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Ahead of the enforcement of the revised Medical Devices Act, which bans transactions with indirect supply firms (intermediary firms) owned by related parties starting late next year, major domestic hospitals are moving one after another to divest their stakes in such firms. Among leading hospitals, Eulji University Hospital was also confirmed to be pursuing a stake sale.
According to the medical industry on the 25th, major large hospitals are increasingly moving to sell their stakes in intermediary firms.
Large domestic hospitals typically source medical devices and treatment materials (consumable medical devices used in treatment) from intermediary firms. Under this structure, intermediary firms act as a kind of "middle distributor" between manufacturers and hospitals. Most hospitals have only one intermediary firm, and many of these firms are owned and operated by the hospital director's family or medical corporations, drawing strong criticism over the potential for unfair trade.
In response, the government designated the management and regulation of intermediary firms as a national policy task to reform the medical device distribution order, and revised the Medical Devices Act in late December last year. The revised act centers on restricting transactions between medical institutions and intermediary firms that have a special relationship with the hospital director or medical corporation. Transactions are prohibited when relatives within the second degree of kinship — such as the spouse of the hospital director or a corporate executive — operate the intermediary firm, when a controlling relationship (such as holding 50% or more of shares) exists, or when the medical institution can exert dominant influence over the intermediary firm's executive composition and business operations.
Following the revision, the Asan Social Welfare Foundation is in the process of selling its 51% stake in Medigood Partners, an intermediary firm that has supplied medical devices to Asan Medical Center. It plans to receive preliminary bid proposals by the 29th and divest the stake. Similarly, Seoul St. Mary's Hospital and Severance Hospital have each unwound the equity ties with their respective intermediary firms. In contrast, among the so-called "Big 5" hospitals, Seoul National University Hospital and Samsung Medical Center have no intermediary firm in which they hold 50% or more of shares, so they are not subject to the revised Medical Devices Act.
The medical industry expects that stakes in intermediary firms held by private university hospitals smaller than the Big 5 will also come up for sale. Among them, Eulji University Hospital was confirmed to be already preparing to sell its stake in an intermediary firm in accordance with the relevant laws.
Total Medical, the intermediary firm of Eulji University Hospital, has no direct equity relationship with Eulji Academy, the school corporation of the Eulji Foundation, but is indirectly controlled through a 100% wholly owned subsidiary structure. This is because Total Medical is a subsidiary of EU Invest, which Eulji Academy operates as a profit-making business. Intermediary firms in a special relationship with a hospital depend on that hospital for a large share of their sales, and Total Medical likewise earned 99.6% of its roughly 72 billion won in sales last year from three hospitals under the Eulji Foundation. It also paid dividends to EU Invest exceeding its net profit. EU Invest's profits, including dividend income, ultimately accrue to Eulji Academy.
An Eulji Foundation official said, "Under the revised Medical Devices Act, medical device intermediary firms invested in by hospitals must dispose of 51% or more of their relevant shares by December 31 next year, and Total Medical is also subject to compliance with the relevant laws," adding, "We are currently pursuing the stake sale, but nothing has been finalized yet."
