Complaint alleging that high sales allowances and sales returns on the income statements of four pharmaceuticals firms (Yung Shin Pharm. IND. Co., Ltd., Sintong Chemical Industrial Co., Ltd., Standard Chem. and Pharm. Co., Ltd., and U-Liang Pharmaceutical Co., Ltd.) in FY1998 and FY1999 indicated that the companies had violated the Fair Trade Law
Case:
Complaint alleging that high sales allowances and sales returns on the income statements of four pharmaceuticals firms (Yung Shin Pharm. IND. Co., Ltd., Sintong Chemical Industrial Co., Ltd., Standard Chem. and Pharm. Co., Ltd., and U-Liang Pharmaceutical Co., Ltd.) in FY1998 and FY1999 indicated that the companies had violated the Fair Trade Law
Key Words:
high sales allowance, drug price standards, drug price investigation, drug price differential
Reference:
Fair Trade Commission Decision of November 1, 2001 (the 521st Commissioners' Meeting); Letter (90) Kung Erh Tzu No. 9001902-005
Industry:
Drugs and Medicines Manufacturing (1822)
Relevant Laws:
Summary:
1. The Bureau of National Health Insurance (BNHI) forwarded to the Fair Trade Commission (FTC) a letter from the office of legislator Chen Chao-nan, together with the results of the BNHI's own price investigation into the practices of Yung Shin Pharm. IND. Co., Ltd. (Yung Shin), Sintong Chemical Industrial Co., Ltd. (Sintong), Standard Chem. and Pharm. Co., Ltd. (Standard), and U-Liang Pharmaceutical Co., Ltd. (U-Liang). The BNHI investigation indicated that Yung Shin's sales allowances and sales returns in FY 1999 totaled NT$1.2 billion, or roughly 33% of the company's sales revenue for the year. In the same fiscal year, U-Liang's sales allowances and sales returns came to more than 46% of the company's sales revenue. The Fair Trade Commission (FTC) launched an investigation to determine whether the named companies had violated the Fair Trade Law.2. The FTC's investigation revealed that the appearance of high sales allowances and sales returns on the FY 1998 and FY 1999 income statements of Yung Shin, Sintong, Standard, and U-Liang had to do with the companies' pricing and accounting procedures. When selling pharmaceutical products, the companies under investigation would first issue invoices reflecting prices based on the BNHI's price standards. Actual prices, however, varied from one medical institution to the next. Differentials between invoice amounts and actual selling prices were handled by the sellers in accordance with the relevant tax laws and accounting principles, resulting in high sales allowances and sales returns on their income statements. All evidence available to the FTC at this point indicates that the sales allowances and sales returns recorded by these companies on their income statements were part and parcel of the price conditions attaching to the transactions between the pharmaceutical companies and their customers. These conditions were arrived at through negotiation between the parties to the transactions. There is insufficient proof supporting the conclusion that the companies under investigation violated Article 19(iii) or 19(vi) of the Fair Trade Law. Accordingly, the FTC refrained from rendering a disposition.3. In order to resolve the problem regarding the differential between market prices and National Health Insurance plan prices, the BNHI on 20 January 1999 held a conference focusing on plans to revise National Health Insurance drug price standards, and a general consensus was reached at the conference. On 28 April 1999, the Department of Health announced adoption of the Guidelines for the Adjustment of National Health Insurance Payments for Pharmaceutical Products, which adopt a mechanism for reducing differentials to 15% within five years. In neighboring Japan, the health care system and health care policies are both very similar to those in Chinese Taipei. Similarities include moves to separate the practices of pharmacists and doctors, adoption of drug price standards, investigation of drug prices, and the setting of national health insurance payout standards. Accordingly, Japan and Chinese Taipei face very similar issues in this regard. Japan has succeeded between 1991 and 2001 in reducing the drug price differential to 2%. In Chinese Taipei, the BNHI is carrying out drug price investigations to gain a clearer understanding of actual market conditions. The BNHI is lowering its drug price standards every year, and should be able to reduce the drug price differential.Appendix:Yung Shin Pharm. IND. Co., Ltd.'s Uniform Invoice Number: 56065601Sintong Chemical Industrial Co., Ltd.'s Uniform Invoice Number: 43211700Standard Chem. and Pharm. Co., Ltd.'s Uniform Invoice Number: 71122503U-Liang Pharmaceutical Co., Ltd.'s Uniform Invoice Number: 44988454Summarized by Lin, Hsiao-Hung; Supervised by Lin, Gin-Lan