If the details of clinical trial expenses are incorrect, you will be imprisoned... Pharmaceutical companies in ‘emergency’ [Daeryun’s Biz law forum]

Ministry of Health and Welfare releases pharmaceutical industry expenditure report
Expenditure details of over 20,000 companies revealed for the first time
False information or omission of data will result in imprisonment of up to 1 year.
Internal control check… We must preemptively prepare for stronger regulations

On February 11, the Ministry of Health and Welfare released the 'Economic Benefits and Expenditure Report' of the domestic pharmaceutical and medical device industry for the first time. The purpose was to increase transparency in the distribution of medicines and medical devices and block the eradication of illegal rebates.

The expenditure report released this time is based on the 2023 fiscal year. A total of 21,789 companies submitted data. The number of participating companies has doubled compared to the first survey in 2023 (11,809). It is analyzed that the new inclusion of pharmaceutical sales promotion operators (CSOs) has a significant impact.

The Ministry of Health and Welfare has enabled the general public to check the details of economic benefits provided by companies through the 'Expenditure Report Management System' (KOPS) of the Health Insurance Review and Assessment Service (HIRA). However, to protect personal information and trade secrets, the real name of the medical professional and specific clinical trial details were de-identified. Direct searches for specific product names or beneficiaries were also restricted.

Information such as clinical trial support fees disclosed for the first time

The expenditure report included statistics such as the type and amount of economic benefits provided by each company and medical personnel, as well as the frequency and number of cases provided. The items permitted by law are limited to the following seven items, and statistics for each item were also provided in this disclosure.

① Provision of samples: Minimum quantity required to confirm the dosage form and form of the relevant drug or medical device (marked as sample, prohibited from sale to patients). 1,305 companies provided a total of 14.96 million medicines and medical devices to medical institutions.
② Academic conference support: Actual expenses for transportation, food, lodging, and registration fees for conference participants (presenters, chairpersons, and discussants). 391 companies provided approximately 20.8 billion won in support to a total of 3,155 academic conferences.
③ Clinical trial support: The quantity of medicines and medical devices for clinical trials and appropriate research funds required to conduct clinical trials. 413 companies received research funding of KRW 553.1 billion and supported 6.17 million products.
④ Product briefing session: Transportation expenses provided by attendees, souvenirs, lodging, food and beverages under 50,000 won (excluding tax and service charge, limited to 100,000 won per session or less). A total of 232.6 billion won was provided, including 205.5 billion won in pharmaceuticals and 27.1 billion won in medical devices. The average amount of support per person is 80,000 won.
⑤ Post-marketing surveillance: Remuneration of up to 50,000 won per case report provided to doctors, dentists, and oriental medical doctors participating in post-marketing surveillance (up to 300,000 won in cases where additional work is required, such as for rare diseases or long-term follow-up). 101 companies provided 11.63 billion won in support to prepare 84,000 case reports.
⑥ Cost discount according to payment conditions: Cost discount according to the payment period of the transaction amount (0.6% or less within 3 months, 1.2% or less within 2 months, 1.8% or less within 1 month). 1867 companies provided a total of 22.18 million cost discounts.
⑦ Checking medical device performance: Use for the minimum period of time required to check medical device performance (1 month, medical device field only). 311 companies provide 857 items and 62,630 medical devices to check performance before purchase.

Looking at the statistics, a significant portion (67.6%) of the economic benefits were focused on supporting clinical trials. This suggests that research and development and academic purposes are the main spending drivers. In addition, 18.5% of all pharmaceutical suppliers and 17.7% of medical device suppliers were found to have provided economic benefits, meaning that many small and medium-sized companies only fulfilled reporting obligations and provided no or minimal economic benefits.

High legal risk in case of non-compliance with relevant laws

Failure to comply with laws related to economic profit and expenditure reports carries significant legal risks. If the report is false or relevant data is omitted or not kept, imprisonment for up to one year or a fine of up to 10 million won may be imposed under the Pharmaceutical Affairs Act and the Medical Device Act.

Moreover, the government is likely to search for anomalies based on expenditure reports. If excessive support is concentrated on specific medical institutions or medical staff, or if a pattern appears that deviates significantly from the general industry average, it may lead to a rebate investigation.

With the release of the report, medical professionals can view the details of their economic interests, and procedures have been established to request corrections if necessary. Accordingly, each company should keep in mind that they may receive inquiries from medical institutions and medical staff about whether the support details reported to them are correct or requests for correction. Failure to respond to this may lead to civil complaints or disputes. For this reason, it is advisable to prepare internally accurate information management and rapid response processes.

A review of the overall compliance policy is required.

Companies are expected to check their existing business practices and internal control systems while taking preemptive measures to prepare for future strengthening of regulations. This is because we cannot rule out the possibility that personal information and some trade secrets that were not disclosed this time will be included in the scope of disclosure in the future. Specifically, a review of the method of providing economic benefits, related contract documents, and compliance policies as a whole is required. You can consider the following countermeasures:

① Strengthening internal training and guidelines: Thoroughly educate sales and marketing personnel on the types and limits of permitted economic profits. Distribute and continuously update internal guidelines on how to write expenditure reports and their importance.
② Check the expenditure report preparation process: Check whether the information to be included in the expenditure report is collected without omission. Establish an internal system to thoroughly store documentary evidence for each expenditure item and manage it systematically during the legal retention period.
③ Proactive monitoring and self-audit: Identify abnormal spending patterns by conducting quarterly or semi-annual self-audits. Implement proactive corrective action when problems are discovered.
④ Establishment of a beneficiary request response procedure: Establishment of an internal process so that medical personnel and medical institutions can respond quickly to requests to confirm expenditure details reported to them.
⑤ Monitoring future policy changes: Establishing the legal and compliance department's response system, taking into account additional guidelines from relevant authorities such as the Ministry of Health and Welfare and the possibility of expanding the scope of disclosure. Strengthen proactive measures such as maintaining transparent and sound practices in preparation for the possibility of detailed disclosure of individual beneficiaries or products in the future.

Disclosure of expenditure reports is part of a policy to actively improve transparency in the pharmaceutical and medical device industry. The government's strong will to establish a fair trade order is visible. Companies in this field should not regard this as a simple regulation, but rather use it as an opportunity to strengthen their internal control systems and improve corporate trust.

Ultimately, it is important to keep in mind that establishing transparent and legal business activities is the best way to secure a company's reputation and sustainability. In the future, continuous monitoring of government policy changes and systematic internal compliance management will become essential strategies for the industry.

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If the details of clinical trial expenses are incorrect, you will be imprisoned... Pharmaceutical companies in ‘emergency’ [Daeryun’s Biz law forum] (Shortcut)