KFTC Investigation into the Health Care Sector ... - Yulchon

CORPORATE NEWSLETTERJune 2009ANTITRUST NEWSLETTERJuly 2009For further information pleasecontact :Lee, Seuk Joon822-528-5448leesj@yulchon.comOh, Suejung Alexa822-528-5441aoh@yulchon.comKFTC Investigationinto the Health Care SectorThe Korea Fair Trade Commission (the “KFTC”) has conducted a series of intensiveinvestigations into unfair trade practices in the health care industry. BetweenNovember of 2006 and February of 2007, the KFTC had conducted large scale on-siteinvestigations into 17 multinational and domestic pharmaceutical companies, focusingon improper marketing practices. Each investigated company was found to haveengaged in improper inducement of customers by providing or offering to provideeconomic benefits to health care professionals (HCPs) in return for prescriptions fortheir medical products. Certain companies were also found to have engaged in resaleprice maintenance among other conducts that are prohibited under the Koreancompetition regulations. The KFTC, in addition to issuing cease and desist orders,imposed administrative fines in the aggregate amount of approximately KRW 40.3billion against all the 17 companies. (10 companies were fined in October of 2007 whilethe remaining 7 companies were fined in January of 2009.) Five domestic companieswith the highest turnover were also recommended for criminal charges. According tothe KFTC press release and final written decisions, conducts of improper inducementof customers by the investigated companies occurred in various forms - offeringentertainment such as meals or golf outings, assistance through payments fordomestic/international conferences, assistance through supply of equipment orworkforce, payments in the form of PMS, consultation/lecture, and donations are few ofthe many conducts found to have constituted violations.Thereafter, some of the companies filed administrative appeals for cancellations of theKFTC’s decisions and the Seoul High Court found for the presence of improperinducement of customers. 1The Seoul High Courts decisions were appealed and the cases are currently pendingreview by the Supreme Court.1 The judgments issued by the 6th and 7th administrative court decisions differed inopinion on the calculation of affected sales, which serves as the basis for assessingfines. It now remains to be seen what standard the Supreme Court would set withregards to calculation of affected sales.Korea TEL : +82 2 528 5200 / FAX : +82 2 528 5300 Vietnam TEL : +84 8 3911 0225 / FAX : +84 8 3911 0230www.yulchon.com Email : newsletter@yulchon.com

ANTITRUST NEWSLETTERJuly 2009In mid-2008, the KFTC conducted on-site investigations into8 general hospitals. The investigation was focused onwhether there were abuses of superior bargaining positionsby general hospitals and HCPs against pharmaceuticalcompanies in the process of business transactions. Theabuse of superior bargaining position, which is alsoprohibited under the Korean competition regulation, occurswhen hospitals or HCPs in a superior bargaining positioncoerce or request the other transacting partners (i.e. thepharmaceutical companies) to provide economic benefits.The KFTC is now reviewing the materials and documentsconfiscated from the hospitals investigated. The examiner’sreports (statements of objection) against those hospitals andHCPs involved are expected to be issued around July of thisyear.Despite such efforts of the KFTC, improper marketingactivities by pharmaceutical companies and abuses ofsuperior positions by HCPs and hospitals have not seenmuch improvement, which led to the KFTC increasing theworkforce for continued monitoring of the health care sector.In April of this year, the KFTC started a new round of on-siteinvestigations into 5 pharmaceutical companies that havenot been investigated the first time around. As theinvestigative activities of the KFTC still continue, the scopeof the investigations is expected to be expanded to includecompanies for medical devices or other pharmaceuticalproducts in the near future.marketing activities because the current medical insuranceprice as determined by the national health insurance is alsoexcessive. (According to materials released by the KFTC,the average ratio of marketing cost to total turnover of thepharmaceutical companies in Korea amounts to around35%.)It is not expected to be long before the relevant governmentagencies take concerted actions against improper marketingpractices and abuse of superior bargaining position in thehealth care sector. It is thus recommended that companies,hospitals, clinics and HCPs in the health care sector properlyidentify problematic areas in their business practices andtake measures to improve any conducts that may potentiallybe found as violations in order to minimize exposure andrisks.The Ministry for Health, Welfare and Family Affairs hasissued a notice regarding introduction of a new regulationthat would allow the Ministry to decrease up to 20% of themedical insurance price for those drugs covered undernational health insurance when the pharmaceuticalcompany is found to have engaged in improper marketingactivities for the adoption, increase, and/or maintenance ofprescriptions for its particular medical product. Such newregulation is based on the idea that the pharmaceuticalcompanies are able to make excessive expenditures onMaterial included in our newsletter has been prepared for informationalpurposes only and is not offered as legal advice on any particular matter.Yulchon and contributing authors disclaim all liability for the newsletter’scontent and are not responsible for any third party contents which can beaccessed through this newsletter.Korea TEL : +82 2 528 5200 / FAX : +82 2 528 5300 Vietnam TEL : +84 8 3911 0225 / FAX : +84 8 3911 0230www.yulchon.com Email : newsletter@yulchon.com