Kwon: Health Care Reform in Korea 1

Health Care Reform in Korea: Politics and Vested Interests

Soonman Kwon, Ph.D.Takemi Fellow and Fulbright Scholar

Harvard School of Public Health and

Associate ProfessorDept. of Health Policy & Management

Seoul National University

Kwon: Health Care Reform in Korea 2

Health Care Reform in Korea

a. Health care financing reform: merger of health insurance societies into a single payer

b. Pharmaceutical reform: separation of drug prescribing and dispensing

c. Payment system reform for providers: RBRV, DRG

POLITICS and PROCESS of health care reform

Kwon: Health Care Reform in Korea 3

I. Health Care System and Reform

1. Health Care Financing NHI consisted of over 350 health

insurance societies (no consumer choice) for

- industrial workers (36.0% of pop) : based on employment

- self-employed (regional) (50.1%) : based on regions

- public and school employees (10.4%)

Kwon: Health Care Reform in Korea 4

Out-of-Pocket Medical Expenses (1997)

Insured

Services

Uninsured

Services Total

Inpatient 15.7 % 23.6 % 39.3 %

Outpatient 36.9 % 24.2 % 61.1 %

Kwon: Health Care Reform in Korea 5

Public and Private Share of the National H. Expenditure

(Unit: %)

1989 1991 1993 1995 1997 1998

Government 8.67 8.25 9.91 11.10 11.54 11.79

Soc. Ins. 23.34 25.06 23.50 25.38 29.48 34.44

Public Total 32.01 33.31 33.41 36.48 41.02 46.23

Household 57.33 56.44 54.86 51.07 46.11 41.60

Priv. Ins. 5.38 5.30 5.86 5.81 6.66 6.96

Others 5.29 4.96 5.88 6.63 6.21 5.22

Private Total 67.99 66.69 66.59 63.52 58.98 53.77 S o u rce : K an g , S u n g w o o k , N a tio n a l H ea lth E x p en d itu re in K o rea , M as te r 's T h esis , S ch o o l o f P u b lic H ea lth , S eo u l N a tio n a l U n iv e rs ity , 2 0 0 0 (in K o rean ).

Kwon: Health Care Reform in Korea 6

Context of the Health Care Financing Reform

a. Inequity in the economic burden

Differential method of setting contribution- between industrial workers and the self-

employed (income vs. income & property)- among industrial workers (difference in contribution base)

Same benefit package but different contribution across ins. societies (w/o consumer choice)

Kwon: Health Care Reform in Korea 7

b. Chronic fiscal instability of rural h. insurance

- decreasing population, poor health, increasing proportion of the elderly

c. Diseconomies of scale (too small in size) - inefficient risk pooling - administrative costs

d. Regulation and influence of the Ministry of Health and Welfare -> revolving door and little self-governance

Kwon: Health Care Reform in Korea 8

2. Health Care Delivery

Characteristics of health care delivery

- For-profit nature: most hospitals are profit-making and owned by physicians (KMA, KHA)

- Physicians clinics have inpatient facilities and hospitals have huge outpatient clinics (competition and duplication)

- Closed hospital system- No differential payments to physicians and

hospitals

Kwon: Health Care Reform in Korea 9

Acute Care Hospitals & Beds By Ownership Type (1998)

Public

Not-for-

Profit For-Profit Total

No. Hospitals

(%)

54

(7.4)

319

(43.8)

355

(48.8)

728

(100.0)

No. Beds

(%)

10,680

(7.2)

101,725

(69.0)

34,964

(23.8)

147,369

(100.0)

Note: 178 of 319 not-for-profit hospitals are private corporate hospitals, which are

not-for-profit by law. For-profit private corporate hospitals are not allowed in Korea.

Kwon: Health Care Reform in Korea 10

Problems of Regulated Fee-for-service

a. Increase in volume and intensity

b. Substitutions of - drugs and medical supplies for physician’s own services - more profitable services (e.g., C-section) - uninsured for insured services (e.g., high-tech. medical equipment) - distortion in the physician supply by specialty

Kwon: Health Care Reform in Korea 11

Annual Average Rate of Increase in Medical Expense

per Claim Case by Components, 1990-1998

T o ta l M ed ica l

E x p en se

E x p en se fo r

D ru g s

E x p en se fo r

M ed . S u p p lie s

T o ta l 8 .1 7 % 11 .4 3 % 1 3 .5 7 %

In p a tien t 1 0 .5 4 % 9 .9 7 % 1 7 .0 9 %

O u tp a tien t 7 .4 5 % 1 2 .7 1 % 9 .3 1 %

Medical expense per claim case consists of physician fees, drug expense

and expense for medical supplies.

Kwon: Health Care Reform in Korea 12

Caesarean Section Rate

WHO

recomme

ndation

Japan

(1998)

U.K.

(1998)

U.S.A.

(1998)

Korea

(1999)*

10 % 15 % 16 % 20 % 43 %

* Six percent in Korea (1985)

Kwon: Health Care Reform in Korea 13

Caesarean Section by the Type of Health Institutions

Type No. of

Institutions

Percentage

Deliveries

Percentage

C-Section

Total 1,487 100% 43.0 %

Tertiary Hosp. 44 9.8% 44.9 %

General Hosp. 205 23.2% 44.7 %

Hospital 150 19.8% 42.1 %

Phys. Clinic 1,088 47.2% 42.2 %

Kwon: Health Care Reform in Korea 14

3. Pharmaceuticals

Context of the Pharmaceutical Reform

- Financial incentives of physicians and pharmacists -> Overuse of drugs- No check and balance between the pharmacist and the physician -> Misuse of drugs- Limited access of consumers to prescription information-> similar in Japan, Taiwan and China

Kwon: Health Care Reform in Korea 15

Unique Institutional Features and Incentive Problems in Korea

- Regulation of fees for physician services- Higher insurance reimbursement (than cost) to physicians for drugs

-> Drug as a major source of profit for doctors-> Accelerates the overuse of drugs: 30-40% of total health exp. on drugs high resistance to antibiotics

Kwon: Health Care Reform in Korea 16

Drug-Related Revenue in the Total Revenue of Physician Clinics

47.0

35.642.4 41.6 41.4 39.5

0

10

20

30

40

50

60

70(%)

IM GS FM Derm Uro Ped

Source: MOHW, Internal Report, 2000

Kwon: Health Care Reform in Korea 17

II. Throughputs of Reform

1. Implementation Failure

Nationwide physician strikes (KMA & KHA) Impacts on pharmaceutical reform- rejection of generic prescription- rise in the proportion of prescription drugs - exclusion of injectable drugs- increase in the physician fee by 44%

Kwon: Health Care Reform in Korea 18

Medication & Injection in Outpatient Care

60.5

8.1

83.9

25.5

83.9

52.4

86.4

61.7

0

20

40

60

80

100(%)

TertiaryHosp.

GeneralHosp.

Hospital PhysicianClinics

Med. Inj.

Source: NHIC, Trend in Health Care Provision in Health Insurance, 1997

Kwon: Health Care Reform in Korea 19

Increase in Medical Care Fee

DateIncreased

Medical Fee

1999.11.15 9.0%

2000.4.1 6.0%

2000.7.1 9.2%

2000.9.1 6.5%

2001.1.1 7.08%

Total 43.9%

Kwon: Health Care Reform in Korea 20

Impacts on payment system reform

a. Deferment of DRG implementation despite its proven effects on cost, LOS, no. of tests, use of antibiotics and quality (thru a 3-year pilot program)

a. Impact on RBRV implementation in 2001 - increase the fees for under-valued services - not decrease the fees for over-valued ones - no VPS (Volume Performance Standard)

Kwon: Health Care Reform in Korea 21

2. Impacts on Physician Behavior

Before(Jan 2000)-and-After(Dec 2000) result

- % claims with prescription: 94.8% -> 94.0%- No. of medicines per prescription: 5.2 -> 5.1- % Px with antibiotics: 55.7% -> 56.0%- Drop of antibiotics for upper respiratory dis. -> substitution: 80% drop in tetracycline but 30% increase in cephalosporin

Kwon: Health Care Reform in Korea 22

Expected impact on pharmaceutical expenditure is minimal

- Reform contents distorted: brand-name prescription, small share of OTC drugs, limited role of generics

- Long-term distortion: change in the physician prescription norm?

- Little incentive to prescribe cost-effective drugs

Kwon: Health Care Reform in Korea 23

3. Survival of the Reform

Although vested interests distorted the reform, they failed to entirely block the reform

-> possibility of future improvement

e.g., - Physician prescription fee merged to the fee for service - Physician fee freeze

Kwon: Health Care Reform in Korea 24

III. Politics of Health Care Reform

Political Will Matters

Vested Interests Matter

Policy Process Matters

Strategic Implementation Matters

Kwon: Health Care Reform in Korea 25

1. Political Will Matters

No discernable change in public attitude and major health indicators - Not driven by fiscal imperatives

Regime change: increased legitimacy and expectation - First change in administration in 40 years - New president: progressive political ideology, interest i

n social and health policy

Kwon: Health Care Reform in Korea 26

Policy windows opened in the ‘politics’ stream rather than in the ‘problem’ stream

-> ‘Doctrinal’: finding a problem for an already existing solution (Kingdon, 1985)

Limitations of the reform to solve the problems- Pharmaceutical reform for cost containment: physi

cian incentive to prescribe cost-effective drugs?- Financing reform for fair contribution: income ass

essment of the self-employed?

Kwon: Health Care Reform in Korea 27

Political will critical for policy formulation - dominance of executive power - strong parliamentary support presidential party as the majority strong party loyalty

Problems in policy implementation - lack of experience and strategy - reluctance of bureaucrats: interests (capture and revolving doors) skepticism about the feasibility of reform

Kwon: Health Care Reform in Korea 28

2. Vested Interests Matter

Diffused benefits and concentrated costs-> Vested interests are very influential when public

preference and understanding about the reform are undeveloped

Financing reform- Strong support: rural population, labor union for

employees of self-employed ins. soc.- Weak opposition: business (<- econ. crisis)- Neutral: physicians

Kwon: Health Care Reform in Korea 29

Pharmaceutical and payment reform - strong opposition by physicians

Implications of pharmaceutical/payment reform vs fee regulation (FR) to physicians

- FR affects only the insured sector (45%) whereas Pharm reform affects all - FR affects only the price whereas payment reform affec

ts both price and quantity -> DRG as a potentially bigger challenge to clinical auto

nomy

Kwon: Health Care Reform in Korea 30

Role of pharmaceutical industry is minimal

Domestic pharmaceutical manufactures - used to survive by unfair trade and discounts - over 450, very small, no capacity for R&D - reform as a threat but no power to oppose (very fragmented)

Multinational pharmaceutical manufacturers - support the reform but keep neutral in order not to

antagonize physicians

Kwon: Health Care Reform in Korea 31

Pharmaceutical Manufacturers by Size (No. of Employees)

1993 1995 1997

1,000~ 14 (3.6) 9 (2.5) 9 (2.0)

500~999 21 (5.4) 23 (6.4) 22 (4.8)

300~499 18 (4.6) 23 (6.4) 21 (4.6)

100~299 92 (23.7) 93 (25.7) 95 (20.9)

50~99 71 (18.3) 57 (15.8) 56 (12.3)

~49 168 (43.3) 157 (43.4) 252 (55.4)

Total 388 (100.0) 362 (100.0) 455 (100.0)

Source: KAPM, Pharmaceutical Industry Statistics, 1998.

*( ): %

Kwon: Health Care Reform in Korea 32

3. Policy Process Matters

Bureaucrats (MOHW) politics in the past - Lack of interest by president and the public

- Accommodated interest groups in the policy formulation -> smooth implementation

- Physicians exercised implicit veto power in the formulation and ‘no need’ to do that in the implementation

Kwon: Health Care Reform in Korea 33

Recent reform initiated by the president and civic groups - bureaucrats could not afford to accommodate physician inte

rest in policy formulation

Paradigm change in policy process with the end of authoritarian regime: bureaucratic politics -> interest group competition

(physician veto power in policy implementation)

Gov’t. failed to appreciate the paradigm change and the art of implementation

Kwon: Health Care Reform in Korea 34

Role of civic groups - pivotal in policy formulation - limitation: little experience, led by progressive elites, lack of broad support of the public

Role of labor unions - economic crisis makes them pay attention to social policy i

ssues- labor unions potentially counteract the physician dominance

Interest mobilization will be critical

Kwon: Health Care Reform in Korea 35

4. Strategic Implementation Matters 1) Scope of the Reform

Political feasibility of radical and comprehensive reform vs. incremental reform (e.g., merger into larger schemes, pilot study, antibiotics first…..)

Pharmaceutical reform requires a sudden behavioral change of consumers

-> Path dependence: cultural and historical aspects of drug utilization in Korea

Kwon: Health Care Reform in Korea 36

2) Sequencing of the Reform

Reform overload: large scale opposition by interest groups, capacity problem in implementation, coordination failure

Priority should be to payment system reform- most effective on provider behavior and exp.- pharmaceutical reform does not affect drugs in

inpatient sector - little effect of financing/pharmaceutical reform on

expenditure

Kwon: Health Care Reform in Korea 37

41,162 46,08354,354

63,25572,967 78,491

86,92395,294

103,817

33,638 38,69350,537

64,13276,787

87,09295,614

105,384

143,531

7,524 7,390 3,817 - 877 - 3,820 - 8,601 - 8,691 - 10,090- 39,714

- 50,000

0

50,000

100,000

150,000

200,000

1993 1994 1995 1996 1997 1998 1999 2000 2001

(Un

it:

10

0 m

illio

n w

on

)

Revenue Expense Surplus

Fiscal Status of the National Health Fiscal Status of the National Health InsuranceInsurance

Kwon: Health Care Reform in Korea 38

THANK YOU !!! Comments are welcome

Soonman Kwon

kwons@snu.ac.kr (Seoul National University)skwon@hsph.harvard.edu (Harvard University)