Pharma company MRs illegally work for CSOs on the sideline

Voices rise on the need to address the issue

Some pharma companies implicitly allow employees to work for CSOs

CSOs also attract pharma company employees to work two jobs by guaranteeing the highest fees in the industry

Efforts are being made to clean the field ahead of the implementation of the CSO reporting system in Oct.

Contract Sales Organizations (CSOs) are trending in the pharmaceutical industry.

 

In the case of small and medium-sized pharmaceutical companies, the companies have been opting to use CSOs rather than their own sales departments, to the extent that their departments are disappearing with the expansion of CSO business.

 

The smaller the company, the more it relies on CSOs.

 

A growing number of companies are outsourcing 100% of their sales.

 

Large companies are also dabbling with CSOs.

 

In 2019, the Ministry of Health and Welfare reported that 45% of the 195 pharmaceutical companies surveyed used CSOs.

 

However, the industry consensus is that the rate would exceed 70% if the pool is narrowed to small and medium-sized companies.

 

With CSOs becoming more mainstream, acts of misconduct are also increasing.

 

One representative example is the act of pharmaceutical company medical representatives (MRs) illegally working for CSOs.

 

According to the industry, many MRs who work for one company are selling their competitors' products at the same time.

 

It's not uncommon to see MRs actively selling their competitors' products that pay higher commissions than their own.

 

The problem is exacerbated by the industry's implicit acceptance of such illegal behavior.

 

There are numerous posts on online job information sites recommending MRs to work for CSOs on the sideline, guaranteeing absolute confidentiality.

 

There are even rumors that some small and medium-sized pharmaceutical companies that are in urgent need of making sales may tacitly allow employees to work for CSOs as long as they meet their sales targets.

 

The CSOs are also encouraging the multicareer path.

 

In fact, one CSO said, "The company can only see the wage and salary income it paid to each employee, so even if the employee earns additional income and reports it to the National Tax Service, the company will never know because it is categorized as business income.

 

We provide full personal protection, so you don't have to worry about getting caught working a second job." Another CSO said, "We guarantee the highest commission in the industry.

 

We work directly with pharmaceutical companies, so we can get the highest commissions.

 

Our CSO is not like the others that are actually a bunch of corporate entities.

 

No one knows how many steps the electronic data interchange (EDI) goes through in those companies, and whether there are any problematic entities, so it's really important to use a CSO that directly deals with the pharmaceutical company." The practice of pharmaceutical MRs doubling as CSOs needs to be abolished, as it can lead to a lack of collegiality and professional ethics, and can cause serious damage to the company in the form of trade secret theft and unfair competition.

 

The industry is also aware of this problem and is making efforts to eradicate the practice.

 

Companies are increasing penalties for MRs who are illegally working two jobs and expanding education and monitoring to prevent such acts.

 

The CSO Reporting System is one of the most notable industry efforts.

 

The CSO Reporting System is one of the key components of the amendments to the Pharmaceutical Affairs Act, which will come into full effect on October 19th.

 

At its core, the bill requires "CSOs to report their business activities to local governments where they are located.” Violators will be punished by imprisonment for up to 3 years or a fine of up to KRW 30 million.

 

Pharmaceutical companies will also be required to check their ability to prepare, keep, submit, and disclose expenditure reports, manage the appropriateness and transparency of their accounting, and be obligated to provide training to prevent illegal acts.

 

The government believes that the introduction of the reporting system will be able to address the illegal practices by CSOs and pharmaceutical companies that circumvent the system, which has been raised as a possible source of illegal rebates.

 

"At a time when the pharmaceutical industry as a whole is making efforts to integrate CSOs into the system, by disclosing expenditure reports and implementing the CSO reporting system, it is imperative that we eradicate and prevent illegal CSO business activities to restore the CSOs’ credibility in the domestic pharmaceutical industry.” Meanwhile, the general business structure of CSOs is as follows.

 

The CSO is referred to as a "corporate CSO," and its employees are referred to as "dealers.” Dealers are usually sole proprietors who work for the corporate CSO, and the corporate CSOs work like middlemen, signing contracts with pharmaceutical companies and setting commissions that they later pay out to their dealers.

 

The corporate CSOs recruit dealers, sign contracts with pharmaceutical companies, receive commissions for sales and redistribute them back to individual dealers.