[Contribution] Legal issues to keep in mind when opening and operating new types of hospitals and pharmacies

Article 33, Paragraph 2 of the Medical Service Act strictly limits qualifications for opening medical institutions to medical personnel, national and local governments, medical corporations, non-profit corporations, quasi-governmental organizations, etc., and Article 33, Paragraph 8 of the Medical Service Act prohibits the opening and operation of more than one medical institution. In addition, Article 20, Paragraph 1 of the Pharmaceutical Affairs Act stipulates that only a pharmacist or oriental pharmacist may open a pharmacy, and Article 21, Paragraph 1 restricts a pharmacist or oriental pharmacist to open only one pharmacy.

However, with changes in technology and market structure, medical institutions and pharmacies with various operating forms and new profit structures are appearing, including existing MSOs (network hospitals), medical consumer cooperatives, and recently introduced factory pharmacies. When opening and operating a medical institution or pharmacy of this type, the issue of illegality under the above Medical Service Act and Pharmaceutical Affairs Act inevitably becomes an issue.

When decisions regarding partnership, investment, and operation are made by several people, including non-medical personnel, in a medical institution, it must be reviewed whether the non-medical person is actually opening and operating the medical institution through the medical practitioner (commonly known as 'executive hospital'), whether it is the overlapping opening of the medical institution by the medical practitioner, and whether it is the accompanying license rental.

Whether or not the act of opening a medical institution between a non-medical person and a medical person through an agreement such as a partnership constitutes an act of opening a medical institution by a non-medical person is determined by who has taken the lead in handling the opening and operation of the medical institution. Specifically, the basis is the entity that procured the opening funds, facilities and land, etc., the entity that made management decisions and personnel decisions, and the attribution of profits (whether in the form of regular salary).

In the case of a medical corporation, there is a possibility of being recognized as an office-directed hospital, but the office-directed hospital must be recognized as a non-medical person opening and operating a medical institution by exploiting a medical corporation that only has an external form through illegal means. In other words, it is only recognized in a limited way in cases where a non-medical person abuses a medical corporation whose entity is not recognized due to lack of actual property contribution as a means of opening and operating a medical institution, or when the medical corporation's assets are unfairly leaked, thereby deviating from the public nature or non-commercial nature of the medical corporation.

In the case of overlapping operation of a medical institution by a medical professional, the eligibility is determined by taking into consideration all circumstances, such as the entity of financing, such as the opening process and facilities or sites required for opening, the relationship between the person in charge of opening and other medical personnel designated as the actual establisher, the method of raising funds, the decision-making structure regarding management, the entity exercising command and supervision rights over practitioners, the form of distribution of operation results, and if there is a hospital management support company (MSO) operated by another medical professional, the amount of expenses incurred by the company and the transaction details. There are cases in which medical institutions are not recognized as overlapping operations if they are judged to be at the level of simple management support or investment.

Non-medical personnel who open an office hospital or medical personnel who violate the regulations prohibiting multiple openings will be subject to heavy criminal punishment and administrative measures, and profits may be recovered under the National Health Insurance Act. Medical professionals who lend their names will also be subject to criminal punishment and administrative action.

Looking at the example of pharmacies, there is a possibility that partnerships or investments between pharmacists and non-pharmacists, partnerships between multiple pharmacists, pharmacy franchise businesses, and operation of factory pharmacies through partnerships may be recognized as license rentals in violation of the one-person-one-site operation principle. The Pharmaceutical Affairs Act prohibits all acts of leasing a license, receiving a license, or arranging for it. Even if the borrower is a pharmacist, license lending may result in criminal punishment, administrative disposition, and recovery of unjust profits under the National Health Insurance Act.

In addition to the criminal punishment and administrative disposition described above, there is room for additional problems to arise, such as tax-related disputes and civil disputes over operation and profit attribution. Therefore, if you wish to open and operate a medical institution or pharmacy through partnership, investment, or a new business model, you need to be mindful of whether there are elements that violate the Medical Service Act and the Pharmaceutical Affairs Act in various areas such as branding or franchising, capital investment and cost expenditure decisions, and management consulting services.

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[Contribution] Legal issues to keep in mind when opening and operating new types of hospitals and pharmacies (link)