NHIU ‘Eradicate rebates with INN-based prescriptions'

Statement released regarding the case of wholesalers’ KRW 5 billion illegal rebates

The National Health Insurance Trade Union stressed the need to eradicate pharmaceutical rebates by improving the drug pricing system and distribution structure to those of advanced country standards.

 

The union also advocated the introduction of generic substitution through international nonproprietary name prescriptions.

 

On the 18th, it was revealed through a prosecution investigation that a pharmaceutical wholesaler had provided approximately KRW 50 billion in illegal rebates to three general hospitals through a new scheme involving the establishment of a shell company to pay dividends.

 

The NHIU stated, “The inflated drug costs resulting from illegal rebates and bid-rigging are being passed on to the public in the form of higher medical expenses, leading to unnecessary overprescription of medications and causing serious harm to the health and lives of citizens.

 

This serves as a major factor contributing to the leakage of Koera’s health insurance finances, ultimately resulting in increased health insurance premiums for both citizens and businesses.” The provision of rebates by medical professionals is strictly prohibited under the current Medical Services Act (Article 23-5) and the Pharmaceutical Affairs Act (Article 47).

 

Despite this, in July, the Korea National Police Agency's National Investigation Headquarters announced that it had identified 597 individuals in the medical and pharmaceutical fields suspected of illegal rebates through a special crackdown on illegal rebates and public official corruption.

 

This investigation result demonstrated that illegal rebates in the medical field remain widespread despite the introduction of the dual punishment system for rebates 15 years ago.

 

According to the NHIU, recent illegal rebates in the medical field have been cleverly evading enforcement by exploiting investigative blind spots caused by limited manpower in law enforcement agencies such as the police and prosecution, through more indirect and sophisticated methods such as academic support and consulting.

 

In some cases, an “indirect supplier” is involved as an additional distribution channel between wholesalers and medical institutions, and to circumvent the principle of “one person, one facility” under the Medical Services Act (prohibiting duplicate establishments), wholsalers have been registering indirect suppliers under the names of family members or others related to the medical professionals, leveraging their monopolistic position to extort unfairly low prices from pharmaceutical suppliers and provide illegal rebates to medical professionals.

 

Recently, the Organization for Economic Cooperation and Development (OECD) reported in its ‘Health Statistics 2025’ that South Korea's pharmaceutical expenses are 47% higher than the average of OECD member countries.

 

The NHIU stated, “Enforcement and punishment alone are insufficient to break the vicious cycle of illegal pharmaceutical rebates that recur every year.

 

Fundamental solutions include improving drug pricing systems and distribution structures through price competition among suppliers, such as government tenders and individual drug price negotiations, or introducing flexible pricing systems like reference pricing.

 

Also, the activation of generic substitution based on product names or ingredient names, which is implemented or recommended practice in most advanced countries with separation of prescribing and dispensing systems, is necessary.” They cited Spain as an example.

 

Spain, which has a similar population to South Korea, saves EUR 200 million annually (as of 2017, with a generic substitution rate of 53%) through generic substitution using the International Nonproprietary Name (INN).

 

The union stated that introducing generic substitution through INN-based prescriptions in South Korea could result in annual savings of at least KRW 500 billion in health insurance funds.

 

The NHIU declared, “To eliminate pharmaceutical rebates that threaten the health insurance budget, we will form a united front with labor and civil society organizations that share our vision and set up a proactive and systematic management strategy to improve the drug pricing system and pharmaceutical distribution structure.” It added, “The government and National Assembly must actively pursue legal and institutional reforms to eradicate illegal pharmaceutical rebates.

 

This is because the ‘black money’ from illegal pharmaceutical rebates should no longer be passed on to the public, who already pay the world's highest pharmaceutical costs.” The statement emphasized that pharmaceutical rebates, which exacerbate the public's medical expenses and hinder the sustainable development of the health insurance system, must be eradicated through reforms to establish a drug pricing system and distribution structure on par with those of advanced countries.