[Invest&Law]'7-Year Drug Price Litigation'... National Health Insurance Service vs. Unite Je Yak 2nd Trial Begins

NHIS "Deceived Authorities to Inflate Insurance Drug Prices"
1st Trial "Ordered to Pay 26 Billion KRW Including Interest" Ruling

The second trial of the 'drug price refund lawsuit' between the National Health Insurance Service (NHIS) and United Pharmaceutical has intensified. As the lawsuit has prolonged for seven years, if United Pharmaceutical's loss is confirmed, the compensation to be paid to the NHIS, including accumulated delayed interest, is expected to reach hundreds of billions of won.

On the afternoon of the 13th, the Seoul High Court Civil Division 37-3 held the first hearing of the second trial for the damages claim lawsuit filed by the NHIS against United Pharmaceutical and CEO Kang Deok-young.

Earlier, in 2017, the NHIS filed a lawsuit claiming 19.30941 billion won and delayed interest, alleging that "United Pharmaceutical falsified documents to make it appear as if they directly manufactured raw materials such as dexibuprofen and doxifluridine, which were smuggled in from 1998 until the raw material synthesis preferential system was abolished in 2012," thereby obtaining higher insurance drug prices. The raw material synthesis preferential system was a special measure introduced by the government in 1995 to encourage domestic pharmaceutical companies to develop new drugs.

This information was revealed through a whistleblower who was a former researcher at United Pharmaceutical, and United Pharmaceutical underwent multiple investigations related to the allegations. However, in the criminal trial, some evidence was deemed illegally obtained, leading to the acquittal of CEO Kang and others being finalized last year.

In the civil trial, the NHIS argued, "United Pharmaceutical deceived health authorities to have their raw material synthesis technology recognized, thereby receiving the highest drug price through the preferential system. They did not possess the technology from the beginning and smuggled raw materials to produce finished drugs," adding, "The NHIS had to pay the reduced drug price but suffered financial damage by paying the highest drug price."

The lawsuit prolonged as the NHIS added more target drugs during the trial and proceeded with a separate criminal trial. Whether the evidence submitted by the NHIS was legally valid also became an issue, as the evidence was based on prosecution investigation content that was not admitted as evidence in the criminal trial.

The first trial ruled in favor of the NHIS, stating, "United Pharmaceutical actively deceived health authorities," and recognized the validity of the evidence submitted by the NHIS. The court stated, "Although the evidence was deemed illegally obtained in the criminal trial, it does not necessarily mean the evidence is inadmissible in the civil trial," and added, "The NHIS, which filed the civil lawsuit, was not involved in the 'illegal search and seizure' issue raised in the criminal case."

Furthermore, the court recognized liability for damages for seven out of nine raw material drugs disputed by the NHIS. The court pointed out, "The preferential system in question was stipulated to apply only when the raw materials were directly produced," and "Considering the purpose of the preferential system, if the pharmaceutical company did not directly synthesize the raw materials, the preferential system should not have been applied."

The court ruled, "United Pharmaceutical, despite lacking the technology to directly synthesize, submitted false reports to receive the highest drug price from authorities under the preferential system," and "Subsequently, they smuggled raw materials to produce finished drugs while unjustly claiming medical benefits based on the highest drug price." Regarding CEO Kang, the court also recognized compensation liability, stating, "He made decisions violating the duty of care and loyalty as a good manager concerning the company's wrongdoing."

The court ordered, "United Pharmaceutical and CEO Kang jointly pay 12.15023 billion won and delayed interest." Including the delayed interest accumulated over the long lawsuit period, the compensation the NHIS is expected to receive is estimated to reach approximately 26 billion won.

Seoul High Court, Seocho-gu, Seoul.

Both the NHIS and United Pharmaceutical appealed the first trial ruling. However, United Pharmaceutical has already recorded the compensation recognized in the first trial as a loss in the second quarter accounting of this year.

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