Medical Corporation Grouping Strategies: A Comparison with Regional Medical Collaboration Promotion Corporations

The management environment for medical institutions is undergoing complex and rapid changes, including the aging population, advancements in medical technology, and shifts in revenue structures due to revisions in medical fee schedules. In such circumstances, many medical corporations are considering “grouping” as a strategy to achieve sustainable growth and contribute to regional healthcare. Grouping is not merely about expanding scale; it offers diverse benefits such as sharing management resources, strengthening expertise, diversifying risks, and facilitating smooth succession to the next generation. However, there are various forms of grouping, each with different advantages, disadvantages, and legal considerations. It is particularly important to understand the differences from the recently focused “Regional Medical Collaboration Promotion Corporations” and select the optimal strategy for your institution’s objectives. This article focuses on medical corporation grouping strategies, providing information to aid your decision-making for the future of your institution by examining its main forms, advantages, disadvantages, and comparing it with Regional Medical Collaboration Promotion Corporations.

Main Forms of Medical Corporation Grouping and Their Characteristics

The following three main forms of medical corporation grouping can be considered. Each form has distinct characteristics in terms of purpose, organizational structure, and legal status.

1. Medical Corporation Holding Company System

In this system, a new holding company is established, under which existing medical corporations and related business entities are placed. The parent holding company owns shares in the subsidiary companies and oversees the formulation of management strategies, fundraising, and personnel exchange. Each medical corporation maintains its independent legal personality while operating under the policies of the holding company.

• Advantages: It allows for the pursuit of overall group management efficiency and synergy effects while maintaining the independence of each corporation. Furthermore, during business succession, transferring shares of the holding company can lead to a relatively smooth transition. For medical corporations with equity interests, business succession is often easier through the transfer of holding company shares.
• Disadvantages: Establishing and operating a holding company requires certain costs and specialized knowledge. Additionally, group-wide decision-making may take time. Handling of licenses and procedures for changing members (shareholders) and directors of medical corporations must also be appropriately managed for each individual corporation.

2. Merger and Consolidation of Medical Corporations

This method involves multiple medical corporations integrating into a single medical corporation. Mergers can occur where one corporation survives and others are dissolved, or where both corporations are dissolved and a new corporation is established (new company merger). Consolidation is a form where a medical corporation inherits all the business of another medical corporation.

• Advantages: It facilitates the consolidation of management resources through organizational integration, reduction of redundant functions, and easier allocation of human resources such as doctors and nurses. It can also lead to the relaxation of facility standards for medical fee schedules and enhanced responsiveness to regional needs by offering a wider range of medical services.
• Disadvantages: The integration of different medical corporation cultures can be a challenge. Furthermore, complex procedures are involved, such as reacquiring licenses due to mergers/consolidations and reviewing existing contractual relationships. For medical corporations with equity interests, valuation of equity interests and consensus-building among members (shareholders) can become complicated. Issues related to the refund of funds also require careful consideration in advance.

3. Business Transfer and M&A of Medical Corporations

This method involves one medical corporation acquiring all or part of the business of another medical corporation, or acquiring management control through share transfer. This is conducted as part of Mergers and Acquisitions (M&A).

• Advantages: Management integration can be advanced in a relatively short period. The scope and scale of business can be flexibly adjusted according to the needs of both the transferring and acquiring parties.
• Disadvantages: Detailed due diligence (DD) is essential regarding the selection of businesses to be transferred and the handover of medical fee receivables/payables, equipment, and personnel. The taxation on capital gains (capital gains tax) must also be considered. Furthermore, procedures for obtaining clinic establishment permits and for the transfer/expansion of hospital beds are required.

Comparison by Grouping Form

Item	Holding Company System	Merger/Consolidation System	Business Transfer/M&A System
Organizational Structure	Parent and subsidiary companies	Single corporation	Business succession by existing or new corporation
Legal Personality	Each legal personality maintained	Integration/Establishment of new entity	Basically, acquiring corporation’s legal personality maintained
Independence	Relatively high	Integrated	Acquiring side maintained, transferring side dissolved
Flexibility of Succession	Succession through holding company shares	Corporate integration	Business unit/Share transfer
Licenses/Permits	Maintained/Renewed by each corporation	Reacquisition/Change procedures	New establishment/Change procedures
Taxation	Taxation upon establishment of holding company/share transfer	Taxation upon merger/consolidation	Capital gains tax

Differences from Regional Medical Collaboration Promotion Corporations and Potential for Collaboration

In recent years, “Regional Medical Collaboration Promotion Corporations” (hereinafter referred to as Collaboration Promotion Corporations) have gained attention as initiatives to realize regional medical care planning. Collaboration Promotion Corporations are entities established by medical corporations with the aim of strengthening regional medical collaboration systems, and they promote collaboration among regional medical institutions, information sharing, and joint business activities, with medical corporations taking the lead.

The most significant difference between grouping and Collaboration Promotion Corporations lies in their “purpose” and “legal nature.”

• Grouping: Primarily aims to strengthen the management, improve efficiency, and facilitate business succession of individual medical corporations, involving the strategic integration or deepening of collaboration among multiple medical corporations. The focus is on legal and economic ties.
• Collaboration Promotion Corporations: Their main purpose is to build and strengthen regional medical collaboration systems, promoting and supporting collaboration among participating medical institutions. Participating medical corporations maintain their independent legal personalities.

However, the two are not in opposition but rather complement each other. For example, a medical corporation group participating in a Collaboration Promotion Corporation can contribute to strengthening overall regional medical collaboration while leveraging its group’s management foundation. Collaboration is also conceivable where medical corporations within a group provide specialized expertise to projects led by a Collaboration Promotion Corporation.

Establishing and operating a Collaboration Promotion Corporation requires consistency with regional medical care planning, consensus among participating medical institutions, and the formulation of a certain business plan. When considering a grouping strategy, it is important to also consider how to engage with Collaboration Promotion Corporations from the perspective of your institution’s management goals and contribution to regional healthcare.

Key Issues for Medical Corporations in Grouping

When considering the grouping of medical corporations, several important issues arise. It is essential to understand these in advance and proceed cautiously in collaboration with experts.

1. Type of Medical Corporation and Handling of Equity Interests

There are two types of medical corporations: “medical corporations with equity interests” and “medical corporations without equity interests (including social medical corporations).” Depending on the form of grouping, the handling of these equity interests significantly impacts M&A and business succession schemes, as well as taxation.

• Medical Corporations with Equity Interests: Since equity interests can be subject to inheritance or transfer, issues related to taxation such as valuation of interests, inheritance/gift tax, and capital gains tax arise during business succession. While the holding company system tends to facilitate succession through the transfer of holding company shares, significant taxes may still arise depending on the valuation of the equity interests.
• Medical Corporations without Equity Interests: As there are no equity interests, the focus is on decision-making processes such as the change of members (shareholders) and the appointment/dismissal of directors. Business succession is carried out through the change of the representative director and directors, and approval at the general meeting of members.

In recent years, the transition to medical corporations without equity interests has been progressing, but careful consideration is required regarding taxation associated with the transition and the establishment of governance structures after the transition.

2. Refund of Funds and Change of Members

In medical corporations without equity interests, the refund of “funds” accumulated in the past for establishment and operation can become an issue during grouping or business succession. Unlike equity interests, funds are generally not subject to refund obligations, but they may be refunded upon the dissolution of the corporation or if the articles of incorporation stipulate refund provisions. Depending on the grouping scheme, the refund of funds may hinder smooth integration.

Furthermore, the change of members (shareholders) is also an important issue for medical corporations with equity interests. This must be carried out appropriately in accordance with the approval at the general meeting of members and the procedures stipulated in the articles of incorporation.

3. Medical Fees, Facility Standards, and Licenses/Permits

Medical fees, which are the foundation of medical institutions, are constantly subject to change due to revisions in medical fee schedules. Through grouping, it is possible to avoid duplication of medical services, enhance specialization, and aim for comprehensive medical fee calculation and acquisition of new facility standards. For example, by having multiple clinics collaborate and establish a system for referrals and reverse referrals, their role in the regional comprehensive care system can be strengthened, making it easier to obtain recognition in terms of medical fees.

On the other hand, grouping necessitates procedures for the transfer or change of licenses/permits held by each medical institution (establishment permits, designation as an insured medical institution, notifications for various additions, etc.). In particular, if clinic relocation or expansion of beds, or transfer of hospital beds is involved, prior consultation with the public health center and the regional bureau of health and welfare, as well as complex procedures, are required. It is important to confirm the consistency of these licenses/permits in advance and incorporate them into the plan.

4. Business Tax and Capital Gains Tax

Business tax for medical corporations is generally tax-exempt. However, if they engage in profit-making businesses (e.g., parking lot operations, real estate leasing), business tax may be levied on the profits. Depending on the form of grouping, the treatment of business tax may change due to the creation of new profit-making businesses or the reorganization of existing businesses.

Furthermore, in medical corporations with equity interests, capital gains tax (or deemed capital gains tax) is generally levied when equity interests are transferred or when assets are distributed upon the dissolution or liquidation of the corporation. Since the amount of this tax varies greatly depending on the valuation of the equity interests and the transfer price, detailed calculations by experts such as tax accountants are essential when considering a grouping scheme.

5. Consistency with Regional Medical Care Planning

Regional medical care planning refers to plans formulated by each prefecture outlining the future vision of the healthcare delivery system. Key aspects include the differentiation and collaboration of hospital bed functions, and collaboration with home-based medical care and long-term care. While medical corporation grouping can significantly contribute to the realization of this regional medical care planning, groupings that run counter to the spirit of the plan may be subject to administrative guidance.

For example, unnecessary increases in hospital beds or the consolidation of medical institutions that deviate from regional needs will be questioned for their consistency with regional medical care planning. When considering grouping, it is essential to collaborate with the relevant public health centers, local governments, and healthcare policy stakeholders to formulate a plan that takes into account the spirit of regional medical care planning.

Conclusion: Towards Building a Sustainable Healthcare Delivery System

Medical corporation grouping is not merely about expanding scale; it can be an effective strategy for building a sustainable management foundation and enhancing contributions to regional healthcare in the rapidly changing medical industry. It is important to select the form that best suits your institution’s objectives, also considering collaboration with Regional Medical Collaboration Promotion Corporations. The grouping process is complex and requires extensive expertise in legal, tax, and healthcare systems. Numerous issues must be addressed, including the presence or absence of equity interests, handling of funds, licenses/permits, taxation, and consistency with regional medical care planning.

If you are seeking a partner with specialized knowledge and extensive experience to consider your institution’s future grouping strategy, please consult with M&A Medical. Our experts in medical corporation M&A and business succession will propose the optimal solution tailored to your institution’s situation. Your initial consultation is free. Please feel free to contact us.