On July 13, 2012, the Seoul Central District Prosecutors’ Office charged and indicted 15 people, including the representative directors of two medical device agencies and officers of eight general hospitals, for violations of the Medical Device Act and the Medical Service Act. A special joint investigation unit tasked with investigating medical rebates uncovered a fraudulent rebate scheme for medical devices that defrauded the National Health Insurance Corporation of approximately 1.7 billion Korean Won (US$1.5 million).

According to the prosecutors, the hospitals overcharged the National Health Insurance Corporation by deliberately inflating the prices of the medical devices sold by the agencies to the hospitals. The agencies took 40% of the improper gains and the remaining 60% were paid to the hospitals as rebates.

The payments were falsely recorded in the hospitals’ books as “information fees”. This case is significant as it is the first crackdown on medical device rebates after the introduction of the “dual punishment system”. The dual punishment system is a new regulatory regime prohibiting and criminally penalizing both the giver and recipient of rebates or other economic benefits provided for the purpose of promoting sales of drugs or medical devices. The dual punishment system was introduced in the recent amendments to the Medical Service Act, the Medical Device Act and the Pharmaceutical Affairs Act that took effect as of May 27, 2010. Specifically, the statutes were amended as follows:

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