Violation of the Medical Service Act | Supreme Court Judgment Reexamining Whether a Violation of the Medical Service Act Is Established Merely Because of Involvement in the Operation of a Medical Corporation

The court of first instance found the violation of the Medical Service Act to be established, holding that Defendant 1 had substantially controlled and managed the operation of the dental hospital in the name of the medical corporation and the medical institutions in the name of the incorporated association, and had thus, in effect, operated multiple medical institutions in an overlapping manner.

With respect to Defendants 2 and 3 as well, the court recognized aiding and abetting liability on the ground that they had facilitated Defendant 1's overlapping operation.

The appellate court likewise upheld the first-instance determination.

It recognized the charge of violating the Medical Service Act on the basis that Defendant 1 had exercised decision-making authority over overall management matters and that, as a result, the operation of multiple medical institutions had in effect been carried out under the control of a single person.

The Supreme Court first set out the purpose of the one-person, one-institution establishment and operation principle as follows.

Its purpose is to ensure that medical persons provide responsible medical care, and to prevent the impairment of public interest caused by excessive pursuit of profit, imbalances in the supply of and demand for medical services, monopolization and oligopoly of the market, and polarization.

The Supreme Court then defined the prohibited conduct by dividing it into “overlapping establishment” and “overlapping operation.”

“Overlapping establishment of a medical institution” refers to a case in which a medical person who has already established a medical institution under his or her own name directly performs medical acts at a medical institution established under the name of another medical person, or has an unqualified person perform medical acts under his or her direction.

“Overlapping operation of a medical institution” refers to a case in which a person, with respect to two or more medical institutions, holds decision-making authority over management matters such as their continuation, closure, or relocation, whether to perform medical acts, the raising of funds, the recruitment and management of personnel, facilities, and equipment, and the attribution and distribution of operating results, and handles the related affairs or has them handled.

The point that the Supreme Court particularly emphasized in this case, however, was the situation in which a “medical corporation” is involved.

The Medical Service Act, premised on the non-profit nature and public interest of a medical corporation, provides for state oversight and supervision as well as internal control mechanisms, and it does not impose any restriction on the number of medical institutions with respect to medical corporations.

Accordingly, the Supreme Court held that the mere fact that a medical person operating a medical institution was involved in the management matters of another medical institution established in the name of a medical corporation, in his or her capacity as a director of that corporation, cannot immediately be assessed as a violation of Article 33(8) of the Medical Service Act.

The Supreme Court explained that, in order to assess a medical person as having substantially controlled and managed two or more medical institutions, including a medical institution in the name of a medical corporation, and thereby having violated the Medical Service Act, additional circumstances showing that the medical corporation had been abused as a means of evading the law are required, beyond a mere level of “involvement in management.”

For example, the purport is that it must further be recognized that the one-person, one-institution principle was rendered a mere formality and lawful operation was feigned through a medical corporation that exists only in form, as in cases ▲where a medical corporation whose substance is not recognized, owing to the absence of any real contribution of property, was used as a means of establishment and operation, or ▲where the property of the medical corporation was improperly diverted, departing from its public interest and non-profit nature.

The Supreme Court also drew a line, holding that a violation of the Medical Service Act cannot be concluded immediately on the basis of mere circumstances such as a defect in the process of establishing the medical corporation or a temporary diversion of property.

It held that the standard of determination is whether the normative essence of the medical corporation is to be denied, to be assessed comprehensively by considering factors such as whether the establishment defect is of a degree affecting the permit, whether substantial operation is impossible, the extent, duration, and circumstances of the property diversion, and the existence of proper procedures such as board resolutions and of appropriate accounting.

In this case, the Supreme Court found that it was established that Defendant 1, in a capacity such as a director of the medical corporation, held decision-making authority over the management matters of the dental hospital and handled the related affairs or had them handled.

However, it held that those circumstances alone made it difficult to find that the medical corporation had been abused as a means of evading the law to the extent that its essence was denied, and that because the lower court had found the defendant guilty without examining those “additional circumstances,” there was a misapprehension of the legal principles and an incomplete hearing, and it accordingly reversed and remanded the case.

This judgment is significant in that, in cases involving a violation of the Medical Service Act (one person, one institution), it restrains the tendency to readily recognize overlapping operation based on formal control or involvement alone when determining matters relating to a medical corporation, and, premised on the purpose of the medical corporation system and its control structure, requires a substantive examination of “whether there was abuse for the purpose of evading the law.”

In similar cases going forward, it is likely that whether there has been a “departure from the public interest and non-profit nature,” as shown by the substance of the medical corporation, the appropriateness of the contributed property, the existence and circumstances of any property diversion, and board resolutions and accounting, will be contested more intensely as the key issue.

Daeryun provides the assistance set out below through a team of attorneys experienced in responding to cases involving a violation of the Medical Service Act, including attorneys who handle medical matters and hold a physician's license, experience in pharmaceutical and drug crime investigation, and experience advising medical institutions, as well as attorneys registered with the Korean Bar Association in the field of medical matters.

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