Navigating South Korea’s Healthcare Paradox

South Korea is a land of extremes and contradictions, yet there are many opportunities for pharma

In recent years, we have witnessed an explosion of interest among our pharmaceutical clients in conducting research in South Korea. Some emerging market analysts have suggested a ‘K’ should be added to BRIC, reflecting the country’s burgeoning economic status and its increasingly inclusion in global studies, not just regional Asia Pacific or emerging market studies. Indeed, there is ongoing debate about whether South Korea can still be considered ‘emerging’ as it is a growing player in the pharmaceutical industry in its own right. 
As well as looking at South Korea’s healthcare outlook in more detail, in this article we also ask why the countries lies at the extremes of two conflicting global health indicators – longest life expectancy and highest suicide rates. 
A study published in the Lancet in February projected that South Korea will top the global league table of life expectancy by 2030. Life expectancy has seen massive gains, increasing by an average of 3.7 years in females every decade since 1985, and is expected to wrestle first place from long-time frontrunner Japan, which is expected to drop to third place in the coming decades. 
Early gains were attributed to a reduction in childhood infection and improved nutrition, but a ‘second wave’ of gains was driven by prolonging the survival of patients living with chronic diseases.
It is noteworthy that South Korea has not experienced the ‘obesity epidemic’ to the same degree as many western countries. The nation’s average BMI is rising, but it retains the lowest obesity rate of all OECD countries after Japan, with only 5.3% of the adult population classified as obese (compared to 38.2% in the US). The Korean diet, of which kimchi (a side dish of fermented vegetables) is a ubiquitous staple, has been credited with playing a significant role in enriching the health of South Koreans. 
Other macro-level factors have also contributed to the country’s improvement in chronic disease management; namely, its broad-based economic growth, widening health insurance coverage and uptake of healthcare services. 
Such striking increases in life expectancy would suggest that the country’s healthcare system is functioning well. It has certainly evolved rapidly over recent decades. In 1977, health insurance coverage was made mandatory for employees of large companies and their dependents. Over the following twelve years, health insurance – based on the Japanese model, whereby enrolees are required to pay income-based premiums for coverage – was incrementally extended, eventually covering the whole population by 1989. This National Health Insurance (NHI) is complemented by a means-tested Medicaid program for the unemployed and other groups who are unable to make contributions (3-4% of the population). 
The system worked efficiently until the turn of the century, when, post-1997 Asian financial crisis, the NHI’s deficit began to grow. In 2000, the government moved to a single-payer system. The NHI is administered by the National Health Insurance Corporation (NHIC), a government-run body that is responsible for setting the price of medical procedures and prescription drugs. 
The healthcare system is dominated by private providers, with the private sector consuming 90% of healthcare resources. Competition between providers is fierce, perhaps exacerbated by the high accessibility to services afforded by 80% of the country’s population living in an urban setting. Public sector services are cheaper, less hi-tech, and serve a higher proportion of Medicaid patients. 
Patients must pay a small deductible for the use of medical services; the remainder of the cost is claimed back from the NHIC by the provider. So, while the percentage of healthcare spend as a proportion of GDP in South Korea is low relative to the OECD average, this is supplemented by out-of-pocket payments. Private health insurance exists to cover the expenses not covered by NHI, as some medical expenses can still be very costly, especially with chronic diseases with expensive treatments, such as cancer.
An important reform in 2000 saw the separation of reimbursement of pharmaceuticals from medical care, preventing doctors from dispensing drugs and pharmacists from prescribing them. While this was intended to curb abuse of unnecessary drugs (under the old system, Korea was ranked highest in the world for penicillin resistance), it had the unintended effect of increasing the market share of foreign pharmaceutical companies – due to greater prescribing of branded drugs – and exacerbating the NHI’s deficit. Pharmaceutical expenditure now makes up around a quarter of total health expenditure, relatively high for OECD countries.
Critically, the separation of prescribing and dispensing also limited the potential for doctors and pharmacists to make profit. Doctors already earn low wages relative to other mature markets due to fixed prices set by the NHIC, which has had a number of unexpected consequences that have shaped healthcare delivery.
On one hand, to make the most of the fixed NHIC charges, doctors cram as many patient consultations into the working day as possible, leading to short consultation times. They can also make more money by offering procedures for which the NHIC allows them to charge a higher price – such as caesarean sections and MRI scans. This has resulted in high utilization of practices that would be considered excessive elsewhere, with the government reluctant to intervene or undermine doctors’ clinical autonomy. Hospital stays are also extended relative to other markets as this offers another avenue to increase income.
Doctors may choose to leave South Korea altogether in search of higher earnings elsewhere, or they may turn their hand to procedures that are not covered by the NHIC at all, leaving them free to charge what they like. Plastic surgery is a notable example; Seoul is widely considered as the ‘plastic surgery capital of the world’, where the Gangnam neighborhood – made famous by Psy’s ‘Gangnam Style’ in 2012 – is reported to contain more than 500 aesthetic centers.
The government’s laissez-faire attitude to the regulation of doctors and their practices has resulted in a structural imbalance. There are no controls on the proportion of specialists or the number of specialties an individual can have. As a result, over 80% of doctors are specialists (compared to 50% in most western countries), and one quarter have two or more specialties. As in China, South Koreans are free to visit any doctor, even for a minor ailment, which leads to long waiting times in popular clinics. 
As with other East Asian countries, South Korea’s fertility rates are low and declining. Coupled with the projected rises in life expectancy, the working population is set to come under even more strain as the dependency ratio soars. It remains to be seen what this will mean for the future of the NHI.
Perhaps paradoxically for a country with such high average life expectancy, South Korea also has the highest suicide rates of the OECD countries, with rates having soared since the 1997 financial crisis. 
More than 30 South Koreans kill themselves every day, with the highest rates among the over 65s. Many cultural factors have been blamed; including worry about the economy and the high pressure, competitive working environment (which is also claimed to have contributed to the surge in demand for aesthetic medicine and plastic surgery). The erosion of the traditional family structure – in particular the breakdown of the generational contract between aging parents and their increasingly independent children – is also cited. Divorce rates are also rising, especially ‘twilight’ divorces between couples who have been married for at least 20 years, as the stigma around divorce diminishes.
A phenomenon as complex as suicide defies straightforward or simplistic explanation. While the prevalence of anxiety and depression have been rising steadily in recent years, mental illness remains stigmatized in society. Talking about emotional problems is taboo – it is associated with weakness and results in a reluctance to seek therapy and the belief that problems can be overcome without external intervention. To tackle the suicide epidemic, various initiatives have been implemented at both local and national levels, but there is clearly still much work to be done.  
From a healthcare perspective, South Korea is a country of extremes and contradictions. For pharmaceutical companies, the opportunities offered by its comprehensive healthcare coverage make it a highly attractive market, though it is important to understand its demographic and disease profile, coupled with the under- and over-utilization of certain healthcare services. Set in the context of an impending demographic ‘time bomb’, it will be interesting to observe how the profit orientation of prescribing physicians will play out against the imminent need for the government to implement aggressive cost containment measures.
For more information, download the Research Partnership’s latest Free Thinking whitepaper, South Korea: The next global player
Marc Yates is Director of Emerging Markets at Research Partnership.

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Oct 10, 2017 - Oct 11, 2017, Sydney

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