[비즈한국] Recently, the results of an investigation into the "expenditure reports" detailing the economic benefits—commonly known as "rebates"—provided by pharmaceutical companies to medical professionals to promote product sales have been released. This survey drew attention for including expenditure reports from Contract Sales Organizations (CSOs) for the first time. The findings revealed that 69% of these CSOs are one-person businesses, and their financial support was primarily focused on product presentation sessions. However, because only a tiny fraction reported providing rebates, critics argue that the expenditure reporting system has had a negligible effect on inducing self-regulation.
CSOs are a form of outsourced sales force introduced to allow pharmaceutical companies to focus on their core business, such as new drug development. However, it has become common practice for CSOs to operate without even formal business registration or written consignment contracts with pharmaceutical companies. They have even been used as channels for pharmaceutical firms to provide illegal rebates. Because they usually operate as small, loosely organized units, they have exploited the difficulty of detection. In particular, the emergence of one-person businesses pushed rebate activities further into the shadows. As they remained outside the scope of supervision, the scale of rebates funneled through them continued to grow; only recently, through legal amendments, have they become subject to the prohibition on providing rebates.
Consequently, the government announced last year that it would begin gauging the scale of the CSO market through a "registration system" and "expenditure report submission." However, because the expenditure reporting system relies on the entities providing the economic benefits to write the reports themselves, and since these reports have become publicly accessible via a portal starting this year, concerns have been raised that the industry might underreport economic benefits to avoid unnecessary misunderstandings. Some have even suggested that the current structure only penalizes those who fill out the reports honestly.
Amid this, as expected, less than 10% of CSOs reported having provided economic benefits—or rebates—leading to criticisms that the disclosure of these reports has actually made enforcement more difficult. According to the expenditure report survey results released by the Ministry of Health and Welfare on the 11th, 10,397 CSOs (9,959 in pharmaceuticals, 438 in medical devices) prepared reports for the year 2023. Regarding whether economic benefits were provided, only 5.8% (574 firms) in the pharmaceutical sector and 9.8% (43 firms) in the medical device sector admitted to doing so.
Specifically, out of a total financial support volume of 15.163 billion won, "product presentation sessions" accounted for 12.513 billion won, "clinical trials" for 2.451 billion won, "academic conferences" for 189 million won, and "post-market surveillance" for 10 million won. Regarding business size, 69% of pharmaceutical CSOs were one-person operations and 23.8% had 2 to 5 employees. For medical devices, 41.09% had 2 to 5 employees, while 36.30% were one-person operations.
The expenditure reporting system, introduced in 2018 to enhance transparency, requires pharmaceutical and distribution companies to document and keep records of economic benefits provided to medical professionals and pharmacists. Failing to prepare or disclose these reports, or doing so falsely, is punishable by up to one year in prison or a fine of up to 10 million won. CSOs were included as subjects for reporting for the first time last year. Legally permitted economic benefits include providing samples, supporting academic conferences, supporting clinical trials, product presentation sessions, post-market surveillance, payment discounts based on terms, and usage for pre-purchase performance testing (medical devices only).
The law states that the Minister of Health and Welfare can demand the submission of reports and accounting records when deemed necessary. However, as evidenced by the fact that only follow-up investigations have been conducted on reports from 2022 and 2023 since its introduction, it is unlikely that the authorities will monitor these reports on an ongoing basis. For the industry, the structure is such that the burden is lifted once the mandatory 5-year retention and disclosure period passes. There are calls for the creation of incentives beyond simply writing and disclosing reports to encourage the industry to develop its own capacity for self-regulation.
Meanwhile, the survey shows that a total of 21,789 entities (13,641 pharmaceutical, 8,148 medical device) prepared and submitted expenditure reports. Companies that provided economic benefits accounted for 3,964 entities, or 18.2% of all reporting companies. In the first survey, this figure was 27.7% of all reporting companies. The scale of economic benefits provided reached 818.2 billion won in monetary terms and 21.19 million items in product form, which is similar to the first survey's figures of 798.9 billion won and 20.48 million items.
Regarding types of economic benefits provided, "payment discounts (e.g., discounts of 1.8% or less on amounts paid within one month of the transaction date)" was the highest for pharmaceuticals at 68.1%, while "providing samples" was the highest for medical devices at 62.2%. However, in the case of "payment discounts," reports only contain the discount rate and number of instances, making the specific monetary scale impossible to determine. By business type, manufacturing firms focused on clinical trials (72.3%), importers and CSOs on product presentations (80.2%, 95.5%), and wholesalers on payment discounts (91.9%).