[Contribution] Collection of rebate investigation cases for pharmaceutical and medical device companies and implications

Attorney Daeryun Lee Il-hyeong, "Continuously strengthening... the largest number of whistle-blowing cases, various clues - multi-agency cooperation is becoming routine."
‘A variety of investigative techniques are expected to be used, including analysis of HIRA prescription data and use of tax investigation data.’

Regarding the rebate issue, tensions in the pharmaceutical and medical device industry are increasing due to the introduction of the CSO reporting system, a series of rebate incidents, and the new government's announcement of a special crackdown on 'pharmaceutical industry rebates' (July-October 2025).

In relation to this, the author covered the overall rebate regulation in a contribution to the Pharmaceutical Newspaper in June 2025. This time, for practitioners, we would like to summarize major cases related to rebates from 2015 to recent years and examine their implications.

1. 2015 J Hospital Incident - Rebate using direct wholesale

The J Hospital incident is an incident in which 46 people, including the hospital chairman, operated a so-called ‘direct wholesale’ and received kickbacks worth over 1 billion won from 18 pharmaceutical companies from 2011 to 2015. They operated a ‘direct wholesale’ and received rebates by signing ‘unit price contracts’ with pharmaceutical companies and pocketing the difference in drug price discounts.

Meanwhile, this case is unique in that the lead to the investigation (the background to the start of the investigation) was a report from a pharmaceutical company employee who could not endure the abuse of power by ‘A’ (the hospital’s direct wholesaler).

Another unusual thing is that the criminal and administrative measures were different. The prosecution decided not to indict the pharmaceutical company, including deferred prosecution, on the grounds that ‘the rebate was a small amount or appeared to be a deviant act of an individual salesperson.’ However, it was also a controversial case as the Ministry of Food and Drug Safety announced that it would make its own judgment and take administrative action against some pharmaceutical companies.

2. Company N incident in 2016 - Variant rebate using academic journals

From 2011 to 2016, Company N was indicted on charges of holding discussions using medical journals and academic journals in the name of advertising expenses and providing about 2.5 billion won in money and valuables to doctors.

The investigation into this case began with the disclosure of an employee of a medical magazine, and the investigation began in earnest with the Seoul Western District Prosecutors' Office conducting a search and seizure. The prosecution argued that the ‘discussions and production of academic journals’ were ultimately ‘variant kickbacks’, but at trial, controversy continued over whether there was organized collusion and recognition of illegality.

What is noteworthy in this case is that relatively heavy sentences were sentenced to the working-level staff and professional academic journals, but the executives of Company N were declared not guilty and were acquitted. The prosecution claimed that it was an organized kickback case at the company level, but the court judged that there was insufficient evidence that executives or department heads were specifically reported to or involved in the act as it was an act led by working-level managers (PMs).

In addition, it was acknowledged that some kickback practices were exempted as the statute of limitations had expired, and that there was a possibility that the defendants were not aware of the illegality. In particular, in the field of rare diseases and anticancer drugs, the need for academic events to improve disease awareness was also taken into consideration.

3. 2018 ‘Five Pharmaceutical Companies’ Case – Multi-agency linked investigation

In September 2018, the Board of Audit and Inspection conducted its own audit of the results of the Seoul Regional Tax Office's integrated corporate and individual investigation, and after confirming the suspicion that five pharmaceutical companies provided a total of 37.4 billion won worth of monetary and in-kind rebates to doctors and pharmacists, it notified the Ministry of Food and Drug Safety (hereinafter referred to as the Ministry of Food and Drug Safety) of the need for an investigation.

Accordingly, the Central Investigation Team (Central Investigation Team) under the Ministry of Food and Drug Safety conducted a search and seizure of Company D's headquarters in December 2018, and the investigation began in earnest.

This case is characteristic in that it is a case of rebate detection linked to multiple agencies, leading to ‘National Tax Service tax investigation → Board of Audit and Inspection audit → Ministry of Food and Drug Safety investigation → transfer to prosecution.’ In addition, it is noteworthy that the Board of Audit and Inspection analyzed the tax investigation results, detected the suspicion of rebates, notified the relevant agencies, and initiated an investigation.

4. K Pharmaceutical incident in 2024, D Pharmaceutical incident in 2025

Recently, there were rebate-related incidents in 2024 and 2025. However, in both cases, the company denies the charges, and the facts have not been confirmed, so it is not considered appropriate to make specific comments. Therefore, we would like to replace the above incidents with other press releases.

5. Incident of medical device company G in 2024

Company G, a medical device company, was caught by the Fair Trade Commission on charges of providing a total of 3.7 billion won worth of clinical research expenses, academic activity expenses, and advertising expenses to 54 hospitals nationwide from 2016 to 2022 to increase sales of drug-eluting stents (DES) for coronary arteries.

Company G's DES sales increased more than 16 times from 300 million won in 2016 to 4.9 billion won in 2022, and it was confirmed that more than 90% of this was generated from hospitals with rebate contracts. The Fair Trade Commission imposed a fine of 287 million won on Company G along with a correction order in 2024.

It is well known that some rebate practices exist in the medical device industry, but the scale is usually relatively small compared to pharmaceutical companies. However, in this case, despite being a medical device company, the scale of the rebate was relatively large, and it is noteworthy that the company was sanctioned by the Fair Trade Commission, not an investigative agency.

5. Implications

There have been other large and small rebate incidents, but we ask for your understanding as we cannot discuss them all due to space limitations. If I get the chance, I will organize some more cases and let you know. Meanwhile, if we consider the series of events, the following trend is captured.

First, ‘whistleblowing’ is still the most common clue to the investigation (the cause that initiates the investigation).
Second, however, the clues in the above investigation are becoming more diverse.
Third, multi-agency cooperation is becoming routine.
Fourth, it is expected that various investigative techniques will be used in the future, such as analysis of HIRA's prescription data and use of tax investigation data.
Fifth, as mentioned in the previous article, government regulations continue to be strengthened. And it is expected that rebate regulations will continue to be strengthened in the future.

Summarizing the above, the importance of ‘compliance’ is bound to continue to increase in the future, and it seems that the industry needs to prepare for this as well.

On the other hand, if you look closely at the above cases, the number of cases in which the charges were acquitted is not less than you might think. Therefore, if you have been unfairly misunderstood about rebates, I would like to tell you that there is an opportunity to resolve these difficulties if you provide sufficient explanation during the future investigation process.

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[Contribution] Collection of rebate investigation cases of pharmaceutical and medical device companies and implications (link)