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 ).
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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
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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
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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.
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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
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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.
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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 %
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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
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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
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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%
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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
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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
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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
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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?
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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
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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.
*( ): %
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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
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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
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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
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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
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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
[email protected] (Seoul National University)[email protected] (Harvard University)