[Bio Story]②"Even After Development and Approval, the Reimbursement Barrier Remains... Companies Collapse"

Interview with Kim Yongwook, Director of Gangnam Severance Hospital ②


AI Medical Devices and Digital Therapeutics: "Urgent Need for Reimbursement Systems"

"Regulations on Medical Data and Research Personnel Also Hinder Commercialization"

"Even after development and regulatory approval, if a reimbursement price is not set, hospitals find it difficult to prescribe the technology, and the companies that developed it cannot generate sales and ultimately collapse."

The National Bio-Innovation Committee (hereinafter, the Innovation Committee) consists of 27 civilian members, most of whom are medical school professors or businesspeople. Kim Yongwook, Director of Gangnam Severance Hospital, is the only current hospital director among them. When asked why a hospital administrator—neither a researcher nor a company executive—is needed in that position, Director Kim first brought up the concept of the "death valley." This refers to the phenomenon where technology becomes stranded due to funding and regulatory gaps during the phase between research results passing through clinical trials and successfully entering the market. Director Kim likened hospital directors to "problem solvers" for this critical period, emphasizing that hospitals are uniquely positioned to comprehensively assess the costs, risks, and benefits associated with introducing new technologies into clinical settings.

Kim Yongwook, Director of Gangnam Severance Hospital, is responding in an interview with this publication. Photo by Dongju Yoon

The entities that experience this "death valley" most acutely are companies specializing in medical artificial intelligence (AI) solutions and digital therapeutics (DTx). Rather than relying on global technology exports like pharmaceutical companies, these firms generate revenue by supplying products to domestic medical institutions and receiving health insurance reimbursements, making the reimbursement system their line of survival. The crucial dividing line in overcoming the death valley is the reimbursement price. Director Kim stressed, "Reimbursement is the most important issue a hospital director can address." No matter how advanced AI or digital technologies are, if they are not used in medical practice, they are pointless.

Under the current reimbursement system, these technologies are either tied to existing service fees or do not receive proper reimbursement, resulting in hospitals incurring losses with adoption or having to pass additional costs onto patients. Director Kim warned, "If improvements to the reimbursement system are delayed, domestic companies will be unable to overcome the death valley due to financial difficulties before they even get a chance to grow," and added, "A suitable reimbursement framework must be established quickly so that companies can secure a stable financial structure and expand globally."

The challenging financial structure of hospitals also hinders the adoption of new technology. University hospitals have a treatment profit margin of less than 1 percent. Even if they earn 10 billion won, what remains is less than 100 million won. With only treatment revenue, it is difficult to reinvest or conduct research, let alone take on technologies without reimbursement. Yet, companies face even more urgent challenges. Recently, even investment funds that should be flowing into the bio-healthcare sector have been diverted to semiconductors, further drying up the resources needed to sustain technological development. Director Kim said, "Even promising technologies often end up shelved or companies go out of business," and added, "Hospitals rapidly adopting such technologies for patient treatment is the very path to growing the industry."

Data and Talent Also Holding Back Progress... "A System Is Needed to Bridge Research and Industry"

Alongside reimbursement, Director Kim pointed out another bottleneck: medical data. Data is the raw material for AI drug development and precision medicine, but unclear accountability regarding its use is hampering industrialization. In December of last year, the Personal Information Protection Act was strengthened, raising the maximum fine for data leaks from 3 percent to 10 percent of sales. Director Kim said, "If a company is caught even once, the resulting penalties could be enough to bankrupt the firm, so there is great caution about using data internally." Multiple reviews are now required to check whether data has been properly anonymized and to determine who shoulders post-use responsibility. He emphasized that designing a responsibility framework between hospitals, which hold the data, and the companies that utilize it, falls to institutional administrators like himself.

The lack of research talent is another obstacle to industrialization. Director Kim emphasized that for the bio industry to grow, physician-scientists (MD-PhDs) must serve as a bridge between clinical practice and research. According to him, Yonsei University Health System has trained the largest number of physician-scientists in Korea, with around 120 individuals. However, once they enter the field, it is impossible to focus solely on research because they must also see patients. Director Kim described it as "working in clinics during the day and doing research at night—a dual routine," and pointed out, "There is no reward system that allows them to focus on research."

Hospitals have already begun to take action. Since last year, Yonsei University Health System has revised its faculty evaluation criteria. Achievements related to start-ups, patents, and technology transfer are now factored into evaluations that were previously focused solely on published papers. The incentive structure has been changed to connect research outcomes to industry. However, with less than a year since implementation, the limitations are clear. Government evaluations of tertiary hospitals still focus primarily on patient numbers and the severity of their conditions. Even if research capabilities are strengthened, these are not reflected in evaluation criteria, so hospital operations remain dependent on treatment revenue. Director Kim commented, "The government says it wants to nurture research-centered hospitals, but the evaluation standards on the ground are still focused on clinical care."

Director Kim's overall message at the Innovation Committee is to reform systems that link research and industry. These include financial support to compensate hospitals for losses incurred from adopting innovative medical technologies, reward structures enabling physician-scientists to dedicate themselves to research, and legal guidelines clarifying responsibility in the use of medical data. All of these are demands to establish frameworks for reimbursement and accountability so that technologies can successfully enter the market. He concluded, "Only when products are properly valued can new products be developed," stressing that further delay in discussions on reimbursement is unacceptable.

This content was produced with the assistance of AI translation services.