kwon slides

Health Care Reform in Korea: Politics and Vested Interests: 

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 Professor Dept. of Health Policy andamp; Management Seoul National University

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Health Care Reform in Korea 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

I. Health Care System and Reform: 

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%)

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Context of the Health Care Financing Reform Inequity in the economic burden Differential method of setting contribution between industrial workers and the self-employed (income vs. income andamp; property) among industrial workers (difference in contribution base) Same benefit package but different contribution across ins. societies (w/o consumer choice)

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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 -andgt; 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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Problems of Regulated Fee-for-service 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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3. Pharmaceuticals Context of the Pharmaceutical Reform - Financial incentives of physicians and pharmacists -andgt; Overuse of drugs - No check and balance between the pharmacist and the physician -andgt; Misuse of drugs - Limited access of consumers to prescription information -andgt; 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 -andgt; Drug as a major source of profit for doctors -andgt; Accelerates the overuse of drugs: 30-40% of total health exp. on drugs high resistance to antibiotics

Drug-Related Revenue in the Total Revenue of Physician Clinics: 

Drug-Related Revenue in the Total Revenue of Physician Clinics Source: MOHW, Internal Report, 2000

II. Throughputs of Reform: 

II. Throughputs of Reform Implementation Failure Nationwide physician strikes (KMA andamp; 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%

Medication & Injection in Outpatient Care: 

Medication andamp; Injection in Outpatient Care Source: NHIC, Trend in Health Care Provision in Health Insurance, 1997

Increase in Medical Care Fee: 

Increase in Medical Care Fee

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Impacts on payment system reform 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) 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)

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2. Impacts on Physician Behavior Before(Jan 2000)-and-After(Dec 2000) result - % claims with prescription: 94.8% -andgt; 94.0% - No. of medicines per prescription: 5.2 -andgt; 5.1 - % Px with antibiotics: 55.7% -andgt; 56.0% - Drop of antibiotics for upper respiratory dis. -andgt; 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 -andgt; possibility of future improvement e.g., - Physician prescription fee merged to the fee for service - Physician fee freeze

III. Politics of Health Care Reform: 

III. Politics of Health Care Reform Political Will Matters Vested Interests Matter Policy Process Matters Strategic Implementation Matters

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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 in social and health policy

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Policy windows opened in the ‘politics’ stream rather than in the ‘problem’ stream -andgt; ‘Doctrinal’: finding a problem for an already existing solution (Kingdon, 1985) Limitations of the reform to solve the problems - Pharmaceutical reform for cost containment: physician incentive to prescribe cost-effective drugs? - Financing reform for fair contribution: income assessment 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

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2. Vested Interests Matter Diffused benefits and concentrated costs -andgt; 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 (andlt;- econ. crisis) - Neutral: physicians

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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 affects both price and quantity -andgt; DRG as a potentially bigger challenge to clinical autonomy

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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 Randamp;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

Pharmaceutical Manufacturers by Size (No. of Employees): 

Pharmaceutical Manufacturers by Size (No. of Employees) 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 -andgt; smooth implementation - Physicians exercised implicit veto power in the formulation and ‘no need’ to do that in the implementation

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Recent reform initiated by the president and civic groups - bureaucrats could not afford to accommodate physician interest in policy formulation Paradigm change in policy process with the end of authoritarian regime: bureaucratic politics -andgt; 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 issues 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 -andgt; 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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Figure 4. Financial Status of National Health Insurance   Fiscal Status of the National Health Insurance

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THANK YOU !!! Comments are welcome Soonman Kwon kwons@snu.ac.kr (Seoul National University) skwon@hsph.harvard.edu (Harvard University)