[Why&Next] Are Hospitals “Family Businesses”? Exclusion From Inheritance Tax Deduction Raises Concerns of Regional Healthcare Collapse

Regional Hospitals Burdened by Illiquid Assets
Risk of Forced Sale or Closure if Unable to Pay Taxes
Council of Hospital Presidents Calls for Policy Reconsideration

In the metropolitan area, Hospital A is now being operated by a second generation—the founder’s son, who has taken on patient care and hospital management after more than four decades of the founder’s leadership. However, the hospital is now facing significant concerns following the government's recent announcement of amendments to the tax law. Previously, it was expected that, if an inheritance occurred, the hospital could receive a tax deduction of up to 60 billion won through the family business inheritance deduction. However, if hospitals are excluded from the list of eligible businesses under the new policy, they will be faced with hundreds of billions of won in inheritance tax liabilities. The main problem is that most of the hospital’s assets consist of the land, building, and medical equipment, making it difficult to generate cash. A representative from Hospital A explained, “Even now, it is not easy to have all assets recognized as business assets during the review process, even if we meet certain requirements and apply for the family business inheritance deduction.” He added, “If, as the revised bill proposes, the hospital business itself is excluded from the deduction, we would not even have the opportunity to undergo the review process.”

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The government’s decision to exclude hospitals in its recently announced tax reform plan has stirred strong backlash from the medical community. While the government argues that the intention is to restructure the family business inheritance deduction so that it supports the succession of specialized skills and management know-how—rather than simply passing on assets—the hospitals argue, instead, that they are prime examples of businesses where specialized skills and experience in organization management are inherited across generations.

According to the industry as of August 19, the background for excluding hospitals in this amendment lies in concerns over tax equity and the potential abuse of the family business inheritance deduction. The deduction is designed to support job retention and business continuity by preventing the sale or dissolution of companies upon inheritance. Therefore, the government judges it inappropriate to extend broad benefits to industries whose main source of income is asset holding, or which might use business assets as a de facto means to reduce inheritance taxes. Hospitals and pharmacies—as well as supermarkets, bus and taxi operations, parking lot businesses, and warehouse operations—were included among the industries slated for exclusion.

The controversy centers on whether hospitals should be treated the same as these other industries. Hospital associations claim that surgical techniques, treatment protocols, infection control and patient safety systems, and multidisciplinary teamwork are professional skills and management expertise that hospitals have accumulated over decades. In other words, hospitals’ competitive edge lies not in tangible assets such as buildings or land, but intangible assets stored in their medical personnel, organizational structure, and care systems.

Furthermore, unlike ordinary businesses, hospitals are subject to strict limitations under the Medical Service Act regarding who may establish them. If the heir does not possess a medical license and directly participate in both patient care and management, inheriting the hospital itself becomes nearly impossible, and hospitals cannot be freely transferred or resold. Medical equipment and specialized installations are also difficult to repurpose. Hospital stakeholders argue that hospitals cannot be treated in the same way as businesses such as bakery cafés or parking lots, where asset transfers could provide an easy route to inheritance tax avoidance.

There are also claims that hospitals actually meet the intended objectives of post-inheritance management stipulated in the family business inheritance deduction program. The amendment includes conditions such as a 10-year business retention period, maintaining at least 90% of both the number of employees and total payroll, restrictions on disposing of more than 40% of business assets, and mandatory involvement of heirs in the business. Because hospitals would be difficult to operate without heirs personally participating as physicians and maintaining medical staff and organizational continuity, supporters argue that hospitals are in fact well suited to satisfy these conditions.

When a Hospital Disappears, Community Healthcare Wavers

There are also concerns that removing hospitals from the family business inheritance deduction could lead to breaks in the continuity of regional healthcare. While privately run hospitals can face inheritance tax rates of up to 50% in the succession process, small and medium-sized hospitals in non-metropolitan areas often have a high proportion of illiquid assets such as land, buildings, and medical equipment. As a result, their actual ability to generate cash is low compared to their appraised value. Hospitals often have difficulties raising the cash needed to pay taxes, and in regional areas, there aren't enough buyers for these hospitals, which can ultimately lead to forced sales or closures. According to a representative from the Korean Hospital Association, “Of the 3,300 or so hospitals nationwide with 30 or more beds, about 1,900 are sole proprietorships, not corporations. If hospitals are excluded from the deduction, nearly two-thirds of all hospitals would lose any real chance of succession.”

The situation is especially dire for hospitals handling essential medical services such as emergency care, severe illnesses, childbirth, and pediatrics. These facilities tend to have high asset appraisals owing to the presence of emergency rooms, operating theaters, intensive care units, and maternity wards, but their real cash flow is low. If even one hospital closes, it can be difficult to establish an alternative medical center in the area in a short period of time.

On August 18, the Council of Hospital Presidents issued a statement urging the government to reconsider the amendment, warning that blocking the succession of small and medium-sized local hospitals could undermine essential services such as pediatrics, obstetrics, and general surgery. They argued that hospital succession is not simply a transfer of personal property, but about maintaining the continuity of healthcare services created by medical staff, employees, patients, and the local community—and that the current policy could weaken regional and essential medical services. One hospital representative noted, “Some regional hospitals may even consider converting to medical corporations to reduce inheritance tax burdens, but since this too requires separate establishment and licensing conditions, it is not a practical solution for most sole proprietors.”

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