[Column] Legal disputes over rebate penalty reducing price

Attorney Park Kwan-woo of Health Insurance Review and Assessment Service

This year would be a year to remember as various issues regarding drug pricing broke out, such as ‘lump-sum price reduction on single-use eye drops’, ‘revised generic pricing system’, and ‘litigation against pricing reduction penalty for providing rebate’.

 

Currently the drug pricing system is geared towards paradigm shift, starting with abolished ‘same substance same pricing’ policy.

 

Pharmaceutical companies would be helpless but to seek for other survival tactics in the coming year while the drug pricing ecosystem changes.

 

There are many issues to be talked about regarding drug pricing, but today it would be about a few updates on meaningful court decisions made on pricing reduction as an illegal rebate penalty.

 

However, it would mainly be summarized points of the issues as the lower court made the decisions and the issues are still open for long-running disputes.

 

As I introduced in a column titled ‘Rebate and Kick-back’ published December last year, the Korean Ministry of Health and Welfare (MOHW) imposed maximum reimbursement price reduction on 340 items from 11 pharmaceutical companies accused of providing rebate.

 

Currently, the most of affected pharmaceutical companies have filed administrative litigation against the matter.

 

The pricing reduction penalty has not been imposed for years and related legal dispute has not been talked, either.

 

So the recent legal disputes were raised since various issues occurred with MOHW imposing penalty of the massive scale.

 

Going through each dispute issue, the first issue is about whether to consider nature or property of drug pricing reduction penalty as a sanction or not, according to the Item 12 of Paragraph 4 of Article 13 of Regulation for Criteria for Providing Reimbursed Services in the National Health Insurance, stating “a drug that has been confirmed as having disturbed trade orders by offering money or good for sales promotion, etc”, or also known as former rebate regulation.

 

The distinction of the sanction is crucial, because the ministry’s jurisdiction could change depending on the recognition of the discretionary sanction.

 

In other words, when the court recognizes the penalty as discretionary sanction, the judiciary would then decide the penalty was legitimate respecting the administrative agency’s judgment, if without a significant flaw, but if not then the court could revisit the issue.

 

On the issue, the lower court decided drug pricing reduction penalty imposed based on the former rebate regulation ‘could not be seen as sanction, but rather the maximum reimbursement price adjustment should be judged as discretion of reasonable penalty.’ Therefore, the court meant that it would be considered as a legitimate penalty within the discretionary jurisdiction only when the jurisdiction is considered reasonable.

 

With the said premise, the court ruling made decision on jurisdiction of discretionary authority for each specific disputed issue.

 

First, the court ruled that the Minister of Health and Welfare was not obligated to lay down detailed basis of maximum reimbursement price calculation to affected companies, when imposing the price reduction penalty.

 

The court did not see the legitimate reason as for the minister to consider the company as direct subject, because the regulation defines subjects for notice on reimbursed drug are mutually applied among healthcare institute, National Health Insurance Service (NHIS), policyholder, and dependent.

 

Among drugs provided from Pharmaceutical Company B to Hospital A, should the price be reduced only for drugs prescribed by the rebate-received medical profession?

 

Or should maximum reimbursement prices of all drugs supplied by Company B and prescribed by Hospital A be reduced?

 

The court stated all drugs from Company B could be subject for the maximum price reduction.

 

Rebate provision itself is highly likely to have been provided to promote sales of a specific company’s product, and there was no objective evidence to prove the rebate was provided for a specific product instead.

 

So the court decided the Ministry of Health and Welfare’s penalty was within its jurisdiction of discretionary authority.

 

Then what about a case of Hospital A providing both reimbursed and non-reimbursed drugs.

 

How should the maximum reimbursement price reduction rate be calculated?

 

Should the rebate on non-reimbursed drug be disregarded from the calculation of price reduction rate?

 

The court decided proportionally dividing rebate amount on reimbursed drug, while completely disregarding non-reimbursed drug, was a faulty calculation of maximum reimbursement price reduction rate.

 

The calculation formula for the price reduction rate was wrongful as rebate could have been provided for the non-reimbursed drug, and removing the amount provided to non-reimbursed drug from the calculation would have resulted in excessive reduction rate.

 

Lastly, if the rebate provided to a pharmacist was for the cost of the provider’s prescription drug, would it be possible to reduce the maximum price including the rebate cost?

 

Besides from violating Pharmaceutical Affairs Act, the court saw that the company’s act of providing rebate is difficult to relate back to prescription and sales of the prescription drug.

 

The principle and the norm of dispensing and sales of prescription drug is decided by doctor’s prescription, so the court judged it is unlikely to see the correlation between rebate provided to pharmacist and ‘promotion of dispensing and sales of prescription drug’, except for a special occasion.

 

Therefore, the court stated reduction rate should be calculated without the rebate cost provided to the pharmacist.

 

As for the last decision, the court reviewed standard and process of imposing maximum reimbursement price adjustment penalty more specifically than other previous rebate decisions, which sets judging standard to see if the maximum reimbursement price reduction penalty was reasonable based on the ministry’s discretionary authority.

 

The decisions were made during respective first trials and they are waiting for the appeal.

 

Attention on the issues is heightened to see if the preceding decisions would be sustained in the appeal.

 

In fact, there is a possibility of the change in decision during the appeal, and whichever decision is made at the Supreme Court later, the cases would definitely be the precedents setting a standard of the rebate-induced drug pricing reduction penalty.

 

The heated legal disputes seem inevitable for the healthcare sector, as it is Korea’s new economic growth engine with visible rapid expansion in quality and quantity.

 

Besides, the highly political and technical drug pricing is right in the center of the dispute.

 

Previously mentioned drug pricing paradigm shift seems like it would bring more interesting topics on the table than just the rebate case.

 

Surely the drug pricing policy would attract even more attention in the coming year 2020.