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Korean pharma giant caught paying doctors to prescribe its drugs

January 2015

Dongwha Pharmaceutical, one of the largest drug companies in Korea, has been indicted for paying rebates to doctors in exchange for agreeing to give prescriptions of its own drugs. This is the biggest illegal rebate incident since December 2008 when a law making it illegal to pay rebates was passed.

Prosecutors indicted a sales head at Dongwha and two officials at its PR agency for giving KRW 5bn to 927 doctors and officials at 923 hospitals across the country in exchange for prescribing Dongwha products.

Of the doctors, 155 who received a large sum of money are facing charges of accepting bribes of between KRW3 and KRW 30m.

The kickbacks became known when the Fair Trade Commission (FTC) reported illegal trades from January 2010 to December 2012.

“Dongwha tried to cover up their crimes by pretending that cash bribes were just payments for doctors’ services such as participation in surveys and translation,” said a prosecutor.

Dongwha’s sales department compiled a list of doctors and the products it wanted to sell through them. Once the doctors complied, the PR agencies arranged payments.

Pharmaceutical companies in Korea are often caught using cash bribes, but prosecutors said in the Dongwha case that the rebates were not entirely cash. Instead, Dongwha bribed doctors by buying them studio apartments, or paying deposits for leases, rents, and maintenance fees.

Prosecutors estimate that Dongwha spent about 5% of its revenues on bribing doctors.

The prosecutors asked for harsh punishments such as license suspension or suspension of product sales. They also recommended that the current law stipulating a fine of up to KRW 30m is excessively lenient and that it be revised to one imposing higher penalties and jail terms. In response, the health ministry said it would take appropriate administrative action.

The ministry also said it would cut the maximum price of the drug products involved by up to 20 % as a penalty.
“We will continue to work hard to eradicate the culture of bribery in the pharmaceutical industry, in cooperation with prosecutors,” the health ministry said in a statement.

The practice of giving and receiving kickbacks is deeply embedded in the Korean pharmaceutical industry. Before the 2008 legislation, some pharmaceutical companies even paid for doctors’ health insurance and overseas training fees as well as their children’s education expenses.

Observers say it will be difficult to root out the illegal practice with the current lenient punishments.




Dongwha | Asia | Business ethics

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