Switzerland`s Novartis, the world`s biggest maker of prescription drugs, is facing a tough administrative sanction that could possibly wreak havoc on its revenue in South Korea.

Korean health authorities are reviewing punitive measures, including a reimbursement suspension, to punish the global pharmaceutical company for its illegal rebate payment of 2.59 billion won ($2.32 million) to local doctors for four years since 2011. Separately, a criminal trial against the company is underway in Seoul, according to industry sources on Sunday.

“The principle punishment for illegal rebates is a reimbursement suspension, but we will finalize administrative sanctions against Novartis considering several factors such as rebate period and the existence of alternative generics,” said an official at the Ministry of Health and Welfare who declined to be named because the case is still under review.

Reimbursement suspension means Novartis prescription drugs will not be covered by health insurance for a certain period of time, and this will prompt patients to seek alternative drugs from other companies to reduce their out-of-pocket costs. In Korea, patients need to pay 30 percent of the price of a drug while the rest is covered by health insurance.

Even if the suspension period is not so long, doctors will shun expensive non-reimbursed drugs for patients, and those drugs would be kicked out of the market eventually, market watchers said.

The reimbursement suspension, if imposed, would be the first case since the introduction of a two-strike-out rule against a rebate-paying drug company in the country. The rule established in July 2014 stipulates a one-year reimbursement suspension for a first-time violation and complete exclusion from reimbursement for a second-time violation if the offence is committed again within five years.

Before the new rule, regulators punished violators by only cutting prices of drugs associated with rebate payment.

Earlier, the Korean Ministry of Food and Drug Safety separately imposed a three-month marketing suspension on Novartis on the same charges, freezing new sales of 42 products. But the suspension was not applied to the medications already shipped to local distributors before the imposition.

By Kim Hye-soon and Kim Yoon-jin

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