A Korean drugmaker whose illegal kickback sales practices were exposed by a KCIJ-Newstapa’s 2019 investigation has been sanctioned by the nation’s antitrust watchdog. The sanction comes three years and eight months after the Newstapa articles.
In August, the Korea Fair Trade Commission (KFTC) issued a corrective order and imposed a fine of KRW 3 million (USD 2,306) on Vivozon Pharmaceutical for providing cash in kickback to hospitals and clinics in Seoul in exchange for prescriptions for its drugs. At the time of the incident, the company was known as Inist Bio Pharmaceutical, which changed its name to Vivozon in February 2021.
In its decision, the KFTC pointed out that the illegal business practices of Vivozon Pharmaceutical were “a typical violation of the Fair Trade Act, because due to the nature of the prescription drug market, where consumers cannot purchase drugs directly, doctors' choice on certain drug depends not on the price or quality, but on the size and number of kickback and other unfair profits.”
This “distorts doctors’ choice of drugs, which is supposed to only consider the most suitable product for each patient, and the damage is ultimately passed on to the consumer,” the decision criticized.
In December 2019, KCIJ-Newstapa published articles in the series ‘Final Diagnosis: Kickback Addiction Disorder,’ which exposed the illegal business practices of Vivozon Pharmaceutical, then known as Inist Bio Pharmaceutical.
The salesperson who was instructed to deliver cash to doctors at the time had been interviewed by Newstapa over several times to blow the whistle, including occasions when he revisited different sites where he handed over the kickback with the reporters.
In December 2019, KCIJ-Newstapa published a series of articles on the illegal kickback sales of Vivozon Pharmaceutical, then known as Inist Bio Pharmaceutical.
‘Final Diagnosis: Kickback Addiction Disorder’ Articles in a series
The whistleblower testified that the drugmaker paid KRW 30 million in upfront support, or ‘landing fee,’ to Dr. Choi, who owned a dermatology clinic in Gangnam, Seoul, in 2016 in exchange for initiating the supply deal. The landing fee refers to illegal payments in which doctors are paid six months to a year's worth of prescription sales in exchange for entering a prescription contract for a drug from a particular pharmaceutical company.
According to the whistleblower, Inist Bio Pharmaceutical's then-CEO visited the dermatologist in person to deliver the landing fee. From then to 2019, the whistleblower provided cash every month ranging from 20 to 40 percent of the previous month’s prescription revenue.
During the course of Newstapa’s investigation, the whistleblower also reported the case to the National Human Rights Commission, which led to the KFTC's investigation.
In 2019, a salesperson from Vivozon Pharmaceutical, then known as Inist Bio Pharmaceutical, visited a location where he handed over cash in illegal kickback with a Newstapa reporter and shared his memories.
When KCIJ-Newstapa asked the company in 2019, the company responded that “the company’s management hadn’t ordered or managed any illegal business practices.”
However, this turned out to be a false statement. The KFTC's investigation confirmed that the methods, timing and management’s involvement in the illegal sales practices reported by Newstapa were all true. The company also admitted it during the watchdog’s investigations.
The whistleblower’s testimony included in Newstapa articles that the company made illegal accounting practices to fund cash for kickback was also confirmed by the antitrust watchdog.
In the decision, the KFTC wrote that it found Vivozon “paid sales expenses, also called the sales budget, as a type of promotional expenses, to salespeople to pass them to hospitals and doctors as kickback,” and that “this payment was concealed by the salespeople claiming false receipts.”
In 2019, a Newstapa reporter reviewed the details of illegal kickback budget, which the company wired to salespeople’s bank accounts.
The KFTC's investigation had its limitations. The watchdog set the investigation for the period from August 2016 to July 2019. During this period, the number of Vivozon’s client hospitals and clinics increased dramatically to 208 in 2019, from only 84 in 2016.
However, as a result of the investigation and deliberations, which took over a course of nearly four years, only two clinics were officially confirmed to have received illegal kickbacks.
Also, the size of fines imposed on Vivozon is meager. The KFTC calculates fines based on sales generated by the offense. However, the investigation found that the drugmaker’s internal data that could confirm each bribed doctor’s actual prescription records was lost worth two years. Through the limited amount of data, the KFTC ended up estimating the illegal sales to be approximately KRW 300 million (USD 230,515).
Based on the estimated illegal sales of KRW 300 million, the KFTC stated that it “applied the penalty rate of 1 percent as the violation is considered serious.”
It means that Vivozon Pharmaceutical ended up paying a fine of KRW 3 million, after generating at least hundreds of millions of won in sales through illegal activities.
The whistleblower who exposed the company's and his own illegal sales behavior has since left the company.
