Leading Korean Pharma Companies Issued Fines In First Court Intervention Case Over Rebates

SEOUL - In the first court-involved case over rebates, three leading local South Korean pharma companies were issued stiff fines for "excessively unfair" business practices incurred by providing rebates to doctors and hospitals

Korean companies Hanmi Pharm, Choongwae Pharm and Greencross Corp., were fined KRW150 million ($125,000), KRW100 million ($83,000) and KRW20 million ($16,600) respectively by Seoul's Central District Court.

The Seoul court sentence came nearly two years after the country's fair trade watchdog, the Fair Trade Commission, filed charges through the prosecutors' office against the three companies.

The court ruling comes at a time when the Korean government is taking a stronger stance over malpractices such as rebates and other kickbacks in the local pharma industry.

The three drug companies were ordered to pay the fines along with penalties FTA imposed on them in December 2007.

The rebates offered by the three companies included free three-day family trips to South Korea's Jeju Islands in March 2003 and related fishing, hunting and golf rounds. They also included "landing fees," which they handed over when their products were first selected by doctors - a sort of "thank you" for choosing their products.

The three companies claimed that such practices were "traditional" and accepted by the industry at that time.

The court said excessive spending to boost "sales" through rebates by local pharmas is one of the reasons behind South Korea's worsening national health insurance system. It said local companies' spending on rebates overall was more than 35 percent of their annual sales, far higher than 12 percent of the local manufacturing industry then.

Although doctors can be suspended for up to one year for accepting rebates after two offenses, it was not immediately known whether doctors who received the kickbacks from companies in this trial would also be punished or not.

After three offenses, doctors can be forced to lose their licenses. However, critics argue that violators do not suffer repercussions for their actions, which has triggered further criticism that current laws indulge doctors too much and are not enough of a disincentive to refrain from accepting rebates (Also see "South Korean Health Ministry Hesitant To Punish Doctors For Accepting Pharma Rebates" - Scrip, 5 Mar, 2008.)

"This was the first time that FTA filed a criminal lawsuit through the prosecution office against pharmas over the issue of their rebates," a division manager at FTC told PharmAsia News. "Normally, we impose penalties on wrongdoings of pharmas, but we had filed for a court decision because the scale of rebates performed by the three pharmas was much larger than other pharmas at that time."

Beginning Aug. 1, the Korean health ministry is planning to enforce new regulations, which will enable the ministry to cut the market price of a drug by up to 20 percent when its manufacturer is found to have offered "rebates" to doctors and hospitals, (Also see "Korean Ministry Plan To Order Penalty-based Price Cuts On Pharmaceuticals Faces Resistance From Global And Local Players" - Scrip, 24 Jul, 2009.)

An FTC attorney said the commission and the health ministry will closely monitor any "unfair business deals" that might be performed by both local and multinational companies even after the new anti-rebate regulation takes effect beginning Aug. 1.

South Korea's Ministry for Health, Welfare and Family Affairs believes elimination of deep-rooted unfair business practices in South Korea's pharmaceutical industry is necessary for the country to be successful in drawing multinational companies and foreign patients into South Korea.

- Peter Chang ([email protected])