Academic journal article Applied Health Economics and Health Policy

New Anti-Rebate Legislation in South Korea

Academic journal article Applied Health Economics and Health Policy

New Anti-Rebate Legislation in South Korea

Article excerpt

Published online: 4 May 2013

© Springer International Publishing Switzerland 2013

Abstract The South Korean Government recently announced a reform in the drug anti-rebate law, with the purpose of eradicating pervasive, unethical, and illegal rebate practices in pharmaceutical marketing. The main objective of this reform is to have the ability to bring criminal charges against doctors and pharmacists for receiving illegal kickbacks from drug companies. Previously, provision of illegal kickbacks by drug companies led to criminal punishment of the drug companies alone, leaving doctors and pharmacists unpunished as the recipients. With the introduction of the "Dual Punishment System (DPS)" reform, criminal punishment for illegal rebates is extended to those receiving illegal kickbacks. Although bitter controversy erupted among stakeholders when the reform was first drafted, a civic group participated in the reform process and effectively influenced the legislative process to a successful end. Some interim outcomes from the DPS in terms of bringing illegal practices to account have already been reported since the policy's implementation in November 2010. The reform background, goals, potential issues, and policy implications are explored in this study with the objective of providing further insight into drug policy for other countries that face similar challenges in the area of drug marketing.

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1 Introduction

In South Korea (hereafter, Korea), it has been an established business practice that some doctors and pharmacists receive extra payment or gifts from pharmaceutical companies and distributors in exchange for business favors, which are considered as unethical and illegal drug rebates1 in Korea. The Korea Fair Trade Commission (KFTC) estimated the kickbacks to amount to around US$1.70 billion in 2009 alone [1]. The Korea-US Free Trade Agreement (FTA) in 2007, which finally became effective in both nations on 15 March 2012, also addressed the need for appropriate measures in both countries to prohibit improper inducement of healthcare professionals or institutions for formulary listing, purchasing, or prescribing of pharmaceutical products by pharmaceutical manufacturers and suppliers [2].

With the objective of halting such illegal rebate practices, which was rampant in the Korean pharmaceutical industry, regulation reform has been seriously pursued by the Korean Ministry of Health and Welfare (MOHW). The MOHW formed a taskforce called "Taskforce for Advancement of Pharmaceutical Pricing and Distribution" in July of 2009 and worked on legislation against illegal rebates. Taskforce members were drawn from the KFTC, the National Health Insurance Corporation (NHIC), the Korean Medical Association (KMA), the Korean Pharmaceutical Association, the Korea Pharmaceutical Manufacturers Association (KPMA), the Korean Research-Based Pharmaceutical Industry Association (KRPIA, an official group of global drug makers), and the Korea Pharmaceutical Wholesalers Association. In August 2009, the MOHW introduced a new rule that reduced the drug price by up to 20 % if its manufacturer provided kickbacks to promote its sales [3]. Until then, however, there was no legal ground to impose a criminal penalty for receiving kickbacks in connection with drug transactions. This double standard of criminal penalty for kickback providers but no penalty for the recipients posed a constant dilemma for drug producers. While drug producers came to heed the MOHW warnings and became highly wary of using rebates (illegal kickbacks) as a marketing tool, they still faced expectations of rebates from some hospitals and doctors who had become accustomed to receiving them. Adding further to the quandary, three incidents of suicide by drug salespersons were reported in 2009 [4], which demonstrated that a crackdown on drug manufacturers (givers) alone would not put an end to the illegal rebate practices in Korea. …

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