excessively provided compared to a normal practice, the KFTC decides whether such benefits
disrupt a fair competition environment in the pharmaceutical market based on the following
consideration of whether (i) they are offered on the purpose to lure customers of competitors;
and (ii) they are effective enough to actually draw customers out of competitors to the
company concerned. In particular, the possibility of luring customers is acknowledged,16 if the offered benefits
could substantially affect the choice or decision of goods and services from the objective
perspective. Given the special feature of the pharmaceutical market where medical
professionals or doctors purchase or prescribe medicines for patients, who are the final
consumers, a series of recent decisions were made that each kickback provided to medical
institutions and professionals has a possibility to lure customers of competitors because (i)
the decision on medicines made by doctors and medical institutions directly leads to patients’
purchase of the products (this is especially so in case of prescribed drug); and (ii) as
mentioned above, each individual benefit from plaintiff is all provided to doctors or medical
institutions to increase prescription or sales of products.
IV. Concluding Remarks
1. Summary of the Content
After the sanctions on the domestic pharmaceutical companies in the case, it has showed
that rebate, as the means for unfair competition, decreased significantly. This enhanced the
fair competition environment in the medical product market and improved the capability of
domestic pharmaceutical market, arising from increased R&D investment and transparent
management of healthcare business. In addition, it has helped to step up efforts to improve
compliance of fair competition provisions in the pharmaceutical and medical industry and to
develop transparency in the distribution structure of medical products.
16 The Supreme Court Judgment 2001Du4306, December 26 2002.
17
The KFTC spent a year for investigating 10 pharmaceutical companies, including Dong-A
and Yuhan from October 2006 to October 2007 respectively. According to this investigation
result, despite the KFTC’s corrective order against unfair customer inducement in the past,
various rebates between pharmaceutical companies and hospitals, such as cash, gift vouchers
and travel cost payment, had not been eradicated. In particular, such rebate was estimated to
generate about KRW 2.18 trillion of consumer damage in the pharmaceutical market. It is
also a waste of corporate profits to unproductive sectors by being secretly engaged in a rebate
competition for their products to be chosen, prescribed and sold, instead of spending in a
productive way, such as providing high quality product or R&D for new drug. The KFTC’s
measure against the unfair trade practices mentioned above is expected to create a fair
competition environment in the pharmaceutical market and to boost the capability of the
industry armed with a transparent management and R&D investment by eradicating unfair
competition means or rebate.
According to the one-year investigation (Nov. 2007 ~ Dec. 2008) result of the seven
pharmaceutical companies including GSK and Daewoong (five multinational companies and
two domestic companies), the KFTC found that the seven companies were engaged in rebate
competition for their products to be chosen, prescribed and sold by repeatedly providing
economic benefits in various forms, such as meals, product demonstration, cost payment for
attending domestic or overseas seminars, goods and PMS, instead of working to provide high
quality products to consumers or invest in R&D for a new drug. In addition, unlike the rebate
of the companies in the first investigation, they had provided a support during the process of
product demonstration and sales promotion. The KFTC’s sanctions against these unfair trade
practices were significant because the KFTC uncovered the rebate provided by multinational
companies in Korea. Moving forward, it is expected to boost efforts to improve compliance
of the fair competition provision in the pharmaceutical and medical sectors and improve
transparency in the distribution structure of medical products.
After the on-spot investigation of pharmaceutical enterprises, the KFTC has tried to improve
the relevant regulations and systems with other government ministries and organizations
concerned in line with imposing corrective orders against unfair trade practices (KRW 20
18
billion of surcharges with criminal charge against five companies). With such improvement
for fair competition in the pharmaceutical industry, competition rules in the market are
expected to take a root while consumers’ rights could be promoted by reinforcing protection
of patients’ private information. Followings are the main improvement of the systems and
regulations.
Regarding the PMS, a list of medical products for PMS and their management should be
disclosed on the homepage of the Korea Food and Drug Administration (KFDA). Even for
the PMS, which is not obliged to implement under the Pharmaceutical Affairs Act,
pharmaceutical companies have to report the execution plan. In addition, the regulation on
protecting patients’ private information was newly created while strengthening the criteria on
the person in charge of PMS in a pharmaceutical company. From April 2010, the Ministry of
Health and Welfare started to introduce ‘market oriented actual transaction pricing system’ or
‘low price purchasing incentive system’, so that hospitals or pharmacies could receive a
certain amount of margin when they purchase medicines at lower price than the
reimbursement price of insured drugs.
2. Introduction of Dual Punishment
On the occasion of these measures by the KFTC, a dual punishment was introduced. In the
past, when pharmaceutical companies provided an illegal rebate to hospitals and pharmacies,
only providers were punished. Even though there had been a lot of illegal rebates in the
medical equipment sector, there was no legal ground for their punishment. In order to address
these loopholes, the dual punishment for rebate was introduced by amending the Medical
Service Act, the Pharmaceutical Affairs Act, and the Medical Device Act.
According to the amendments, doctors and pharmacists cannot receive unjust economic
benefits anymore from pharmaceutical companies for the purpose of sales promotion.
However, for certain cases set by the Decree of the Ministry of Health and Welfare (MOHW),
some exceptions are acknowledged, which include a provision of samples set by the relevant
laws and the support to conference and clinical tests. The MOHW and other relevant
excessively provided compared to a normal practice, the KFTC decides whether such benefits
disrupt a fair competition environment in the pharmaceutical market based on the following
consideration of whether (i) they are offered on the purpose to lure customers of competitors;
and (ii) they are effective enough to actually draw customers out of competitors to the
company concerned. In particular, the possibility of luring customers is acknowledged,16 if the offered benefits
could substantially affect the choice or decision of goods and services from the objective
perspective. Given the special feature of the pharmaceutical market where medical
professionals or doctors purchase or prescribe medicines for patients, who are the final
consumers, a series of recent decisions were made that each kickback provided to medical
institutions and professionals has a possibility to lure customers of competitors because (i)
the decision on medicines made by doctors and medical institutions directly leads to patients’
purchase of the products (this is especially so in case of prescribed drug); and (ii) as
mentioned above, each individual benefit from plaintiff is all provided to doctors or medical
institutions to increase prescription or sales of products.
IV. Concluding Remarks
1. Summary of the Content
After the sanctions on the domestic pharmaceutical companies in the case, it has showed
that rebate, as the means for unfair competition, decreased significantly. This enhanced the
fair competition environment in the medical product market and improved the capability of
domestic pharmaceutical market, arising from increased R&D investment and transparent
management of healthcare business. In addition, it has helped to step up efforts to improve
compliance of fair competition provisions in the pharmaceutical and medical industry and to
develop transparency in the distribution structure of medical products.
16 The Supreme Court Judgment 2001Du4306, December 26 2002.
17
The KFTC spent a year for investigating 10 pharmaceutical companies, including Dong-A
and Yuhan from October 2006 to October 2007 respectively. According to this investigation
result, despite the KFTC’s corrective order against unfair customer inducement in the past,
various rebates between pharmaceutical companies and hospitals, such as cash, gift vouchers
and travel cost payment, had not been eradicated. In particular, such rebate was estimated to
generate about KRW 2.18 trillion of consumer damage in the pharmaceutical market. It is
also a waste of corporate profits to unproductive sectors by being secretly engaged in a rebate
competition for their products to be chosen, prescribed and sold, instead of spending in a
productive way, such as providing high quality product or R&D for new drug. The KFTC’s
measure against the unfair trade practices mentioned above is expected to create a fair
competition environment in the pharmaceutical market and to boost the capability of the
industry armed with a transparent management and R&D investment by eradicating unfair
competition means or rebate.
According to the one-year investigation (Nov. 2007 ~ Dec. 2008) result of the seven
pharmaceutical companies including GSK and Daewoong (five multinational companies and
two domestic companies), the KFTC found that the seven companies were engaged in rebate
competition for their products to be chosen, prescribed and sold by repeatedly providing
economic benefits in various forms, such as meals, product demonstration, cost payment for
attending domestic or overseas seminars, goods and PMS, instead of working to provide high
quality products to consumers or invest in R&D for a new drug. In addition, unlike the rebate
of the companies in the first investigation, they had provided a support during the process of
product demonstration and sales promotion. The KFTC’s sanctions against these unfair trade
practices were significant because the KFTC uncovered the rebate provided by multinational
companies in Korea. Moving forward, it is expected to boost efforts to improve compliance
of the fair competition provision in the pharmaceutical and medical sectors and improve
transparency in the distribution structure of medical products.
After the on-spot investigation of pharmaceutical enterprises, the KFTC has tried to improve
the relevant regulations and systems with other government ministries and organizations
concerned in line with imposing corrective orders against unfair trade practices (KRW 20
18
billion of surcharges with criminal charge against five companies). With such improvement
for fair competition in the pharmaceutical industry, competition rules in the market are
expected to take a root while consumers’ rights could be promoted by reinforcing protection
of patients’ private information. Followings are the main improvement of the systems and
regulations.
Regarding the PMS, a list of medical products for PMS and their management should be
disclosed on the homepage of the Korea Food and Drug Administration (KFDA). Even for
the PMS, which is not obliged to implement under the Pharmaceutical Affairs Act,
pharmaceutical companies have to report the execution plan. In addition, the regulation on
protecting patients’ private information was newly created while strengthening the criteria on
the person in charge of PMS in a pharmaceutical company. From April 2010, the Ministry of
Health and Welfare started to introduce ‘market oriented actual transaction pricing system’ or
‘low price purchasing incentive system’, so that hospitals or pharmacies could receive a
certain amount of margin when they purchase medicines at lower price than the
reimbursement price of insured drugs.
2. Introduction of Dual Punishment
On the occasion of these measures by the KFTC, a dual punishment was introduced. In the
past, when pharmaceutical companies provided an illegal rebate to hospitals and pharmacies,
only providers were punished. Even though there had been a lot of illegal rebates in the
medical equipment sector, there was no legal ground for their punishment. In order to address
these loopholes, the dual punishment for rebate was introduced by amending the Medical
Service Act, the Pharmaceutical Affairs Act, and the Medical Device Act.
According to the amendments, doctors and pharmacists cannot receive unjust economic
benefits anymore from pharmaceutical companies for the purpose of sales promotion.
However, for certain cases set by the Decree of the Ministry of Health and Welfare (MOHW),
some exceptions are acknowledged, which include a provision of samples set by the relevant
laws and the support to conference and clinical tests. The MOHW and other relevant
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