The government has toughened up regulations on outsourced pharmaceutical companies’ illegal rebates to hospitals.

The Anti-Corruption & Civil Rights Commission on Tuesday recommended that the Ministry of Health and Welfare and the Ministry of Food and Drug Safety punish drugmakers if they offer illegal rebates to hospitals through contract sales organizations (CSOs). The recommendation is part of a measure to discourage illegal rebate practices in the medical community.

Industry watchers have been pointing out that pharmaceutical firms are paying CSOs 30-40 percent of the drug sales and giving hospitals part of the profit as illegal rebates in exchange for hospitals’ more prescriptions for their drugs.

The rights commission notified related pharmaceutical associations to make sure that offering illegal rebates through a third-party company was deemed unlawful.

The commission also said that not only drug suppliers such as drugmakers, importers, and wholesalers but also CSOs should mandatorily keep records of all the "economic benefits" given to doctors and pharmacists, and get ready to submit the documents to the government if requested.

The commission said pharmaceutical firms’ expense reports should include all the factors affecting the supply price such as discounts given to wholesalers after the sales of a drug.

The government also ordered physician groups to notify on their website to prevent doctors from unfairly inducing or encouraging patients to use a particular manufacturer’s medical device.

“I hope the latest measure could encourage the medical community to do away with rebate practices themselves. I also hope that it can make the drug distribution more transparent and reduce people’s burden of healthcare costs,” said Ahn Joon-ho, head of the Institutional Improvement Bureau at the Anti-Corruption & Civil Rights Commission.

The pharmaceutical industry raised concerns that the commission’s latest recommendation could cause vague boundaries in judicial judgments.

As most CSOs are individual business owners, all the business performances, whether mediocre or profitable, are attributed to the individual. Tax is levied on the individual, depending on the business income. Also, the individual takes the indefinite responsibility for debts related to the business.

Thus, if an individual business owner as a CSO gets 30-40 percent commission fee from a drugmaker and spends 10 percent of the profit to doctors to promote the drugmaker’s product, it can make judicial judgment complicated because the benefits were shared between individuals, not business entities.

In short, it is an individual’s choice to decide how to use profits, so it could be difficult to raise an issue about the money that the individual spends on sales promotion.

“It is difficult to decide whether the rebate punishment law should come before the commission’s recommendation or vice versa, an official at a drugmaker said. “Based on the recommendation, pharmaceutical firms will make continuous updates. The recommendation should be interpreted as the government’s tighter control on CSOs, which had been in a blind spot.”

sjh@docdocdoc.co.kr

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