South Korean Government Looking to Apply Accounting Standards to Small Hospitals

Jul 31, 2019

There are intense arguments for and against application of accounting standards to small hospitals. While South Korean Government wants these small hospitals to show how much they make and how much they spend, small hospitals state that South Korean Government wants to increase administrative burden on them. South Korean Government and the National Assembly are planning pass a bill that includes relevant information and enforce the bill during the second half. Hospital industry complains about unfairness while desperately opposing South Korean Government’s plan.
Because accounting standards can be standards for calculating cost with medical fee negotiation on the line, interests of South Korean Government and hospital industry are very different from each other. While South Korean Government wants to know the truth to a statement saying medical fee is too low, hospital industry believes that South Korean Government is looking to secure data to control medical fee. There needs to be a policy that will minimize any kind of burden while many insist that application of accounting standards is needed for hospitals that meet certain scale.
◊Accounting standards currently applied to only medical institutions at the general hospital level
According to Medical Act, general hospitals that have at least 100 sickbeds by the end of the previous fiscal year have to follow medical institution accounting standards. Regardless of whether a medical institution is founded by an individual or a corporate, a medical institution at the general hospital level needs to be applied with accounting standards.
Applicable medical institutions need to prepare financial statements such as statement of position, income statement, and statement of cash flows to show financial situation and operational performance. How to prepare financial statements in detail is set up and announced by the minister of Ministry of Health and Welfare.
According to current laws and regulations, general hospitals that have individuals as founders have to follow medical institution accounting standards and Income Tax Law. General hospitals that have corporates as founders also have to follow same accounting standards. But they have to go by Corporate Tax Act. If a medical institution has at least 100 sickbeds but is at the hospital level, it does not have to be applied with accounting standards.
◊South Korean Government to apply accounting standards to small hospitals as well
Meng Sung-kyu, who is a member of Democratic Party of Korea, motioned a partial revision of Medical Act that tightens accounting management and expands subject of application of medical institution accounting standards from general hospitals to medical institutions that meet certain scale in May. Although he is planning to present the plan as detailed regulation, it is likely that the revised Medical Act will include hospitals that have 100 to 300 sickbeds.
Revised bill was motioned because it is difficult to calculate accurate medical fee and to analyze overall profit structure of medical institutions as it is impossible to compare and collect accounting information of general medical institutions that are not applied with medical institution accounting standards.
In 2018, there were 353 medical institutions at the level of a general hospital that were actually applied with accounting standards. This number only corresponds to 8.9% of number (3,924) of medical institutions that are at least at the hospital level. It is difficult to collect overall management information of South Korean hospitals as medical institutions at the hospital level are not applied with accounting standards. This issue was also pointed out by National Assembly Budget Office once.
“We have difficulties in establishing policies as it is difficult to analyze financial status of small hospitals.” said Meng Sung-kyu. “California, Japan, and Germany all require their hospitals to submit accounting information and they utilize it to improve transparency of accounting and to decide on reasonable medical fee.”
The National Assembly and South Korean Government believe that it is inevitable for them to apply accounting standards from an aspect of strengthening transparency of accounting and securing fundamental data to draw up a policy as they do not have management information of more than 1,400 medical institutions that are at least at the hospital level. They need to calculate cost and understand profit structure in order to improve ‘unrealistic medical fee’ that has been brought up consistently by the hospital industry. However, it is not easy for them to prepare policies when they lack relevant information.
“We are going to discuss our bill that is currently in pending status with relevant departments during the second half and focus on having it pass through the National Assembly.” said a representative for the office of Meng Sung-kyu.

South Korean Government Looking to Apply Accounting Standards to Small Hospitals

◊Small hospitals desperately oppose South Korean Government’s plan
Medical institutions that are at the level of a small hospital strongly oppose such plan by the National Assembly and South Korean Government because they believe that the National Assembly and South Korean Government are going to impact their management by increasing the load of accounting tasks. They also emphasize that reasoning behind South Korean Government’s plan does not make sense.
“Even though some hospitals are not applied with accounting standards, they are required to submit their accounting information to National Health Insurance Service.” said Vice-Chairman Kang Bong-soo of Korean Hospital Doctors Association. “Hospitals are also a type of a private enterprise and making them submit accounting standards as a whole is a serious issue.”
Basically, the hospital industry believes that South Korean Government can find out management information of hospitals through health insurance claim made to National Health Insurance Service and tax return made to National Tax Service. It is pleading that it is difficult to even survive when it is already facing issues such as low medical fee, minimum wage increase, and nurse rating system.
This current issue basically boils down to medical fee. South Korean Government negotiates medical fee that is paid to hospitals every year with the hospital industry. Hospital industry states that its management and quality of medical services are becoming worse due to significantly low medical fee set by South Korean Government. South Korean Government states that it needs to understand accurate amount of profit and spending structure to solve medical fee issue. It decides how much medical fee is increased depending on the calculation of cost.
However, hospital industry emphasizes that calculating medical fee from understanding the cost is meaningless. Hospitals make surplus by maintaining their management where they make minimum profit. They believe that there is a high chance that South Korean Government will not increase medical fee just by looking at their surplus.
“South Korean Government’s goal is to prove that current medical fee is not low by understanding the margin of hospitals.” said a representative for Korean Hospital Doctors Association. “Because hospitals barely make surplus by managing their management at the minimum, there is a high chance that South Korean Government will see their surplus and decide not to increase medical fee.” The representative also added that hospitals record loss as surplus to apply for loans and that such index causes an issue when it is used to calculate medical fee or to understand cost.
◊South Korean Government to apply standards sequentially based on conditions of hospitals
Experts agree that accounting standards need to be applied to small hospitals even though they understand small hospitals’ situation. However, they believe that there needs to be discussions regarding range and timing of application as small hospitals can feel heavy burden if South Korean Government are to push its plan as fast as possible.
“Although regular salaries from medical institutions at the hospital level are relatively transparent, non-salary items or expense and cash sales that come from other insurances are all over the place.” said Director Cho Wan-seok of TAESUNG Accounting Corp. “Applying accounting standards means that South Korean Government is going to look into management information on a same standard and it can improve transparency of accounting of hospitals and provide credibility to patients as well.”
South Korean Government is going to focus on passing the revised bill sometime during the second half. From perspective of small hospitals, they are going to feel heavy burden from increased accounting tasks and reformation of computer network systems. Not only is it difficult to hire accounting experts, but it also costs a lot to depend on outside accounting firms.
Considering such circumstances, South Korean Government is looking to apply accounting standards sequentially from hospitals with 300 sickbeds to hospitals with 100 sickbeds. It is also going to consider various support plans such as accounting education and consulting.
“South Korean Government needs to improve transparency of accounting while not giving too much burden for small hospitals.” said Team Leader Shin Hyeon-doo of Ministry of Health and Welfare’s Medical Institution Policy Department. “Our goal is to secure data that will resolve low medical fee issue and we are also going to look into providing consulting service to small hospitals as well.”
Staff Reporter Jung, Yongcheol | jungyc@etnews.com

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