Why Operating Multiple Hospitals Is Not Immediately Illegal

If a medical professional jointly operates a hospital under the name of a medical corporation, simply being involved in the management of the hospital does not immediately constitute a violation of the "one person, one institution establishment and operation principle" under the Medical Service Act, according to a recent Supreme Court decision. The ruling clarifies that additional evidence of illegal abuse, such as using the medical corporation as a de facto private hospital, must be proven. This is the first judgment to specifically define the criteria for applying the one person, one institution principle within the structure of medical corporations. On December 4, the Supreme Court's Criminal Division 2 (Presiding Justice Oh Kyungmi) overturned the lower court's ruling in the appeal trial of dentist A, who was indicted on charges including violation of the Medical Service Act, and remanded the case to the Daejeon High Court (2020Do949).

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[Facts]

Mr. A, as the representative of Medical Corporation B Foundation, operated a dental hospital and was brought to trial on charges of establishing and operating several clinics and dental clinics using the name of a separate incorporated association. Prosecutors argued that Mr. A was substantially involved in the overall management of each medical institution, including financing, hiring, and determining salaries, effectively controlling and managing multiple institutions. The Medical Service Act stipulates that a medical professional "may not establish or operate more than one medical institution under any pretext," establishing the so-called "one person, one establishment and operation principle."

[Lower Court Rulings]

The first and appellate courts found that Mr. A operated multiple medical institutions using the names of a medical corporation and an incorporated association, and was substantially involved in key management matters such as personnel, finance, and accounting, thus operating duplicate medical institutions. In addition to violating the Medical Service Act, Mr. A was sentenced to imprisonment on charges including fraud and violation of the National Health Insurance Act.

[Supreme Court Decision]

The Supreme Court reached a different conclusion regarding the violation of the Medical Service Act. The Supreme Court stated, "Even if a medical professional operating a medical institution holds decision-making authority in the management of another medical institution established under the name of a medical corporation, either as a director or in another capacity, and handles or directs related work, these facts alone do not constitute a violation of the prohibition on duplicate establishment and operation."

The Court further explained, "Additional circumstances must be recognized, such as abusing a medical corporation that lacks actual capital contribution and substance as a vehicle for establishing or operating a medical institution, or unlawfully diverting the medical corporation's assets in a way that undermines its public interest and non-profit nature. In other words, it must be shown that the medical corporation, while only outwardly meeting formal requirements, was exploited as an illegal means to disguise the operation of a medical institution as compliant with the one person, one institution principle."

The Court added, "The lower court found Mr. A guilty without any review of these additional circumstances," and ruled, "This constitutes an error that affected the judgment by misunderstanding the legal principles and failing to conduct the necessary review."

An Jaemyoung, Legal Times Reporter

※This article is based on content supplied by Law Times.