The medical crisis should not become a prolonged standoff

Government Control of Quotas and Fees Distorts the Supply of Doctors

It causes the allocation of doctors to skew toward high-income fields

A solution should be sought in expanding quotas and raising fees

The government’s announcement of a plan to increase medical school enrollment by 2,000 students has triggered a major clash between the government and the medical community. The government argues that Korea has only 2.1 doctors per 1,000 people, compared with the OECD average of 3.7, and that expanding medical school admissions is necessary to revive essential and regional healthcare. In response, the medical community contends that Korea’s annual number of doctor visits per person is 17.2, far higher than the OECD average of 6.8, so there is not, in fact, a shortage of doctors. It also argues that the essence of the “regional and essential healthcare” problem lies in low medical fees for healthcare services and relatively poor working conditions, and that increasing medical school enrollment is therefore not a fundamental solution.

To solve the problem, it is first necessary to understand the nature of healthcare services accurately. Like all goods and services, healthcare services are provided and consumed through the interaction of demanders (patients) and suppliers (doctors). In response to the services doctors provide and the prices they charge (medical fees), consumers (patients) decide whether or not to receive treatment, and through this process the quantity, quality, and price of healthcare services are determined in the market. When the healthcare market functions in this way, the desires of doctors who provide healthcare services and patients who consume them come into harmony. When the government intervenes and imposes controls, the incentive structure is distorted, this harmony is disrupted, and problems arise in the supply and demand of healthcare services.

Government control over healthcare services takes two forms. First, by setting medical school quotas under the licensing system, it restricts the supply of doctors. This restriction acts as a barrier to entry, reducing competitive pressure on doctors and hindering innovation in healthcare services. Moreover, it prevents the supply of doctors from responding smoothly to need and gives doctors higher incomes than would be possible in a free market.

Second, there is control over medical fees through the national health insurance system. Fee controls have distorted the supply of healthcare services. Because barriers to entry prevent the number of doctors from increasing, the limited number of doctors has been misallocated. In fields with many insurance-covered items whose fees are regulated, there are fewer doctors, while in fields with many non-covered items that are not regulated, there are more doctors. In addition, the tendency to avoid fields with high litigation risk due to medical accidents has worsened the shortage of doctors in essential care. For these reasons, the number of dermatologists and plastic surgeons continues to grow, while the number of doctors in surgery, internal medicine, obstetrics and gynecology, and pediatrics has declined.

Fee controls are also causing moral hazard among consumers, who engage in so-called hospital shopping and receive excessive treatment. From the consumer’s perspective, insurance premiums have already been paid in advance, so the amount paid out of pocket at each visit is small. On top of that, medical fees are almost the same in provincial areas and in Seoul. As a result, patients tend to seek out famous hospitals in Seoul rather than local ones. Viewed from this perspective, the medical community’s claim that simply increasing the number of doctors is not a cure-all has some merit. However, if only fees are adjusted within the current system, problems would still remain: weakened competition in healthcare services would continue to impede improvements driven by innovation, and the supply of doctors would still fail to respond smoothly to need.

The most desirable solution would be to liberalize medical fees and to liberalize both the establishment of medical schools and medical school quotas. But such a solution would, in reality, be nearly impossible. Even now, with the government merely saying it will increase the number of doctors, the backlash is already this intense; if the establishment of medical schools and enrollment quotas were fully liberalized, the resistance would be even greater. Above all, there is virtually no chance that the government will relinquish its control over healthcare services. Although leaving it freely to the market is the optimal solution, given these practical barriers, a second-best option may be to improve the current distorted incentive structure by increasing medical school quotas and implementing an “essential healthcare package” policy that raises fees for essential and regional healthcare while reducing litigation burdens. Of course, this should also include measures to prevent consumer moral hazard.

In truth, no one knows the proper number of doctors needed to supply healthcare services. In that sense, the government’s plan to increase the number by 2,000 is certainly incomplete. But the claims made by the medical community are no less incomplete. It would be desirable to recognize that both sides are operating with incomplete answers, discuss what should be supplemented in the government’s proposal, and search for an appropriate solution. This does not seem like something that should remain in confrontation for so long.

Jaewook Ahn, Emeritus Professor, Department of Economics, Kyung Hee University; Chairman, Center for Free Enterprise (CFE)

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Original title: 의료사태 오래 대립할 일 아니다

Author: Jae-uk Ahn

Date: 2024-03-11

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=26503