Soaring Construction Costs and Worsening Finances Cause Delays in Major Hospital Branch Projects

Siheung Baegot Seoul National University Hospital and Songdo Severance Hospital Completion Delayed
Ministry of Health and Welfare Halts Projects Over Concerns of Hospital Bed Concentration in Greater Seoul Area

As the prolonged conflict between the government and medical associations continues to create a gap in medical services, the financial situation of major hospitals has significantly worsened. At the same time, construction costs have surged, causing delays in the establishment of branch hospitals in the greater Seoul area. The government has also moved to curb the expansion of new hospital beds in order to prevent the concentration of medical resources, which is expected to result in the cancellation or significant delay of new branch hospital plans.

Aerial view of the site for 'Siheung Baegot Seoul National University Hospital (tentative name)' in Siheung-si, Gyeonggi Province. Photo by Yonhap News

According to Seoul National University Hospital on May 26, the 'Siheung Baegot Seoul National University Hospital (tentative name)' in Gyeonggi Province, with a total project cost of 588.2 billion won, is scheduled to begin construction in August this year, aiming to open in 2029. Even if the project proceeds as currently planned without further issues, this would be three years later than the original target opening year of 2026.

The main reason for the delay in establishing the branch was the sharp increase in construction costs due to rising material and labor expenses. The Siheung Baegot Seoul National University Hospital project began with a hospital establishment agreement in May 2019 and passed a preliminary feasibility study by the Ministry of Economy and Finance in April 2021. The basic plan was completed in March 2022 and a bidding announcement was made, but bids failed due to rising domestic and international raw material prices and an unstable economic environment.

In response, the government reflected an additional 57 billion won for price fluctuations in September 2023, increasing the project cost by more than 10% from the original 531.2 billion won. After switching to a private contract in March last year, price negotiations for the initial construction phase were completed with Hyundai Engineering & Construction in November.

However, this time, worsening profits due to the prolonged conflict between the government and medical associations became a major obstacle. According to the comprehensive income statement of Seoul National University Hospital, medical revenue (sales) last year decreased by 230 billion won compared to the previous year. Medical profit, excluding medical expenses, also dropped by 126.1 billion won year-on-year.

As the financial burden increased, Seoul National University Hospital requested additional support from Siheung City, citing increased construction costs. As a result, on May 16, the 327th temporary session of the Siheung City Council presented an agreement for support for the construction of Siheung Baegot Seoul National University Hospital. The agreement centers on Siheung City providing 58.7 billion won, about 10% of the project cost requested by the hospital. Although the proposal passed, it is known that opinions were divided, with 9 in favor, 6 against, and 1 abstention out of 16 council members.

Yonsei University Health System also began construction of a Severance Hospital branch on the Yonsei University International Campus in Songdo, Incheon, in March 2023, but is facing difficulties due to financial problems. The original goal was to complete construction in December last year, but this has been postponed to December next year. The project cost, initially estimated at 880 billion won, has now risen to over 970 billion won, as Yonsei University Health System recorded a medical revenue deficit of about 120 billion won last year.

A representative of Severance Hospital stated, "It is not an easy situation, so construction is being delayed, but we are doing our best within realistic limits," adding, "Regarding funding, we will continue to consult with Incheon City as construction progresses."

The situation is even worse for other major general hospitals. In addition to Seoul National University Hospital and Severance Hospital, hospitals such as Asan Medical Center (Incheon Cheongna), Korea University Hospital (Namyangju and Gwacheon in Gyeonggi Province), Ajou University Hospital (Paju and Pyeongtaek in Gyeonggi Province), Inha University Hospital (Gimpo in Gyeonggi Province), Gachon University Gil Hospital (Songpa in Seoul), and Hanyang University Hospital (Ansan in Gyeonggi Province) have all announced plans to establish branch hospitals by 2026-2027. However, these projects are currently making little progress.

Based on the initial plans for these branch hospitals, the total number of new beds was expected to exceed 6,000. In response, the Ministry of Health and Welfare has announced a revision to the enforcement regulations, which will require prior review by metropolitan governments for the establishment of new hospital-level medical institutions starting in June. This is to prevent an increase in the number of hospital beds and a concentration of patients in certain areas such as the greater Seoul area or major cities. Already approved projects, such as those that have received building permits, will not be affected. However, hospitals that have not yet completed land acquisition may not be able to obtain approval for construction.