HONG KONG – A new anticorruption law in South Korea, known as the "Kim Young-ran Act," could have a significant and long-term impact on pharmaceutical companies, even if its focus is much wider than any one industry.

The aim of the Kim Young-ran Act is to root out widespread corruption that is common at the lower level of many industries in South Korea. It is one of the strictest anti-corruption laws to be implemented.

But while stringent, the vague clauses of the new law are confusing many industries, including the pharma sector. South Korea's pharmaceutical industry already has a "dual punishment system" in place, a system that has led to some of the biggest rebate scandals to date, including a recent case involving Novartis AG, which was charged in February with paying illegal rebates. (See BioWorld Today, Sept. 7, 2016.)

The dual punishment system is an anti-rebate legislation which came into effect in December 2010 to stop drug prices from hiking up.

The rebate two-out system is another law that came into effect in July 2014. Under the two-out system, if a company is charged with an illegal drug rebate offense more than twice, the drug would be eliminated from the health insurance remuneration list.

"From my understanding, the Kim Young-ran law is regarding the relationship with the governmental officers, including professors and reporters. The law itself isn't related to pharmacists and doctors, but of course, a doctor who is also a professor is [affected by] the law. The law is not specifically related to the pharma industry," Alex Park, a business development officer at Alteogen Inc., told Bioworld Today.

The formal name of the act, which came into effect on Sept. 28, is the "Act on Prohibition of Illegal Requests and Bribes" and builds on the existing Improper Solicitation and Graft Act.

Kim Young-ran, the former head of the Anticorruption and Civil Rights Commission (ACRC), first proposed the law in August 2012 to ban civil servants from accepting bribes. In a 2015 survey conducted by the ACRC, 60 percent of respondents said they believed South Korea was widely corrupt.

The legislation that came into effect covers more than 4 million public servants and employees of education institutions. The new law isn't limited to civil servants but also covers doctors in public hospitals, teachers and journalists as well, since bribery has been prevalent in those professions.

The broad anticorruption law prohibits a common practice among doctors and other workers at university hospitals of offering favorable treatment options to acquaintances, including the accelerated scheduling of surgery.

Doctors who are also professors – a common pathway for aging doctors – are also subject to the law.

"We believe that the law will be a turning point to create a fair, clean society and to enhance our national integrity," presidential spokesman Jung Young-kuk told media.

A problem with the new act, however, is that it can be difficult to understand and it is riddled with exemptions, which add to the confusion.

"It seems that exemptions of the [Kim Young-ran] law are currently receiving more attention. For example, when it comes to product demonstration meetings, pharmaceuticals are exempted," Lee Kyoung-kwon, a lawyer at South Korean law firm LK Partners, told BioWorld Today. "Unlike the KRW30,000 [US$27] limit for meals, in these product demonstration meetings [limited to pharmaceutical companies], meals can exceed KRW30,000 to under KRW100,000. This has been the requirement prior to the newly enacted Kim Young-ran law. Now there's a movement pushing for future health care, pharmaceutical and medical device-related laws to be synchronized with the new Kim Young-ran law."

IMPACT ON CSOS

In a 2014 survey conducted by the Korea Institute of Public Administration, 78.7 percent of respondents said that corruption among senior officials was serious. The survey also showed that 90 percent of the people believed corruption was serious among parliamentarians.

The new act bans accepting gifts worth KRW50,000 (US$45) or more, and meals of KRW30,000 or more, with the offender facing fines that don't exceed KRW30 million (US$27,307) and a maximum prison term of three years.

But many observers have found the new legislation too abstract despite a mobile app that helps people look up whether they are a potential target.

And for some in the pharmaceutical industry, the new law is impractical and could lead to seminars with expensive coffee that could cost KRW30,000 rather than a proper meal that costs KRW50,000.

Another blind spot in the new law is the proliferation of gift vouchers.

Confusion among companies aside, the new law is sure to impact contract sales organizations (CSOs) in South Korea, which have already suffered from the existing dual punishment system as well as the rebate two-out system.

CSOs are common strategic partners of pharmaceutical companies in the country, particularly for companies with strong product pipelines but little to no brand recognition. CSOs are known for using drug rebates to drive sales.

With the new law in place, CSOs could lose business.

"If the act proves to be effective, I doubt pharmaceuticals will risk involvements in drug rebates or personal requests. Instead, the pharmaceutical companies themselves would start to refuse briberies, using the law as an excuse," said Lee.