[Invest&Law] Korea United Pharm Wins Final Supreme Court Victory in NHIS Drug Pricing Lawsuit

Lawsuit Ends After Nine Years
Final Victory for Korea United Pharm

Korea United Pharm has won the final Supreme Court ruling in a nearly nine-year damages lawsuit filed by the National Health Insurance Service (NHIS) over 'preferential drug pricing for active pharmaceutical ingredient (API) synthesis.'

According to the legal community on June 10, the Civil Division 1 of the Supreme Court recently dismissed the NHIS's appeal without a substantive review in the damages suit brought against Korea United Pharm and CEO Kang Deok-Young. Dismissal without a substantive review is a system under which an appeal is rejected without a full hearing when there are no special grounds, such as a significant violation of law in the previous ruling.

As a result, the appellate court's decision is now final, which requires the NHIS to return 24,114,690,000 won and delayed interest—an amount received through provisional execution in the first trial—to Korea United Pharm.

NHIS Appeal Dismissed Without Review

This lawsuit began in 2017 when the NHIS filed a claim against the pharmaceutical company and CEO Kang. The NHIS argued that from 1998 until the abolition of the preferential API synthesis system in 2012, the company fabricated documents to make it appear as though it had directly produced APIs such as dexibuprofen and doxifluridine, thereby receiving higher insurance drug prices. The NHIS claimed a total of 19,394,100,000 won plus delayed interest.

The preferential API synthesis system was a special drug pricing policy introduced to encourage domestic pharmaceutical companies to directly produce APIs and accumulate technical know-how. For generics, the maximum price was reduced according to the order of listing on the reimbursement list, but if a company directly produced an API, it could receive a higher price for a certain period. The NHIS contended that the company did not meet the qualifications for this exception, but nevertheless deceived the health authorities and secured the highest drug prices.

The first trial ruled in favor of the NHIS. At that time, the court found that the company had actively deceived the health authorities and ordered the pharmaceutical company and CEO Kang to jointly pay 12,150,230,000 won plus delayed interest to the NHIS. The court also acknowledged the validity of the evidence provided by the NHIS, ruling that evidence judged as illegally obtained in a separate criminal trial did not automatically lose admissibility in a civil case. Following the first-instance ruling, the company paid approximately 24.1 billion won in principal and interest to the NHIS under provisional execution.

Appellate Court Overturns First Trial: "Insufficient Evidence for NHIS Claims"

The appellate court overturned the first-instance judgment and also rejected the NHIS's additional claim for damages. The court found there was insufficient evidence to conclude that the company lacked API synthesis technology, and that suspicions of smuggling raised by the NHIS were not sufficiently proven.

The appellate court stated, "Considering that the company completed product registration with the Ministry of Food and Drug Safety and applied for the special exception, and later filed a notification of change in manufacturing method, there is room to believe that, at least on paper, the company possessed API synthesis technology." The court added, "Although some internal meeting minutes and reports included expressions that could suggest a lack of synthesis technology, the court also sees room to interpret these as efforts to improve existing synthesis techniques."

Supreme Court, Seocho-gu, Seoul. The Asia Business Daily DB

With this Supreme Court decision, Korea United Pharm is no longer held liable for damages in civil court, following a not-guilty verdict in the related criminal case. In the criminal proceeding, some evidence was deemed illegally obtained, resulting in acquittal for CEO Kang and others. While the first civil trial partially recognized liability for damages independently of the criminal acquittal, the appellate court and the Supreme Court both rejected the NHIS's claims.

This content was produced with the assistance of AI translation services.