from the Ministry of Health and Welfare No. 2010-29, February 26, 2010) pursuant to Article
14 of the Enforcement of National Health Insurance Act, the price of ‘medical product with
disrupted distribution structure’ should be adjusted. Moreover, the detailed standards can be
set under Appendix 6 of the Act. According to the Appendix, the rebate of medical products
is one of the disrupting practices in the distribution structure, defined as “medical product
manufacturers or importers’ direct or indirect provision of economic benefits, through
wholesale distributors, such as money, materials and favors to medical institutions or
professionals, including doctors, pharmacists and oriental doctors in order to promote sales,
such as encouraging their products to be prescribed”. However, when the Minister of Health
and Welfare acknowledges any case set by medical product manufacturers or importers for
transparent transaction of products, the case can be tolerated under ‘the Fair Trade Code’ and
thus cannot be regarded as disrupting practice in the distribution structure.
Similarly, Article 47(1) of the Pharmaceutical Affairs Act and Article 62(1) subparagraph 6
of its Enforcement Rules also prohibit the practice of “selling medical products by unfair
means, such as providing free gifts or touting for business to attract consumers at a price
lower than the actual purchase price (if the product is purchased by price discount or free
provision of some of medicines, the price is re-calculated, reflecting these elements)”.
As such, it seems that there is no significant difference in its substance between economic
benefits providing for drawing customers and those for promoting sales of medical products.
However, in the health care sector, a rebate is defined to cover all economic benefits provided
for sales promotion. Such definition is interpreted to be set for rejecting any margin of
medicines at medical institutions with separation of prescribing from dispensing and ensuring
fiscal soundness of the national health insurance system.
2. “Unfairness” or “Excessiveness” of the Benefits
Benefits which are deemed to be unjust compared to a normal trade practice are the ones
considered as illegal from the perspective of fair competition. If certain benefits are not
thought to be tolerated in the fair competition environment, they are prohibited regardless of
the amount of benefits.
There is no different view that benefits prohibited under other laws are unjust compared to
the normal trade practice. Therefore, a rebate of medical products prohibited under the
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Pharmaceutical Affairs Act is subject to unjust benefit under the MRFTA even without
considering its amount. In addition, whether or not the pharmaceutical companies keep the
limit of rebate approved by voluntary rule of the industry would serve as critical criteria for
judging ‘unfairness’ of drawing customers under the MRFTA.
However, if the benefit is generally tolerated as a trade practice in pharmaceutical circle in
spite of surpassing the extent set by ‘code of conduct’, it remains uncertain whether it shall be
regarded as unfair or not. The Seoul High Court mentioned this in a series of decisions,
“‘Normal trade practice’ means general trade practice, meeting the desirable competition
rules, which does not always coincide with current trade practice. ‘Unjust or excessive
benefit’ refers to the one surpassing the proper level in light of normal trade practices, or the
one prohibited under the relevant laws”. Even if the practice concerned is generally tolerated
under the pharmaceutical enterprise, it could be subject to unfair customer inducement. In
this case, much high threshold of ‘standardization’ is required because recipients of economic
benefits are not final purchaser but medical professionals holding the prescription rights,
which is aiming to prevent any misuse or abuse of medicines. Taking this into account, the
High Court decided the supporting practice concerned went under the unfair customer
inducement. As confirmed by the Supreme Court, it seemed that the unique characteristic of
the bio-medical industry influenced the judgment for setting higher ethical standard than in
other types of industry, which means that the criteria of examining trade practice as normal or
not were set relatively higher than those of other industries.
In addition, if economic kickbacks lacked transparency and aim for some exchange such as
increased prescription, the KFTC regarded this type of business practices as unfair, compared
to a normal trade practice. Excessive economic benefits itself can also be deemed as unfair.
Therefore, ‘transparency’ means overall process of sales promotion activity that need to be
done in a transparent manner. Moreover, it is the most essential element addressing the agent
problem which lies between doctors and patients. ‘Non-reciprocity’ also means that, as the
target for sales promotion is medical professionals who choose medicines, the benefits
offered to ‘choose’ shall not be exchanged with prescription (which shall be the choice made
by consumers). Last of all, ‘non-excessiveness’ refers to sales promotion toward medical
professionals, which is done at a downstream level rather than direct promotion since it is not
directly done toward consumers.
However, when deciding whether unfairness of supporting medical products, it is quite
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ambiguous to identify ‘transparency’ in the linkage between kickbacks and reciprocity. In
addition, it is also doubtful whether ‘transparency’ is a proper element to consider such
unfairness from the perspective of normal trade practices. In connection with the word,
‘secret’ or ‘covert’, supporting a business practice is regarded as illegal. Therefore, in case of
deciding any favors or entertainment offered to medical professionals, it is better to consider
whether such benefits are excessive or given with the expectation of some reciprocity.
Regarding the element of ‘excess’ of rebate, the features of economic benefits as well as
those of the pharmaceutical business need to be reviewed. For example, if there is a system
which returns 10% of annual purchasing amount of medical products in cash or product, it
becomes quite ambiguous whether to regard it as ‘reciprocal’ or ‘excessive’. However, since
the purchase of medicines is done for prescription to patients, it may be difficult to deny
reciprocity of such system. In case of donation, from the perspective of regulating rebate of
medicines, whether it aims for some exchange or not should be an issue. Its excessiveness
needs to be considered because economic kickbacks even without any reciprocity can be
regarded as the one aiming for drawing customers.
According to Article 4 of the ‘Code of Conduct for Transparent Transaction of Medical
Products’ (hereinafter, ‘Code of Conduct’), which stipulates the scope of unfair trade
practices by the Korea Pharmaceutical Manufacturers Association (KPMA) and the Korea
Research-based Industrial Association (KRPIA), even if rebate of medicines is given to
medical institutions or medical professionals within the range of the code, it is prohibited
when a rebate is made in exchange for selecting the product concerned or increasing
prescription. However, following a broad interpretation, if ‘reciprocity’ is acknowledged for
all rebates possibly affecting prescription, the economic kickbacks with the natural purpose
of sales promotion are all prohibited as an illegal rebate. This would lead to disapproval of
price competition, rebate competition, and ultimately sales competition itself in medicine. In
this regard, reciprocity in issue shall be acknowledged only for the case when the economic
benefits concerned could lead to mis-prescription or unnecessary prescription.
3. The Possibility of Unfairly Drawing Customers or Disrupting Fair Trade
Rebate is regarded as an unfair trade practice when the unjust benefits could draw customers
of competitors to the enterprise providing such benefits. If the benefits are unfairly or