Health care reform and change in public–private mix of financing: a Korean case

Abstract

The objective of this paper is to examine the changes in the Korean health care system invoked by the reform (in the latter part of 2000) in regard to the separation of drug prescription and dispensation, especially from the point of view of the public–private financing mix. It seeks particularly to estimate and analyse the relative financing mix in terms of both modes of production and types of medical provider. The data used to estimate health care expenditure financed by out-of-pocket expenditure by were sourced from the National Health and Nutritional Survey (conducted by interviewing representatives of households) and the General Household Survey (a household diary survey). National Health Insurance data, etc. were used to estimate health expenditure financed by public sources. This study concentrates on the short-run empirical links between the reform and the public–private mix in finance. The reform increased remarkably the public share in total health expenditure. This public share increase has been prominent particularly in the case of expenditure on drugs since the reform has absorbed much of the previously uncovered drugs into the National Health Insurance coverage. However, a higher public share in medical goods than in out-patient care would raise an issue in terms of prioritization of benefit packages. The five-fold increase in the public share of expenditure at pharmacies reflects not only the fact that drugs previously not covered by NHI are covered now but also the fact that prescribed drugs are currently purchased mainly at pharmacies, as opposed to in doctors’ clinics, as a result of the reform.

Introduction

The appropriate role of public and private finance/provision in health care has been the subject of vigorous debate and discussion in many countries [1], [2], [3], [4], [5], [6], [7], [8]. Many developed countries have constructed public systems pursuing equitable health care. Their public nature should not necessarily indicate inefficiency. Our primary concern about the public–private mix is the development of hybrid solutions capable of combining the best of public and private sectors in order to integrate equity and efficiency.

In Korea, rapid economic development was paralleled by a significant increase in life expectancy and expanded access to health care. Universal population coverage by the National Health Insurance (NHI) was achieved in 1989, only 12 years after its inception. The augmentation of benefit coverage, i.e. the range of benefits covered by the insurance package is a continually advancing process despite the achievement of blanket coverage of the population. The reform in regard to the separation of drug prescription and dispensation (SPD reform) was one of two big reforms that were introduced in July 2000 to the Korean health care system. The other was the integration of multiple health insurers into a single payer. Despite its significance in the Korean health care system, the latter is not particularly related to the change in the public–private mix, at least in the short run. In this sense, this study mainly focuses on the SPD reform.

Kang et al. [9] recognized the SPD reform positively. The report emphasized the definition of the SPD reform to the extent of creating an ethos of teamwork and cooperation between the two professions with each contributing according to their specialist knowledge. Potential effects were also emphasized such as improving quality of care and achieving cost reduction by decreasing abuse, over-use, and misuse of medications among patients and providers. However, Kim et al. [10] criticized the decisions made by the Korean government concerning the separation of the roles of medical institutions and pharmacists for out-patient care (SMP), differentiating it from the separation of the prescribing and dispensing roles of physicians and pharmacists for out-patient care (SPD). Kang et al. [9] had expected that, by keeping independent ownership and management between hospitals and pharmacies, the SMP (institute separation) would remove the economic incentives of prescribing unnecessary drugs from the physicians’ decisions about medication.

The objective of this paper is to look at what change the SPD reform has brought about in the Korean health care system, particularly from the viewpoint of the public–private mix. Of particular interest is to estimate and analyse the relative mix of public and private sources of financing in terms of both modes of production and types of medical providers. Since the inception of the reform is such a recent development, the real impact on the utilization behaviour of the end users will become apparent in the years to come. This study focuses on the short-run empirical connections between the SPD reform and public–private mix in finance. The long-term effects will be the subject of a forthcoming study when sufficient empirical evidence becomes available.

Better information on the financing of the health sector is an essential basis for wise policy change in the area of health sector reform, but not enough information exists on the health sector. Analysis of health care financing should begin with sound estimates of national health expenditure. In response to the pressing need for reliable and comparable statistics on health expenditure and financing, the OECD developed the manual, A System of Health Accounts (SHA), releasing the initial 1.0 Version in 2000 [11]. Since its publication, a wealth of experience has been accumulated in a number of OECD countries during the process of SHA implementation. The OECD has performed a project to implement the System of Health Accounts in member countries since 2002. Thirteen countries¹ including Korea are now participating in this ‘SHA implementation project’. The author has been in charge of the construction of Korea's health accounts, and the main part of the results of this study have been shared with other member of the OECD's SHA implementation project [12].