Ahead of the implementation of the revised Medical Devices Act at the end of next year, which bans transactions with affiliated medical device intermediaries (intermediary suppliers), major local hospitals are sequentially moving to dispose of their stakes in these companies.

Major domestic hospitals typically receive medical devices and treatment materials (consumable medical devices used in treatment) supplied through intermediary companies.

This is a structure where intermediary companies take on a sort of "middle distribution" role between manufacturers and hospitals.

Most hospitals usually have only one intermediary company, and many of these companies are owned or operated by hospital directors or medical foundations, drawing heavy criticism over potential unfair trade practices.

In response, the Ministry of Health and Welfare made the management and regulation of intermediary companies a national policy task to correct the order of medical device distribution, and revised the Medical Devices Act at the end of December last year.

The core of the revised Medical Devices Act is to restrict transactions between medical institutions and intermediary companies that have special relationships with hospital directors or medical foundations.

Transactions are banned if relatives within the second degree of kinship, such as the spouse of a hospital director or a foundation executive, operate the intermediary company, if a control relationship (such as holding 50% or more of the shares) is formed, or if the medical institution can exert a dominant influence on the executive composition and business operations of the intermediary company.

For example, the Asan Foundation recently has been proceeding with procedures to sell a 51% stake in Medigood Partners, an intermediary company that has supplied medical devices to Asan Medical Center.

The plan is to receive preliminary bidding proposals through the 29th and clear out the stakes.

Following the revision of the law, Seoul St. Mary's Hospital and Severance Hospital have also cleared up their equity relationships with their respective intermediary suppliers.

Seoul National University Hospital and Samsung Medical Center, the remaining two of the so-called "Big 5" hospitals, do not own 50% or more stakes in intermediary companies, meaning they do not violate the revised Medical Devices Act.

The medical community expects that most major hospitals outside of the Big 5 will also move to sell their stakes in intermediary companies.

The medical device industry believes that the implementation of the revised Medical Devices Act will serve as an opportunity to correct the distorted distribution order centered on intermediary companies, which has been treated as a long-standing practice.

However, opinions are also emerging that appropriate monitoring and regulation are necessary because tricky management tactics aimed at bypassing the law could occur during this process.