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Korea – Government To Heighten Regulation On Rebate Practices In The Healthcare Industry.

17 June, 2012

 

In recent years, the Korean government has introduced a number of measures to curb improper "rebate" practices within the Korean healthcare industry, including imposing criminal punishment on the recipient of improper rebates. However, the Korean government believes that improper rebate practices continue to persist despite such recently introduced regulatory measures, and in response, announced on May 8 that it would further heighten regulation of rebate practices in the Korean healthcare industry as described below.
 
I. Revision of relevant laws and regulations for heightened sanctions against illegal rebates
 
a. Implementation of expedited administrative proceedings and regulations imposing heightened sanctions for repeat offenders
 
At present, the administrative sanction imposed on the recipient of an improper rebate is linked to the outcome of the related criminal court proceeding against such recipient. Given the length of a typical court proceeding, it often takes some time before an administrative sanction may be imposed on the recipient of an improper rebate. To eliminate this delay, the administrative sanction imposed on the recipient of an improper rebate will be linked to the amount of rebate received. Meanwhile, repeat recipients will be subject to heightened administrative sanctions.
 
b. Enlargement of the scope of entities subject to penalties for improper rebates
 
Recently, a number of pharmaceutical manufacturers have indirectly provided improper rebates to healthcare professionals through marketing agencies under the pretext of compensation for market surveys or consulting projects or in the form of advertising fees through advertising agencies. To combat these new forms of improper rebates, every individual and entity in the chain of pharmaceutical distribution will be prohibited from providing improper rebates.
 
c. Extension of heightened sanction period for repeat providers of improper rebates
 
At present, the provider of an improper rebate is subject to heightened sanctions if it has previously provided other improper rebates within the past twelve months. This twelve month heightened sanction period will now be extended for repeat providers.
 
d. Exclusion of medical products related to illegal rebates from national health insurance coverage
 
The government is currently considering removal of products found to have been the subject of an improper rebate from national health insurance coverage.
 
e. Publication of names of improper rebate providers and recipients
 
The government is also considering publication of the names of improper rebate providers and recipients.
 
The Ministry of Health and Welfare (“MOHW”) will submit a bill reflecting the above changes to the national assembly within this year and revise the relevant regulations after it is passed in the parliament.
 
II. Eliminating Government Support for Violators
 
Past violations of rebate-related laws and regulations will weigh against the concerned pharmaceutical companies during the process of the government's selection of innovative pharmaceutical companies which are to be given various benefits, and could result in exclusion from certified pharmaceutical company status. Meanwhile, the government will reduce or cut off aid to clinics or hospitals found to have received improper rebates. Likewise, the government will reduce or cut off aid to healthcare professionals found to have received improper rebates.
 
III. Investigations and Inter-Agency Collaboration
 
Various government agencies will launch investigations into, or continue to investigate, improper rebate practices in the pharmaceutical industry. The inter-agency rebate task force headquartered in the Seoul Prosecutor's Office is now authorized to conduct investigations until March 31, 2012. The police will also conduct a nationwide investigation while the MOHW will conduct onsite investigations of pharmaceutical/biomedical product suppliers and medical service providers in conjunction with the Korea Food & Drug Administration and the Health Insurance Review & Assessment Service. Meanwhile, the Korea Fair Trade Commission, the National Tax Office, and the Korea Customs Office will each open an independent investigation. While independently conducting their respective investigations, these government agencies will also engage in inter-agency collaboration.
 
IV. Promoting Whistleblowing
 
At present, the provider or recipient of an improper rebate qualifies for an exemption from, or reduction in, criminal penalties in case of voluntary reporting. The KFTC now offers a maximum reward of KRW 100 million to an individual reporting an improper rebate. The government is considering extending the scope of this leniency program to administrative sanctions.
 
V. Implication
 
With these impending or proposed changes to the pharmaceutical regulatory regime with respect to illegal rebates, the Korean government has made it clear that rooting out illegal rebate practices within the healthcare industry remains a priority. The investigations to be conducted by the various government agencies are unprecedented in their scale. Given this intense government scrutiny, it is highly recommended that hospitals and pharmaceutical companies implement appropriate compliance measures to avoid any exposure to criminal liability or administrative sanctions under Korean law.
 
 
For further information, please contact:
 
Sai Ree Yun, Partner, Yulchon
sryun@yulchon.com
 
Seuk Joon Lee, Partner, Yulchon
leesj@yulchon.com
 
Ki Young Kim, Partner, Yulchon
kykim@yulchon.com
 
David H. Pyun, Yulchon
dpyun@yulchon.com
 
Joon Han Lee, Yulchon
jhlee@yulchon.com
 

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