The Busan medical corruption incident swept the medical field this October. Five hospitals and 14 medical instrument enterprises were charged with bribery, and 10-20% of total profits were found to have been spent as medical corruption. As a result, 47 doctors and pharmaceutical company employees were prosecuted. Considering that the cost of prescribed medicine was 14 trillion in 2015, a significant amount of money has leaked out, and the attention on transparency in healthcare rose nationally due to this incident. The Sungkyun Times (SKT) analyzes representative types of medical corruption and the causes behind these problems, and explores efforts to eradicate corruption and ways to go forward.
Types of Medical Corruption
Pharmaceutical Rebates
• Concept
A rebate is a partial refund of the original payment for services or merchandises, and a pharmaceutical rebate is given when pharmaceutical companies or medicine wholesalers provide rebates to doctors as requital for the prescription of their medicines. A rebate can be seen as a promotion for medicines but also as bribery at the same time. According to the data from the Ministry of Health and Welfare (MOHW) in September 2016, costs invested into illegal promotion targeting doctors were 67 billion, and related administrative measures were imposed on over 2,200 cases.
• Process
Pharmaceutical rebates stem from doctors’ power to control both prescriptions and dispensaries of medicines. It means that the profits of pharmaceutical companies were heavily affected by doctors’ choices. In pursuit of additional profits, companies provided more medicines to hospitals than the actual volume of orders, encouraging doctors to prescribe their medicines more. After the separation of dispensary from prescription, rebate changed into its current style in which companies pay a partial refund as a reward for prescription. As the government strengthened the crackdown on medical corruption, a company changed the agent of rebate to a normal salesman rather than the company itself, to make it seem as if a salesman got commissions on sales. The salesman would then deliver commissions to doctors as a rebate. Companies also started to use corporation cards instead of cash for financial dealings.
• Problems
Medical rebates limit the rights for prescription and the range of selection for medicines. It can trigger a prescription which does not consider the condition of individual patients and the following health problems. In fact, there was a case in which a doctor prescribed a patient twice as much as the amount of drugs the patient needed by intentionally misdiagnosing the level of hypertension. Some doctors abuse power by using pharmaceutical company workers for personal businesses like picking up their children from school. They also request more money, and the Busan medical corruption incident in October also showed this kind of power abuse. Another problem is the deficit of the National Health Insurance Service (NHIS). The NHIS partially pays hospitals for medicine prices following the current institution. Since medicine transaction prices are reported higher than the actual sum, the volume of expenditure for health insurance is increasing.
Prescription of Unapproved Medicines
Unapproved medicines are often used since it costs much more to get an acceptance from the Food and Drug Administration (FDA). Although unapproved medicines can cause harmful side
effects if misused on the human body, it is common for these problems not to surface because of tradition or advertisement on efficacy. This September, a medical firm called Abbott Korea used a domestically unapproved substance in a medicine for epilepsy, and the Ministry of Food and Drug Safety (MFDS) decided a withdrawal measure. Internationally, the most representative case was that of Johnson & Johnson in 2013. It sold a medicine for schizophrenia, which had a side effect of a non-cancerous increase in the size of the male breast, and was fined more than $2.2 billion.
Causes of Medical Corruption
Actual Transaction Price Reimbursement System
• Concept and Process
The main cause of a rebate lies on the flaw in the actual transaction price reimbursement system. It is the institution that guarantees medical facilities to be repaid of medicine price from the NHIS. The reality, however, is that medical institutions report transaction prices as the upper limit value for profit margin. It is a loss for hospitals to report prices honestly, and pharmaceutical companies also want to maintain the upper limit value to sell medicines at high prices. Then, companies would lobby doctors to ask them for prescription of their medicines. Medical rebates keep happening as it is the way that both hospitals and medical firms get financial gains.
• Institutional Loopholes and Controversies
The flaw of the system is that there is no exact way to measure the actual transaction price. Profit margin is formed in invisible routes of a rebate, so medical corruption is an effective price determinant for hospitals and companies. Normal price competition in the market based on demand and supply is no use. As medical institutions get compensation regardless of the real price, there are no inducements to lower the price. Government aimed to solve this problem through incentives for the purchase of low-priced drugs, but it fell through due to the opposition of medical firms that did not want a price reduction.
Generic Drugs
1) Bioequivalence Test
• Concept and Process
Excess competition of generic drugs of similar efficacy causes pharmaceutical firms to depend on prescription from doctors, exacerbating the rebate problems. Generic drugs became superfluous as regulations on bioequivalence tests were relaxed in 2011. Bioequivalence testing examines whether the original drug and a copy drug have same effects on human body. Before the relaxation, joint and consigned bioequivalence tests were banned. Joint testing means two or more companies pay for the expenses and participate in an experiment together, and consigned testing means that the safety of a new generic drug is admitted without additional experiments i f it changed only the name of previously accepted medicine. When these were banned, companies had t o pa y the whole experimental fees on their own, every time they developed new medicines. The financial burden, especially on small enterprises, increased. Regulations were mitigated to solve this problem, and enterprises were allowed joint and consigned bioequivalence tests.
• Institutional Loopholes and Controversies
Production of new medicine became possible without additional testing as tests were accepted relatively easily. Overproduction of drugs triggered not only a rebate, but also quality degradation, which was connected directly to safety problems. On August 2016, medical companies proposed the revival of restriction of joint and consigned bioequivalence tests to solve these side effects. Small enterprises then announced their stance for opposition on September because of the expenses and decrease in productivity, and controversies are yet to be settled.
2) Pricing System
• Concept and Process
The current pricing system of medicines sets the price of generic drugs at a similar rate to the original drugs. The gradual pricing system gives preference to drugs released into the market earlier. Prices of generic drugs released as first up to the fifth are set up to 80% of the price of the original drugs. From the sixth on, prices are set up to 90% of that of the previous one. Since the transaction price is set quite high, it guarantees surplus profit.
• Institutional Loopholes and Controversies
The development of new medicine costs much and has a high risk, so pharmaceutical enterprises started to focus on generic drugs. It enabled companies to develop drugs with small expenses and gain profits through the gradual pricing system. The profit margin of drugs could also be a factor of medical rebate. Although the MOHW amended the gradual pricing system and set the maximum price rate of generic drugs at 53.55% of that of the original drug, it is still high since Japan and the United States (US) set the rate at 33% and 16% respectively.
Efforts to Eradicate Medical Corruption
Efforts to Reinforce Medical Transparency in Korea
• Dual Punishment System
The dual punishment system was implemented on November 2010, to punish both the providers and the receivers of rebates. Previously, only pharmaceutical companies were punished if they provided rebate to doctors, so they proposed to punish doctors as well. The reason behind this proposal, even despite their own profit through rebates, was to stop the government from applying incentives for purchasing low-priced drugs. They concluded that it would trigger excessive competition between companies to lower the medicine price, and be an extra burden because they would need to keep providing rebates at the same time. Companies therefore proposed that the government should first extricate the corrupted doctors before starting an incentive system. When the dual punishment system passed the Assembly Plenary Session, however, companies said they thought that doctors had the power to stop the passage of the bill. The system came into effect at the mercy of the government, and its aim was to foster the Research and Development (R&D) investment on health care industries. Although it strengthened the regulation, a bypassing technique developed, however, as the pharmaceutical company Novartis provided money to doctors by inviting them to hotels in the name of interviews or conferences in this August.
• Rebate Two-Out System
The rebate two-out system, effective from July 2014, excludes the medicine from health insurance if used in rebate more than twice. If not covered by insurance, the medicine price increases, and the company will eventually be eliminated from the market. The medical field, therefore, put an effort into self-purification. Medical institutions bought more original or foreign drugs instead of generic drugs that can be misused for rebate, and medicine firms also focused on new medicines. For example, Samjin Pharmaceuticals developed a new substance to combat Human Immunodeficiency Virus (HIV) called Pyrimidinedione, which was FDA-approved in August 2014. The system has the problem of unclear standard of illegal rebates, but it still contributed to institutional transparency.
Ways to Go Forward
Current measures focus mainly on punitive systems, and more attention on institutional inconsistency and social or ethical problems is required.
Foreign Exemplary Case
The Sunshine Act clarifies that all kinds of payments enterprises provided to medical institutions should be recorded. The government then opens the data to the public on the homepage, and the payments include medicine prices, consultancy fees, tuition fees, or experimental fees. It is to maximize the transparency between doctors and pharmaceutical companies, and meet citizens’ right to know. The US, France, Germany, and Japan have already implemented this system and Britain also passed the Sunshine Act this year. Its positive effect can be seen in the case of Japan, in which the corruption of a clinical experiment was revealed. Although it is difficult to reveal all company activities, the system has its value on objectivity, and Korea is also paying attention on it.
Promising Perspective
• Expert Evaluation System
The expert evaluation system is a management improvement measure for medical licenses by the MOHW and the Korean Medical Association (KMA), and it to start from this November. It is based on peer review, meaning that doctors keep eyes on each other’s immoral treatments. Immoral treatments include unapproved injections, prescriptions of psychotropic drugs or damaged medicines, ghost surgeries, and sex crimes. These are judged first by the regional expert evaluation board, then by ethics commission of the KMA, and finally by the MOHW. The purpose of the expert evaluation system is to activate mutual control and self-regulation. There also exist some doubts, however, on its effectiveness, and objections of the medical field about the culture of pointing out the flaw of each other.
• Korean Network on Pharmaceutical Transparency (KNPT)
The KNPT is a consultative group of private corporations and the government which was established on September 29, 2016. It aims to reinforce the evaluation method by a third party, because self-inspection mechanisms have a limit in objectivity. The KNPT therefore focuses on protecting the identity of whistleblowers, and its following plans include the establishment of justice business, monitoring public institutions, and advertisement or cultural enterprises.
News of the medical field is not familiar to many people, but medical problems are connected directly to our lives. Current medical systems keep making an effort to wipe out corruption, but still have some limitations. Institutions should focus more on preventive measures and the culture of self-purification. The most fundamental factor for medical transparency, however, is to be a knowledgeable citizen and consumer. Cooperation of both government and people would be the only way to go forward.