Posted : 2012-09-23 15:48
Updated :  

Why conglomerates own big hospitals?

Surgeons operate on a patient using the da Vinci robotic surgical system at Samsung Medical Center in southern Seoul in this undated file photo. / Korea Times file

They aren't just for philanthropy but, maybe, for business opportunities.

By Kim Da-ye

Samsung Group has several. Hyundai Heavy Industries is related to Korea’s largest. Doosan Group acquired one. Hyundai Motor Group wants one — a hospital.

Hyundai Steel plans to build a hospital near its steel plant in Dangjin, South Chungcheong Province. The affiliate of Hyundai Motor Group owns some 10,800 square meters of land set aside for medical facilities close to the apartment complex for the employees at the steel mill

“We can confirm only that we have a land for a hospital. The rest of the plan will have to be decided in close cooperation with the government,” an official of the country’s second largest steelmaker said.

The company emphasizes that the hospital will be for the local community. When it was negotiating with the city government of Dangjin for construction of a steel plant, the latter said that the area lacked schools and medical facilities. Back in 2007, Hyundai Motor Group Chairman Chung Mong-koo and the city governor agreed to build a high school and a hospital.

But some do not buy the reason for what it is. They speculate that after setting up a hospital, Hyundai Motor Group will eventually follow the steps of other conglomerates in entering medical business.

Their reaction isn’t groundless as many conglomerates have proven their wants and needs for hospitals, especially in a time of deregulation backed by the government’s strong desire to globalize the medical industry.

Conglomerates and hospitals

The pre-split Hyundai Group was the first conglomerate to run a hospital. Asan Medical Center, which opened in 1989, grew to become the country’s largest hospital by size with more than 10,400 outpatients a day.

Samsung Group followed the step in 1994, launching Samsung Seoul Medical Center in southern Seoul. It now has two other branches in northern Seoul and Changwon, South Gyeongsang Province.

Doosan Group entered the industry by acquiring Chung-Ang University that had run two hospitals, which were merged into one medical center called Chung-Ang University Healthcare System.

SK Group has operated since 2004 a for-profit hospital in Beijing, China named SK Aikang Hospital. A joint venture between SK Group and the Chinese-Singaporean Evercare Medical Group is specialized in profit-making medical services including plastic and cosmetic surgery and dermatology.

Furthermore, it is little known that Hanjin Group acquired Inha University that operates a hospital.

LG Group and Hanwha Group once showed interests in building hospitals in cooperation with universities, but failed to. Hyundai Motor Group was involved in several rumors that it tried to acquire hospitals, but has denied all of them, insisting on its wish to build a hospital in Dangjin for the local community and the employees there.

Thanks to huge investments by conglomerates, hospitals became larger and modern. Korean hospitals now have among the most surgical robots in the world, and the government has pushed forward fostering medical tourism.

The trend has, however, its opponents. Park Hyung-geun, a professor at Jeju National University School of Medicine, argues that small hospitals face many difficulties because their larger counterparts took away patients.

He gives Daegu, a metropolitan city in North Gyeongsang Province, as an example. Between the mid 1990s and 2005, the percentage of inpatients in local hospitals dropped from 6.3 percent to 5 percent. During the same time the portion of patients from Daegu in Seoul’s largest hospitals doubled from 2 percent to 4 percent. The move has accelerated since the high-speed KTX railway began operating between the two cities, Park said in a report.

A branch of Samsung Medical Center in northern Seoul attempted last year to build health check-up facilities in the Cheonan and Asan area near the KTX station.

Samsung scrapped the plan when it was strongly opposed by local hospitals, clinics and medical professionals. Samsung said that the facilities were for the firm’s employees there, but the local medical communities feared that Samsung would eventually absorb the demand in th area.

Why hospitals?

Why do chaebol want to own medical facilities? In Korea, hospitals are prohibited from seeking profits, so must be run by non-profit organizations. While the majority of large-scale medical centers belong to universities, conglomerates have separately set up philanthropic bodies that run the hospitals.

Samsung Medical Center, for example, is run by Samsung Life Public Welfare Foundation that receives donations from various affiliates of Samsung Group. Asan Medical Center belongs to Asan Foundation initially founded by the late Chairman Chung Ju-yung in the 1970s. Chung Mong-joon, the founder's son and the largest shareholder of Hyundai Heavy Industries now chairs the foundation. Interestingly, Hyundai Motor is the second largest donor to the foundation after Hyundai Heavy Industries although Chairman Chung Mong-koo isn’t Asan’s client.

Conglomerates’ preliminary purpose for building hospitals is doing good for the society. When Samsung built the medical center, it said it will remove three bads — waiting, guardians and bribery. Hyundai Motor Group’s reason for planning a hospital in Dangjin is that the provincial city does not have any hospital. In fact, it is building a high school, too, and the plan has progressed well with recent approval from the education ministry.

Owning a hospital is not only a good tool of corporate social responsibility program but also is closely involved with conglomerates’ interests in the wider healthcare industry.

Samsung Group entered the healthcare industry by acquiring medical device maker Medison. Its affiliates Samsung Securities and Samsung C&T also have invested in the Songdo International Hospital in Incheon.

Samsung has long been interested in the biopharmaceutical business, and its medical centers can be good research and development venues for the group. Medical centeers have a massive pool of patients and extensive experience in carrying out clinical trials.

Samsung Medical Center has also said over a period of time that it would like to cooperate with the company in future businesses including development of biosimilars, or generic biological medicines.

Asan Medical Center and Hyundai Heavy Industries announced last October that they would work together to develop medical robots. The latter is the country’s largest robot producer, and succeeded last year in making a robot for artificial joint surgery.

Hospitals are sometimes directly connected to the interests of conglomerates’ de-facto owners.

In the case of Doosan Group, Park Yong-hyun, the former chairman of Doosan Engineering & Construction (E&C), was an accomplished doctor before turning to business. He headed the Seoul National University Hospital and chaired the Korea Surgical Society.

After the acquisition of Chung-Ang University by Doosan in 2008, Park served as one of its board members and was closely involved in hospital activities.

For universities with their own hospitals, getting acquired by conglomerates isn’t bad at all. The financially struggling entities get injected with ample cash that helps modernize facilities.

Chung-Ang University’s two medium-sized hospitals that were struggling to make ends meet, for example, became integrated into one medical center under Doosan’s leadership.

With the conglomerate’s help, it even entered an overseas market. The medical center and the Vietnamese branch of Doosan Heavy Industries will help operate a general hospital built there by the Korean International Cooperation Agency (KOICA).

In case of Sungkyunkwan University School of Medicine, after the school was acquired by Samsung, the conglomerate is actively recruiting graduates for Samsung Medical Centers. The school has become one of the most prestigious medical schools because of the bright prospectus after graduation.

Hyundai Heavy Industries also hires most doctors for Asan Medical Center from the University of Ulsan, which it owns.

From non-profit to profit-seeking

The number of Korea’s major hospitals has shrunk to five — Samsung Medical Center, Asan Medical Center, Yonsei University Health System, Seoul National University Hospital and Catholic Medical Center.

While the near domination by the five have been criticized for poaching patients from small- and medium-sized hospitals, the conglomerate-owned ones were more severely blamed for causing a so-called “medical arms race” and thereby creating a market where the weak cannot survive. The medical arms race is a competition among hospitals to have better equipment and state-of-the-art medical facilities including surgical robots.

The deepest fear, however, lies with the possibility of privatization of healthcare.

On Jeju Island, the country’s first for-profit medical center is already under construction. The project began in April with the aim of opening in 2014.

The Songdo International Hospital in the Incheon free economic zone, despite it target of medical tourists, has cultivated fear that it may trigger other for-profit hospitals to pop up across the country in five other free economic zones. The international hospital was supposed to be for-profit, but the municipal government is reviewing the possibility of making it non-profit and run by universities.

The government’s main reason to build international hospitals is to create jobs. Park Byung-won, the chairman at a long-term bureaucrat and former chairman of Woori Financial Group, said in a recent speech that the medical industry should be Korea’s next growth engine and a hiring force when the current leadership in several manufacturing sectors such as shipbuilding gets lost to emerging economies like China.

“When I was a student, every talented person studied engineering. Now Korea is the most competitive in engineering fields. Think about which subject has been the most popular among the smartest students in the last decade? It has been medicine,” Park said.

In Korea, the privatization of health care divides largely into two meanings — allowing for-profit hospitals or privatizing the health insurance system.

Opponents of the privatization of health care have argued that allowing for-profit medical institutions will eventually lead to the collapse of the national health insurance. The rich will abandon it, opting for private insurance, and the fund would eventually dry up, leaving the poor with no protection.

While such claims sound dramatic, the negative perception toward the privatization of healthcare and chaebol’s possible involvement in the process prevails. The advancement of the domestic medical industry and good access to fine healthcare, however, remain Koreans’ hope.

When contacted to verify Hyundai Steel’s plan to build a hospital in Dangjin, the city government was careful not to discuss any details. An official said the municipal government does not know how far the plan has progressed because the initiative is led by Hyundai Steel. One business daily reported two months ago that the city wants the hospital to be completed by 2018.

He was, however, optimistic about the plan, “We would like to have a hospital as soon as possible. Chungnam National University’s plan to build medical facilities here were cancelled, and the city does not have any general hospital yet. The sooner the better.”
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