Healthcare reimbursement: South Korea overview

A Clearstate summary on the reimbursement policy, process and criteria in South Korea, along
with a contextual overview of healthcare facilities and expenditure

Private sector leads healthcare provision; government leads expenditure

The Republic of Korea (South Korea) spends approximately USD 52.5 mil on healthcare, or
~USD 1000 per capita. The government accounts for 55.1% of total health expenditure, three-
quarters of which comes from public insurance funds. Private insurance plans play a very small
role (only 3% of total healthcare spend).

The public sector plays a minor role in healthcare provision: all clinics and over 90% of
hospitals are privately owned. However the government runs a national insurance and
reimbursement scheme – called National Health Insurance or NHI – for all working residents
and dependents. This vast scheme applies to both private and public facilities, except
pharmacies, psychiatric hospitals, public health and maternity centres. Patients are free to
choose where to go.

Three national agencies decide and implement reimbursement policy

The Health Insurance Review Agency (HIRA), an independent national body under the Ministry
of Health and Welfare (MoHW), recommends which procedures and devices will be reimbursed
under the NHI (coverage), and by how much (pricing). MoHW follows this agency's advice on
coverage and pricing. HIRA also reviews reimbursement claims from clinics and hospitals.

The National Health Insurance Corporation (NHIC), also a national body under the MoHW,
collects insurance premiums from residents. NHIC is the single payer organisation in South
Korea, and makes reimbursement payment to clinics and hospitals after approval from HIRA.

The Ministry of Health and Welfare (MoHW) oversees the National Health Insurance scheme
for all working residents and dependents. The ministry formally announces policy regarding
reimbursement coverage and pricing. The ministry also leads an annual review of
reimbursement tariffs for medical procedures.

Facilities reimbursed for procedures or cases only; amounts vary with institution
Depending on the payment model chosen by the clinic or hospital, the South Korean system
reimburses facilities for medical procedures or cases that they have performed. There is no
separate or additional process for medical devices. For every covered device, reimbursement
is wrapped into payment for the procedure or case that uses it.

Within a month of using a medical device for a procedure, hospitals and clinics send a
reimbursement claim for the procedure or case to HIRA. HIRA reviews the claim, and reports
its decision to NHIC. For approved claims, hospitals and clinics receive reimbursement
payments from NHIC in 2–3 weeks.

Most hospitals have chosen to be reimbursed using a fee-for-service system. Every year,
NHIC, healthcare providers and civic groups negotiate a fixed tariff (called resource-based
relative value scale / RBRVS point) for each covered procedure. Each point includes cost of
devices used, effort and time from doctors and nurses, and other resource requirements.
These points, combined with a variable multiplier (depending on facility size), decide how much
NHIC will reimburse a hospital or clinic.

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Many clinics have opted for Diagnostic Related Group (DRG) payments. Under this approach,
NHIC pays a set tariff for each case from an approved list of eight disease groups.

Patients co-pay a significant amount in South Korea. They co-pay the same rate for inpatient
services everywhere, but different rates for outpatient services, 30% at clinics and small
hospitals, up to 40% at general hospitals and 50% at university and specialised hospitals.
Patients also pay the difference if device or overall procedure cost exceeds reimbursement
price.

HIRA evaluates devices to decide coverage and payment

The South Korean system includes costs of covered devices within the tariff for each procedure
under the FFS model (calculated every year) or case under the DRG model. HIRA decides
which devices to reimburse and by how much. HIRA prices are a key criterion considered by
hospitals and clinics when buying equipment from suppliers.

Suppliers, clinics or hospitals must apply to HIRA for reimbursement coverage for a device.
Suppliers must apply within 30 days of getting marketing approval from the Korean Food and
Drug Administration (KFDA); facilities must apply within 30 days of first use. HIRA asks for
details on FOB (if imported) / manufacturing costs (if local), market prices, cost-effectiveness
and device components.

To decide coverage, HIRA tests each device for safety, medical outcomes and cost-
effectiveness. The process takes 5 months for most devices. Any device with disruptive
technology (as judged by HIRA) undergoes a longer evaluation of 18–24 months, and needs to
be used by a Korean hospital or clinic as part of the evaluation process. HIRA approves most
devices, except those it deems too costly, clinically less effective or fast-changing technology.
HIRA’s reimbursement register for 2007 shows a reimbursement rate of 92% (only 952 rejected
out of 12,316 applications).

Reimbursement pricing depends on function / purpose of use, material, cost-effectiveness,

clinical outcomes and competitive situation.

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Due to rising healthcare costs and government budget deficits, reimbursement prices are often
lower than current market prices. To make a case for high pricing, suppliers may submit
evidence of reimbursement prices in other countries. Sometimes, suppliers also illegally inflate
market price estimates in their application.

Reimbursement expansion, price cuts expected in South Korea

HIRA is considering the following measures to manage costs:
 Periodic review and price cuts for devices already priced for reimbursement
 Registry of all device sales and installation – supplier, purchasing hospital, volume, actual
dealing price, etc.
 Separate reimbursement for disposables, likely with limitations to discourage their use

Partly because of strong pressure from civic groups, HIRA also has plans for gradual expansion
of services covered under reimbursement, and to prioritise medical procedures and devices.

HIRA will continue to emphasise low costs and clinical improvement to decide reimbursement
coverage and pricing. Medical device companies consider the non-reimbursement option
carefully in South Korea. Local distributors sometimes prefer non-reimbursement, due to a
history of price reduction and limitation by MoHW.

About Clearstate
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help medical devices, healthcare services, pharmaceutical and biotechnology firms understand
their current and potential markets, implement pragmatic and innovative strategies to ultimately
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