하나은행 하나금융경영연구소

Concerns are growing over excess supply in the domestic long-term hospital market

Since the mid-2000s, an abundance of potential demand has driven rapid quantitative
growth in the domestic long-term care hospital market.
In the last 4 years, around 620 new hospitals were established, and at end-2009, there were around 800 long-term care hospitals in operation.
Since there is growing concern over the possibility of excess supply in this market, a detailed analysis of the supply and demand factors is needed.


Analysis of Demand Factors

Rapid aging of society : Korea became an aging society in 2000, and this trend has accelerated since then. In 2009, 10.6% of the entire population was over 65 years of age. The level of aging is relatively low compared to other advanced countries, but the rate of aging is much faster.
Surging costs for geriatric care : Medical expenditures for people over 65 years of age
are almost triple the average for all patients. Also, costs for long-term care have risen
by an average of 18.5% per year since 2001.


Analysis of Supply Factors

Market saturation : The number of long-term care hospitals in operation has risen from 68 in 2003 to about 800 in 2009. By 2008, actual supply of hospital beds was 170% of target levels.
Strengthening government policies : In response to the excess supply of hospital beds, the government has become much more selective in its support. The differential insurance reimbursement system is being strengthened, and on-site examinations are ongoing.


Outlook for the Long-term Care Hospital Industry

In light of the unfavorable supply conditions and the strengthening of government policies, the operating environment for long-term care hospitals is likely to worsen further.
There is little latent demand, and there is growing pressure to exit the market for
small-to-mid sized hospitals in provincial areas that are struggling to recruit staff.


Analysis of Supply and Demand by Region

Key factors for assessing supply in each area include the number of patients over 65,
new hospitals established over the past 2 years, and occupancy in geriatric care units.
There may be excess supply in certain cities (Busan, Daejon, Ulsan). While the Gyeonggi region has ample demand, the recent establishment of new, large hospitals could lead to excess supply.
In the Gangwon-Chungbuk region, supply is not excessive, but demand remains weak and additional supply would quickly lead to a worsening business environment.