SEOUL - Last week's passage of long-awaited "anti-rebate laws" that enable courts to punish both contributors and receivers of rebates, could trigger more demand from doctors to prescribe branded products from multinational companies, industry watchers said.

As a result, the laws - passed overwhelmingly by South Korea's National Assembly on April 28 - might derail the traditional market footing of Korea's generic-dependent local companies as doctors will likely be more inclined to prescribe MNC products in order to avoid rebate-related suspicion, analysts said.

Under the new laws, locally known as "dual punishment laws," doctors, dentists, nurses and other hospital employees could be jailed for up to two years or risk license suspension for one year. In addition, pharmaceutical companies or persons offering cash, goods, benefits, entertainment and hospitalities to doctors and hospitals could also see jail sentences. The new law will take effect in October.

"Under the laws, doctors will be increasingly compelled to prescribe products from prestigious pharma companies [to avoid rebate controversy]," Cho Euna, a pharmaceutical industry analyst at Samsung Securities told PharmAsia News, noting that the new laws might erode the traditional market of local rebate-dependent pharma companies in the long run.

Korean pharma companies that stand to benefit the most from the laws because they sell more MNC products include Handok Pharm, Choongwae Pharm, Dong-A Pharm, Daewoong Pharm and CJ Pharma. In fact, MNC products account for more than 70 percent of total sales for Handok and Choongwae.

Doctors Expected To Prescribe More MNC Products Under New Laws

Samsung Securities Cho's perspective was generally shared by Bae Ki-Dal, a medical-pharma analyst at Shinhan Investment Corp.

"Particularly in the short-term view, MNCs are expected to achieve more gains than local generic makers because doctors will prescribe more original products as part of their effort [to avoid suspicion over potential rebates from pharmas]."

Ironically, the Korea Pharmaceutical Manufacturers Association, which represents local Korean pharma companies, has been calling for the establishment of the dual punishment laws because the association said punishing only rebate-providing pharmas was "unfair." The association held that doctors and hospitals that accept rebates and other benefits should also be punished, although large general hospitals pledged they would not receive such kickbacks and benefits in the future (Also see "Korea Pharma Manufacturing Association Takes Steps To Snag Unethical Member Companies" - Scrip, 19 February, 2009.).

Under the new laws, doctors receiving cash, goods, benefits, entertainment and hospitalities will be punished; contributions related to samples, academic events, product presentations and clinical trials will be exempt from punishment.

Proponents of the new laws argued that in the past violators were seldom punished because laws indulged doctors too much and were not enough of a disincentive to refrain from accepting rebates (Also see "South Korean Health Ministry Hesitant To Punish Doctors For Accepting Pharma Rebates" - Scrip, 5 March, 2008.).

"Pharmaceutical companies will eventually have to change their business patterns to meet the new laws, and that would eventually benefit the general public as they spend less in their medical spending," Kwangju District Prosecutors' Office Senior Prosecutor Kim Jae-Koo told PharmAsia News, adding that the tighter scrutiny will also result in lower drug prices in South Korea because companies will spend less on "operational costs" without the additional expense of rebates.

Korean Medical Association Says Doctors To Protest New Laws

Meanwhile, the Korean Medical Association said it would protest the new laws, KMA spokesman Jwa Hoon-Jung told PharmAsia News. He said the association might also file for a Constitutional Court's judgment to check the justification of the new laws.

Opposition Democratic Party lawmaker Choi Young-Hee, who proposed the bills, was quoted by her aide as saying the new laws should prompt local Korean pharma companies to shift their focus more aggressively to develop globally competitive drugs.

That shift, the aide told PharmAsia News, would help make the country's national medical insurance system more sustainable.

To discourage rebates, the Ministry for Health, Welfare and Family Affairs said it would launch a new "drug-pricing system" in October aimed at compensating hospitals that buy drugs at lower prices than their government-set maximum prices. Under the new pricing system, the national medical insurance system can compensate up to 70 percent of that price gap between the government maximum and hospitals' actual purchase price from drug makers (Also see "New Pricing System Could Deal A Blow To South Korea's Generic-Dependent Companies" - Scrip, 19 February, 2010.).

South Korea's Fair Trade Commission recently imposed penalties amounting to KRW550 million ($484,282) on the country's four leading general hospitals for receiving "donations" from 14 local and international pharmaceutical firms to fund expansion projects (Also see "Four Major South Korean Hospitals Are Penalized For Soliciting "Donations" From Pharmaceutical Outfits Including MNCs" - Scrip, 22 March, 2010.).

- Peter Chang (p.chang@elsevier.com)

Korea's Anti-Rebate Laws Seen Sparking More Demand For MNC Products

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