and as a result, the healthcare system of South Korea may change considerably in the near future.


Footnotes

1 Soon-Yub Samuel Kwon and Eileen Jaiyoung Shin are both partners at Lee & Ko.