In 1977, the government established a national health insurance scheme for government and industrial employees, and in 1989 it extended coverage to all citizens through a network of locality- and employer-based insurance societies. Payments to physicians were based on a national fee-for-service schedule. From the beginning, many physicians viewed the fees as insufficient. Leaders of the Korean Medical Association (KMA) stated that the fees covered “less than 80 percent of the cost of the service” (Lee 2004). Meanwhile, the country was experiencing a relative shortage of physicians, so that pharmacists (especially in rural areas) often filled the primary care gap by providing diagnostic services as well as dispensing and selling medicines. They sold products to clients who came either for brief consultations or with requests for specific products (based on personal experience, word-ofmouth recommendations, or manufacturers’ advertising). The insurance system also provided reimbursement for medicines that physicians (and pharmacists) dispensed, and at rates that were higher than the prices that physicians paid for them. This price difference, known as “the drug margin,” provided nearly half of the income for physicians who operated private clinics. Korea’s domestic pharmaceutical industry actively supported this model. Primarily made up of small companies, the domestic industry specialized in the production of generic copies of off-patent medicines (in part because Korea did not have a law to protect product patents until 1986). Competing vigorously among themselves, the companies relied on deep discounts and commissions to physicians and pharmacists to expand and maintain their markets (Cho 2001).
The Situation in 1999 Two years before the 1999 deadline for separating prescribing and dispensing, a major political transition occurred. In December 1997, in the midst of the Asian economic crisis, Korea held elections for president. With two candidates splitting the conservative vote, longtime opposition politician Kim Dae-Jung was elected. His inauguration in February 1998 marked the first peaceful transition in postwar Korea from the ruling party to an opposition party (Frängsmyr 2001). The election also marked a transformation in the civic culture of Korea. Civic organizations, which for many years had focused on working for democracy, strongly supported Kim Dae-Jung (known as “DJ”) and his party. (At the time, the party name was the National Congress for New Politics; it later changed its name to the Democratic Party.) Those organizations Disentangling Prescribing and Dispensing in Korea
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