Tightened rebate rules pressure innovative pharma certifications

Will the reform of the Innovative Pharmaceutical Company certification plan institutionalize provisions for “due consideration of corporate compliance management”?

“Reviews for certification revocation must reflect whether the misconduct was ‘corporate liability or individual misconduct’”

Failure to reflect this could hinder self-regulatory efforts and lead to increased circumvention due to expanded CSO sales

As the Ministry of Health and Welfare designs a reform of the innovative pharmaceutical company certification criteria, the pharmaceutical industry is raising concerns that the revised framework must include a system capable of reflecting companies’ self-regulatory efforts in compliance management, such as the prohibition of illegal rebates.

The argument is that the reform plan must explicitly include provisions allowing the certification review process to consider a corporation’s efforts to prohibit rebates when illegal rebates are provided or detected due to individual misconduct by sales representatives, despite thorough management and supervision by the company itself.

The logic behind this is that incorporating such provisions into the reform plan would prevent cases where certification is unfairly revoked due to rebates in which the corporation was not involved, while also creating incentives for pharmaceutical companies to operate internal compliance systems and lead self-policing efforts against rebates.

According to the pharmaceutical industry and the ministry on the 20th, an amendment to the administrative notice improving the certification review criteria for Innovative Pharmaceutical Companies will soon be released for public comment.

The MOHW plans to incorporate a revised statute of limitations for rebates, which would exclude illegal rebates occurring “more than five years prior” to the date of certification or recertification following the implementation of the reform plan.

This is intended to encourage pharmaceutical companies’ commitment to developing innovative new drugs by not linking the revocation of Innovative Pharmaceutical Company certification to illegal rebates that occurred too long ago.

However, the pharmaceutical industry argues that, in addition to this five-year rebate exclusion rule, the reform should also contain a mechanism to address the unintended consequence where pharmaceutical companies that have made sufficient efforts to prevent illegal rebates still face unconditional certification revocation, following the exemption for rebates older than five years.

In other words, even where a company has established systems for monitoring and managing rebate prohibitions and has worked diligently to maintain compliance, it should be guaranteed the right to present a defense during the certification revocation review process if a rebate occurred due to the misconduct of an individual sales representative.

On this, the industry said, “We are not asking for all rebates stemming from individual sales representatives’ misconduct to be automatically excluded from grounds for certification revocation. Rather, we are asking that an administrative track be established to allow for due consideration of the corporation’s efforts toward compliance-oriented management.”

The reason for this is that if this provision is not reflected in the reform plan, pharmaceutical companies’ efforts toward compliance management to prohibit rebates will not be reflected at all during certification revocation reviews. This would increase the need to contest the unfairness of certification revocation in court, potentially leading to a significant rise in unnecessary administrative revocation lawsuits between pharmaceutical companies and the MOHW.

In particular, pharmaceutical companies point out that the current regulations under review by the MOHW, which hold corporations jointly liable for the personal illegal acts of their internal sales representatives, while specifying that administrative sanctions for illegal rebates by Contract Sales Organizations (CSOs) should be imposed solely on the CSOs without linking them to the corporations, raise concerns that this could encourage pharmaceutical companies to abandon their own sales organizations and shift to CSO-based sales operations.

In addition, as the ministry’s current drug pricing reform proposal moves in the direction of strengthening preferential measures based on whether a company is certified as an innovative company, there is concern that the management damage to companies whose certification is unfairly revoked will become far greater than before if no provision is included to reflect compliance management efforts.

An industry official said, “If companies that have internal rebate-prevention systems and have made genuine efforts to control illegal conduct are judged under the same certification revocation standard as companies that do not implement compliance management, then the incentive for firms to eliminate illegal practices on their own disappears. There is also concern about the adverse effect that, as a disparity in administrative penalties arises between a pharmaceutical company’s internal sales staff and external CSO sales staff, if pharmaceutical companies decide to reduce the risk of administrative penalties by relying on CSO sales, the risk of circumventing regulations through backdoor rebate practices will increase.”

Meanwhile, it appears unlikely that this reform proposal will include a provision to convert the revocation standard for innovative company certification in rebate-related cases into a demerit-point system.