![[Q1 2026 Hospital Management Trend Report] Restructuring of Fees, Value-Based Payment, and the Beginning of Medical AI Internalization](https://epzvqcvbpcduaglyoici.supabase.co/storage/v1/object/public/news-images/legacy-cgi/2026/04/02/1775094637_56540.jpg)
An Era of Transformation, Where Executives Must Stand Again
The shock wave triggered by the collective action of resident doctors in 2024 was not merely a workforce vacancy. It was an event that laid bare the fact that the structural premises upon which South Korean hospital management had long relied—namely, the low-cost, high-labor talent pool of resident doctors, external growth through bed expansion, and a revenue equation maintained under fee-for-service systems—no longer operate.
In our Q4 2025 report, we analyzed the reality of that shock and initial responses. Now, passing through Q1 2026, the question we ask has changed. It is no longer "How do we survive?" but "What kind of hospital should we redesign into?"
Q1 2026 is a quarter where three massive currents intersect simultaneously.
First, as the method of determining medical fees shifts from bulk negotiations to an ongoing fee-by-fee adjustment system, the predictability of revenue structures is fundamentally shaking.
Second, as pilot projects moving the payment system away from fee-for-service toward value-based and comprehensive unit pricing enter full swing, a situation has arrived where treatment philosophy and management strategy must be re-examined simultaneously.
Third, declared as the inaugural year for medical AI to step out of the laboratory and enter the routine of hospital operations, the stage has moved from debating whether to adopt it to discussing how to internalize it into the organizational structure.
This report was written for hospital executives and managers standing at this turning point. The purpose of this writing is to read the currents behind the numbers, translate the language of policy into the language of management, and think together about what must be done right now.
1. Hospital Management Macro Environment: Complex Pressures of a Structural Transition Period
1-1. Re-reading the Essence of the Profitability Crisis
The '2023 Hospital Management Analysis' statistical book published by the Korea Health Industry Development Institute (KHIDI) is highly significant in its own right as data that resumed official hospital management statistics which had been suspended since 2017. Based on settlement data from a total of 371 medical institutions, including 45 tertiary general hospitals and 326 general hospitals nationwide, this analysis confirms with numbers the contours of the crisis we have intuitively felt.
Starting with key indicators, the medical revenue operating profit margin for hospitals nationwide was -3.10%. This is a further drop of 2.33 percentage points from the previous year's -0.77%. The medical cost ratio recording 103.10% means that when a hospital provides 1 won of medical service, it spends 1 won and 3 jeon. The structure where losses grow as more treatments are provided has been confirmed by figures.
This figure itself is not new. It is a reality that many executives had been sensing even before the collective action of resident doctors.
The problem is that the situation has not improved since 2023, when this figure was released. In 2024, treatment performance itself plummeted due to the resident doctor crisis; in 2025, workforce replacement costs were incorporated into fixed costs; and in 2026, a new variable of ongoing fee adjustments was added. In other words, the profitability crisis currently facing hospitals is not a temporary shock, but the result of overlapping structural deterioration.
Are there then no hopeful indicators? There are. The bed occupancy rate recovered by 2.76 percentage points to 74.49% compared to the previous year (71.73%).
The average length of stay also maintained almost the same level at 7.7 days. The fact that beds are filling up again is a sign that demand is returning.
However, what managers must pay attention to here is the paradox.
Even though patients are returning, profitability is not improving. This is the core of the structural dilemma currently facing South Korean hospital management. An era has opened where recovery in bed occupancy rates does not directly mean recovery in profitability.
The reason is clear. The cost structure has already changed. The costs of PA nurses, fixed-term specialists, and external contract personnel who filled the resident vacancy have mostly become fixed costs.
The rise in labor costs has not stopped, and material and pharmaceutical costs are also affected by global supply chain instability and exchange rate fluctuations. Patients have returned, but the cost structure for running the hospital differs from before.
1-2. All-Type Fee Settlement After 8 Years: Reading Between the Lines
The 2026 medical fee negotiations superficially delivered positive news. For the first time in 8 years, all 7 provider types successfully concluded negotiations.
The results came out as 2.0% for hospitals, 1.7% for clinics, 2.0% for dental, 1.9% for traditional Korean medicine, 3.3% for pharmacies, 6.0% for midwifery clinics, and 2.7% for public health institutions. The average relative value scale increase rate was 1.93%, to which 51.5 billion KRW of relative value-linked financial resources was additionally injected.
However, it is a dangerous reading to look only at these figures and feel relieved that "fees have gone up." As the chief negotiator for the National Health Insurance Service publicly mentioned, the negotiations took place in "an environment where it is extremely difficult to find a balance point due to the medical crisis rather than the COVID-19 situation." We must not miss the context that the conclusion of negotiations itself was achieved in difficult circumstances.
More important are the structural changes underway behind the settlement. The 'differentiated application of relative value scales' principle passed in the 2025 fee negotiations began to operate in earnest starting in 2026. Until then, fee determination was simple. It was a method of multiplying the conversion factor of the same increase rate across all medical acts to determine individual fees. Now, it has changed. Increase rates can be determined separately for medical treatment fees, laboratory test fees, imaging test fees, surgery fees, and hospitalization fees. Reductions are, of course, also possible.
The implications of this are enormous. The method by which hospital management previously forecasted revenue by looking at a single number—"fees increased by X percent"—no longer works. Now, one must precisely grasp the composition of one's hospital's medical practices—specifically, how many and what kinds of tests are performed, how many and what surgeries are conducted, and what percentage of sales each department accounts for—and then precalculate scenarios according to fee fluctuations for each act.
There is a specific reason why this change is particularly daunting: the downward adjustment of laboratory test and imaging test fees scheduled by the government to be implemented during the first half of 2026. According to the Ministry of Health and Welfare's medical cost analysis results, the cost-to-revenue ratio was compiled at 192% for laboratory test fees, 169% for special radiological diagnostic fees, and 274% for radiation therapy fees.
On the other hand, basic medical care fees were mere 63%. Based on this disparity, the government has already made official its policy to lower the fees of high-return acts and redistribute financial resources to low-return essential medical acts.
Clinics and small-to-medium hospitals with high proportions of laboratory tests and imaging are in the direct line of fire of this policy. Hospitals operating departments with high dependency on laboratory tests, such as internal medicine, urology, and family medicine, must run simulations right now. If fees are cut by 20%, or by 30%, how will our hospital's profit and loss change? Preparing answers to this question is one of the most critical management tasks of the second quarter.
2. The Landscape of Policy Changes: The Beginning of a Payment System Paradigm Shift
2-1. Twilight of the Fee-for-Service Era, Dawn of the Comprehensive and Value-Based Era
The foundation of South Korea's medical payment system has long been the fee-for-service (FFS) system. It is a method where doctors receive a consultation fee for examining, a prescription fee for prescribing, a test fee for testing, and a surgical fee for operating. This system was exceptional at increasing medical supply.
Because revenue increases the more treatments are performed, hospitals naturally expanded beds, tests, and procedures. As a result, South Korea came to possess medical infrastructure amounting to approximately 12.8 beds per 1,000 population, about 3 times the OECD average (4.3 beds). Conversely, the number of clinical doctors is 2.6 per 1,000 population, falling short of the OECD average of 3.7. It is a structural paradox where beds overflow while doctors are lacking.
This paradox began to face policy-driven relief pressure starting in 2026. The direction of payment system reform promoted by the government under the keynote of the 2nd Comprehensive Health Insurance Plan (2024–2028) is clear. Primary medical institutions lean toward capitation, while secondary and tertiary hospitals lean toward the New Comprehensive Diagnosis-Related Group (New DRG) system.
Capitation is a method of paying a fixed amount based on the number of registered patients. Revenue does not increase the more treatments are provided; instead, how well one manages the health of registered patients determines revenue. A value-based payment pilot project for primary care was launched in 2026 and operates based on Accountable Care Organizations (ACOs). Clinic-level medical institutions participating in this pilot project gain incentives to focus on patient prevention and chronic disease management. It is a transition from an era where performing more treatments was better to an era where managing patients so they do not fall ill is more advantageous.
The New DRG system applies a bundled unit price per hospitalization case. If an appendix surgery is performed, a series of treatment processes from pre-surgical tests to surgery, recovery, and discharge are compensated with a single unit price. It is not how many tests or drugs are used during the treatment process that determines the hospital's revenue, but how efficiently treatments are administered within that unit price. Expanding participation in the New DRG system is being pursued through support projects for secondary general hospitals, and expansion of participating institutions is underway in Q1 2026 as well.
The implications that these two payment system changes pose for hospital management are fundamental. Until now, the core task of hospital management was "How do we see more patients, perform more tests, and execute more procedures?" The core task moving forward is "How do we raise patient health outcomes while lowering costs and reducing the length of stay?" This is not merely a matter of management strategy, but also a matter of hospital organizational culture and clinical philosophy.
2-2. Tertiary General Hospital Structural Transition Project: The Direction of 10 Trillion Won
The 10 trillion KRW that the government announced it will inject into the tertiary general hospital structural transition project is an unprecedented scale of policy investment in the history of South Korean medicine. The goal of this project is to step-by-step elevate the proportion of severe, emergency, and rare disease treatments from 50% to 70% based on patients. Function-strengthening support funds and 24-hour treatment support funds are differentially paid in connection with this.
As analyzed in the Q4 2025 report, the core of this project is to change structures so that large hospitals send mild patients back to lower-tier medical institutions and concentrate on severe cases. As of Q1 2026, bed occupancy rates at major tertiary general hospitals are maintaining levels around 70%. Escaping from overcrowding states that previously exceeded 90%, hospitals are transitioning toward maintaining optimal occupancy rates while applying a priority assignment principle for severe patients.
In this process, executives of tertiary general hospitals face a dilemma. Raising the proportion of severe patients allows them to receive fee support, but treating severe patients also incurs correspondingly high costs. Labor cost burdens of operating centered on specialists without resident doctors, intensive care unit and emergency room operating costs, and on-call systems to maintain 24-hour treatment are all cost-rising factors. Each hospital must meticulously calculate on its own whether structural transition support funds can sufficiently offset these cost increases.
2.1 trillion KRW is injected into supporting comprehensive secondary general hospitals and specialized hospitals. This financial resource is designed to strengthen the role of accepting recovery-stage patients referred by tertiary general hospitals to provide rehabilitation and nursing services. Region-complete medical networks—where tertiary general hospitals handle severe treatments, general hospitals take charge of sub-acute and recovery stages, and clinics and convalescent hospitals manage chronic diseases and home care services—are the orientation of the policy.
2-3. Strengthening Non-Benefit Management: The Buffer for Hospital Revenue Disappears
Non-benefit (uncovered) treatments have long played an important revenue-buffering role in South Korean hospital management. There is an aspect where the structural problem of benefit fees failing to cover costs has been patched over with non-benefit revenues. Aesthetic procedures, non-benefit tests, selective treatment fees, and upper-class hospital rooms are representative examples.
However, starting in 2026, this buffer is rapidly diminishing. The introduction of managed benefits is the starting signal. Managed benefits feature a structure of 95% out-of-pocket and 5% health insurance funding; effectively, patients bear most of the costs much like non-benefit items, but the National Health Insurance Service controls indications, frequencies, and fees. Consequently, non-benefit items that hospitals previously set autonomously fall under the regulation of the Corporation.
Simultaneously, a health insurance benefit history verification system has been introduced. Established through the amendment of the National Health Insurance Act in December 2025, this system imposes an obligation on medical care institutions to check patients' excessive medical utilization. This is a measure to prevent patients from wandering around multiple hospitals to receive duplicate identical tests or being prescribed unnecessary medications. Concerns are raised in clinical practice that this system could become a new source of conflict between doctors and patients. Preparing manuals to respond to patient complaints such as "Why won't you prescribe this?" has become practically necessary.
Strengthening non-benefit management does not simply mean a drop in revenue. It demands a fundamental redesign of how hospitals relate to patients. Hospitals that have relied heavily on non-benefit revenues must prepare strategies from now on to develop alternative revenue sources and boost patient loyalty.
3. In-Depth Analysis of Management Status by Hospital Type
3-1. Tertiary General Hospitals: The Pain Suffered at the Forefront of Structural Transition
In Q1 2026, tertiary general hospitals are playing tug-of-war between the demands of the structural transition project and practical operations. They are given the dual task of meeting severe patient proportion targets while stably maintaining hospital finances.
The directions chosen by tertiary general hospitals following the collective action of resident doctors were largely twofold. One is the expansion of PAs (Physician Assistants). With the Nursing Act enacted in September 2024 and implemented starting in June 2025, a legal basis was established for nurses' medical support duties.
The draft rules on the performance of nursing medical support duties have been legislatively announced, and phased application is being discussed. Due to this, the scope of roles for PA nurses is becoming clear, and tertiary general hospitals are executing organizational redesigns to systematically incorporate PAs as specialist support personnel.
Another is the introduction of digital technology. Following the pilot operation of e-ICU (Electronic Intensive Care Unit), internal reports are emerging that ICU mortality rates have dropped by double-digit percentages at some domestic tertiary general hospitals. Field reports also state that after introducing AI scribes (voice recognition-based automated medical record writing), administrative working hours per doctor decreased by about 1 hour daily. What this 1-hour reduction implies is not simple efficiency. It means doctors can see patients 1 hour longer, or rest 1 hour more. The former is directly linked to revenue, while the latter contributes to preventing burnout and retaining personnel.
Length-of-stay management has also emerged as a critical management task. In an environment where the New DRG system expands, longer lengths of stay increase costs within the bundled unit price, generating losses. Tertiary general hospitals are concentrating on strengthening admission and discharge management teams and building systems to transfer patients to regional general hospitals or recovery-stage hospitals at appropriate times.
Patient experience evaluations have also become an unavoidable variable.
The 5th Patient Experience Evaluation (Inpatient) was conducted from August to December 2025, and methods to publicly disclose evaluation results in 5 grades are under review. Once these grades are finalized and disclosed, they will directly impact patients' hospital selection behaviors.
As the evaluation proceeded in a mobile web survey format utilizing KakaoTalk notification talks, enabling responses across various age groups, the representativeness of evaluation results also increased. Since monitoring and improving systematically in which hospital departments, among which job groups, and in what situations patient complaints arise has now entered the realm of management.
3-2. General Hospitals and Small-to-Medium Hospitals: The Crossroads of Positioning
Small-to-medium hospitals stand at distinct crossroads starting in Q1 2026. Direct threats such as downward adjustments in laboratory and imaging fees, potential outpatient influxes due to increased referrals of mild patients from tertiary general hospitals, and revenue structure changes based on New DRG participation are intersecting simultaneously.
When tertiary general hospitals send back mild patients, it can be an opportunity for small-to-medium hospitals. In fact, some regional general hospitals are experiencing an increase in recovery-stage patients transferred from tertiary general hospitals. However, to capitalize on this opportunity, they must be equipped with personnel and facilities suitable for recovery-stage patients. Are personnel such as rehabilitation medicine specialists, physical therapists, and occupational therapists sufficient? Are there programs specialized in recovery-stage rehabilitation? Hospitals unable to answer these questions with confidence may end up saddled only with burdens regarding new patient types rather than opportunities.
Competitive dynamics by medical service sphere are also shifting. The KHIDI statistical book compared and analyzed hospital management indices across 8 medical service spheres. Because regional competitive dynamics, demographic structures, and medical accessibility differ, small-to-medium hospital managers must meticulously understand the characteristics of their respective medical spheres. The realities faced by capital-area small-to-medium hospitals and provincial small-to-medium hospitals are entirely different. The capital area has fierce competition but massive demand, while provinces face population-decline pressures where demand itself is shrinking.
3-3. Convalescent Hospitals: From Simple Accommodation to Functional Differentiation
Convalescent hospitals continue to face continuous pressure to redefine their functions in Q1 2026. Discussions on introducing the 'medical-nursing-care integrated judgment system' mentioned in the Q4 2025 report are continuing, and policy directions emphasizing the need to break away from models that accommodate simple long-term hospitalized patients are further reinforced.
According to recent evaluation results, the proportion of long-term hospitalizations (exceeding 180 days) in convalescent hospitals decreased by single-digit percentage points, whereas the proportion of post-surgical recovery rehabilitation patients increased by double-digit percentage points. This signifies that policy signals are operating in the field. As regulations tighten on social hospitalization—meaning long-term hospitalization without medical necessity—convalescent hospitals are also shifting into a structure where they must possess clinical functions to survive.
As fee differentiations based on securing rehabilitation medicine specialists are reinforced, institutions struggling to secure specialized personnel are seeking operational efficiencies by introducing digital equipment such as rehabilitation robots. The introduction of digital fall and bedsore prevention equipment is also rapidly spreading. Appropriateness evaluation indicators publicly disclosed by HIRA, such as bedsore occurrence rates and improvement rates, are already utilized by some patient guardians as hospital selection criteria. Convalescent hospitals with poor indicators are placed at a disadvantage in attracting patients.
Although long-term care insurance fees rose by an average of 3.93% in 2025, the increase margins for home-based services and facilities (nursing homes) were relatively large. Convalescent hospitals must closely monitor compensation gaps with nursing homes, which are competitor counterparts. This is because if nursing homes acquire more advantageous fee structures, phenomena where some patients move from convalescent hospitals to nursing homes could emerge.