Hansan Pharmaceutical Co., Ltd. and one other (Attorneys Lee Im-soo et al., Counsel for the plaintiff-appellant)

The Minister of Health and Welfare (Law Firm Gyeong & Yang, Attorney Yellow-sik, Counsel for the plaintiff-appellant)

January 12, 2005

Seoul Administrative Court Decision 2002Guhap24178 delivered on May 15, 2003

1. The defendant's appeal is dismissed.

2. The costs of appeal are assessed against the defendant.

1. Purport of claim

With respect to the plaintiffs' pharmaceutical products listed in the attached Table 1 of "The Schedule and the Maximum Amount of Benefits" of Article 2002-46 of the Notification of the Ministry of Health and Welfare announced by the defendant on June 29, 2002, the part that reduced the maximum amount of the plaintiffs' pharmaceutical products listed in the attached Table 1 of "The Schedule of Benefits for Partial Patients, the List of Benefits and the Maximum Amount of Benefits" shall be revoked.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Basic facts

This court's explanation on the above part is as stated in Paragraph 1 of Article 8 of the Administrative Litigation Act and Article 420 of the Civil Procedure Act, except for the addition of "no dispute between the parties" (which is the ground for recognition) and "no dispute between the parties". Thus, this court's explanation is citing it as it is by Article 8

2. Relevant provisions;

The entries in the attached Table-related regulations shall be as follows.

3. Whether the lawsuit of this case is legitimate

The reasoning for this court's explanation concerning the above part is as stated in Paragraph 2 of the reasoning of the judgment of the court of first instance, with the exception of the dismissal of part of it as follows. Thus, it is accepted in accordance with Article 8 (2) of the Administrative Litigation Act and Article 420 of the Civil Procedure Act.

A. The following contents are added to “A. Defendant’s main safety defense”, and each of them is referred to as “A. Whether the notice of this case is subject to appeal litigation” and “B. Plaintiffs’ eligibility as a party”, respectively.

“A. The Defendant’s main defense to the safety

The notice of this case is merely a general and abstract administrative rule that calculates the amount of medical care benefit costs in the National Health Insurance Corporation, etc. and does not directly affect specific rights and duties or legal interests. Thus, the above notice does not apply to medical care institutions that are parties to the health insurance system, the Corporation, and the subscribers, etc., and does not apply to the plaintiff as a pharmaceutical company. The right to apply for the adjustment of the maximum amount of medicines publicly notified to the plaintiff as well as the pharmaceutical company and the medical care institutions, etc., which are not direct parties to the contract of medical care benefit costs, are merely a discretionary procedure for gathering opinions, and thus the pharmaceutical company like the plaintiffs is merely merely a discretionary procedure for gathering opinions, and they do not have legal interests and indirect and economic interests related to the adjustment of the maximum amount of medicines under the notice of this case. Accordingly, there is no standing to seek the cancellation of the above

B. The fifth page of the judgment of the court of first instance is the “standards for determining and coordinating the act, etc. which are not determined” as the “standards for determining and coordinating the act, etc. which are not determined” (hereinafter “public notice of the standards for mediation”).

C. Article 3(2) provides that "The right to file an application for adjustment shall be granted to the applicant for adjustment, and the application for adjustment shall be made within 60 days from the date of the application for mediation unless there is a justifiable reason, and the defendant shall make a practical review of the maximum amount and report the result thereof to the defendant within 90 days from the date of the application for mediation unless there is a justifiable reason. Article 20 provides that "In light of the fact that the adjustment of the maximum amount may be adjusted from time to time, the right to file an application for adjustment may be added to "the right to file an application for adjustment of the maximum amount, such as exchange rate fluctuations, or any other internal and external factors or calculation of the maximum amount is deemed significantly unreasonable."

4. Whether the notice of this case is lawful

A. The parties' assertion

(1) Under the current real transaction price redemption system, the Plaintiff, in principle, should adjust the upper limit amount of medicines by weighted average method, which divides the total purchase amount of all medical care institutions by item based on the actual purchase price of medical care institutions confirmed through post-management as a result of data on actual purchase prices submitted by all medical care institutions and from time to time, and exceptionally, in cases where it is confirmed that the total purchase price of all medical care institutions was supplied at a significantly lower price than the average market price with other wholesalers, it can only be used as the data for adjusting the upper limit amount. However, the Plaintiff reduced the upper limit amount of the relevant medicines by applying the reduction rate after investigating only the supply price of some wholesalers, and calculating the lower limit which is difficult to obtain based on the discount rate of the supply price. This is in essence impairing the principle of the real transaction price redemption system, which is to adjust the average average market price of the medical care institutions by adjusting the upper limit amount of the actual market price. Thus, the instant public notice of this

(2) As to this, the Defendant has a broad discretion in determining the upper limit amount of medicine under the Act and the Enforcement Decree, and the medical care benefit standard rules and adjustment standard announcement made to secure objectivity and rationality are merely internal business performance standards of the Defendant and do not have any external effect, and it is practically impossible to follow the weighted average method of calculating the actual purchase price of the entire medical care institution when reducing the upper limit amount through the follow-up management method, and it is in violation of the purpose of the follow-up management system. Thus, the notice of this case, which reduced the upper limit amount with reasonable standards through the result of the fact-finding survey of the wholesale company, is lawful as it is insufficient to deviate from and abuse of discretionary power. Even if the part of the notice of this case is illegal, the lower limit amount reduction measure for the above pharmaceutical was to reconstruct the national health insurance finance facing the distress crisis and to reduce the insurance premiums of the majority of the subscribers, which are the national health insurance holders, and thus, it would result in considerable failure to meet the public welfare if it is revoked.

(b) the relevant regulations;

○ Method of adjusting the upper limit amount under Article 13(2) of the Criteria for Determination and Coordination of Undecided Acts, etc.

Article 13 (Adjustment of Maximum Amount)

(2) The method of adjusting the upper limit amount shall be as follows:

1.The upper limit amount shall be adjusted to the weighted average price by item of the actual purchase price of a medical care institution, provided that the actual purchase price determined by an open competitive tender in a hospital level or higher medical care institution is not reflected in the upper limit amount adjustment.

4. Where it is confirmed that a manufacturer (importer) of medicines has supplied a specific wholesale business establishment at a remarkably lower price than the average market price with other wholesale business establishments, such a fact may be utilized as data for the adjustment of the upper price.

(c) Fact of recognition;

(1) The maximum amount of the instant medicine by public notice of an existing medicine amount with respect to each of the instant medicine listed in the “Items” column in the attached Table 1, which the Plaintiffs manufacture and supply (hereinafter “instant medicine”) was the amount indicated in the “amount” column in the attached Table 1.

(2) On February 2002, the Defendant investigated the actual condition of the transaction of a specific drug between a pharmaceutical company and a regional total market for a specific item (including a wholesaler, name, and product wholesaler who conducts business activities and sales promotion activities on behalf of a specific medical care institution in a certain area on behalf of a pharmaceutical company) and confirmed on the basis of this, until April 2002, that the 16 and 37 medical care institutions (15 and 22 medical care institutions) provided the fact that the actual transaction of an insurance drug in 201 was conducted "the actual condition of the transaction of the instant drug" against 16 and 37 medical care institutions (15 medical care institutions and 22 medical care institutions). The Plaintiffs provided 4 or 9 wholesalers, such as the same, water, and 9 as indicated in the attached Table 2 list, at each price discounted by each of the wholesale businesses listed in the existing list 2's respective wholesale businesses.

(3) Based on the above findings of the investigation, the Defendant determined that the Plaintiffs supplied the medicine at a remarkably lower price than the average market price with other wholesalers, and decided to adjust the upper price of the existing pharmaceutical products related to the medicine of this case under Article 12(2)4 of the Adjustment Criteria Notice. The method of adjustment was to calculate the upper price of the medicine of this case by calculating the upper rate of the average discount rate (which shall not exceed 5% in cases where the price is above 5%, 5% in cases where the price is above 5%) of the remaining businesses excluding the relevant businesses at the highest discount rate of the transaction wholesalers subject to the above investigation by item of the medicine of this case, and to reduce the upper price of the medicine of this case by the above reduction rate (hereinafter “Adjustment formula”). However, the above reduction rate was calculated by calculating the upper rate of 10% in 50 meters and 50 meters and 00 meters in 1g in bit, which is confirmed by the supply price of the medicine of this case from the above small wholesale business.

(4) On June 20, 2002, after deliberation by the Health Insurance Policy Deliberation and Mediation Committee on the above proposal, the Defendant publicly announced the amount applying the above reduction rate as the maximum amount of the medicine of this case on June 27, 2002.

(5) Meanwhile, in the sales of drugs, there are cases where manufacturers and suppliers of drugs engage in a transaction by directly selling and managing with national medical care institutions and wholesale and retail shops. However, in the case of a total wholesale market, pharmaceutical companies recognize profit rates, including sales expenses and general management expenses, as a practice in the pharmaceutical company, and the ratio of sales expenses and general management expenses in the pharmaceutical industry to the sales and general management expenses in the pharmaceutical industry is considerably higher than that in the general manufacturing industry (in the case of 2000, the average sales and general management expenses in the manufacturing industry are 12.2%, while the pharmaceutical industry reaches 34.58% in the case of the pharmaceutical industry).

[Ground of Recognition] No dispute between the parties, Gap evidence Nos. 1, 2, and 3-1, 2, 4, 7, 8, 11-1, 2, 15, 17, Eul evidence Nos. 12-1, 2, 15, 16-1 through 5, and the purport of the whole pleadings

D. Determination

(1) Criteria for determining illegality

According to the relevant provisions, such as the Act, the Enforcement Decree, the Medical Care Benefit Standard Rules, the Mediation Standard Rules, and the Public Notice of Price Calculation of Medicines, the defendant has discretion to reduce the upper limit amount of the medicine subject to investigation on the basis of the on-site investigation of the medicine subject to health care benefit notified in advance. However, if the procedure, contents, etc. of the reduction do not comply with the above-mentioned statutes and regulations and the purport and provisions of each public notice, and it can be objectively deemed that it considerably lacks validity under the social social norms because it is unfair from an objective point of view, it is unlawful as it deviates from and abused the discretionary power (if the Medical Care Benefit Standard Rules supplement the function of supplementing the contents of the Act and the Enforcement Decree, it can be deemed that the regulation becomes effective as an external binding legal order if it is combined with the above guidelines and procedures for determining the purchase price of the medicine subject to the delegation of Article 24(3) of the Enforcement Decree or the Medical Care Benefit Standard Rules, it is merely an abuse of discretionary power of the Ministry of Health and Welfare, and thus, it is merely an abuse of discretionary power and public notice.

(2) Whether the discretionary authority is deviates or abused or not

(A) In principle, according to the relevant provisions, such as the Act, the Enforcement Decree, the Medical Care Benefit Rule, the Regulation, the Adjustment Criteria Notice, and the Medical Care Benefit Price Calculation Notice, etc., the defendant shall calculate the weighted average price of the medicine subject to medical care benefit by item (the amount calculated by dividing the aggregate of the actual purchase by the total purchase amount) based on the actual purchase price, etc. of the medical care institution and the medical care institution confirmed through the management of the medical care institution and the medicine supply business entity selected as the subject of after-management from the medical care institution, and then adjust the upper limit of the medical care benefit subject to medical care benefit subject to medical care benefit pursuant to the above provisions. In a case where it is confirmed that the pharmaceutical manufacturing business entity supplied the specific wholesale business

In this regard, the defendant argues that the above weighted average price of actual purchase prices of medical care institutions provided in subparagraph 1 can be adjusted in a way different from the weighted average price of medical care institutions provided in subparagraph 4 in the event of occurrence of a cause of adjustment under subparagraph 4. As such, ① regular adjustment of the price of actual purchase from medical care institutions is based on data, etc. in connection with the regular adjustment of the upper limit amount, ② adjustment of the upper limit amount is listed in Article 13 (2) of the Public Notice of the Adjustment Standards provides that "the upper limit amount shall be adjusted by weighted average price of actual purchase prices of medical care institutions," but subparagraph 1 of the above provision provides that "the upper limit amount may be used as data for the adjustment of the upper limit amount," while subparagraph 4 provides that "the purpose of subparagraph 4 of the above provision is to consider that the above weighted average price of actual purchase prices of medical care institutions can be adjusted by adding the upper limit amount of purchase prices of medical care institutions to the upper limit of the upper limit amount of purchase prices of medical care institutions, regardless of the existing method of purchase price of sale price of medical care institutions."

(B) Therefore, as acknowledged earlier by the Defendant, if the Plaintiffs investigated and confirmed the fact that the instant medicine was supplied at a remarkably lower price than the average market price with other wholesalers, the Defendant shall calculate the weighted average price of each of the instant medicine based on the following factors: (a) the location of the distribution structure in which the Plaintiffs supplied the instant medicine to the medical care institution; (b) the actual purchase price of the medical care institution supplied the said medicine by the specific wholesalers; (c) the total quantity and total price supplied by the Plaintiffs directly or through wholesalers to the medical care institution; (d) the transaction volume and transaction price at the specific wholesalers and pre-investigations of the survey; (e) the volume and transaction price at each of the said specific wholesalers and pre-investigations of the said medicine; (e) the total transaction volume and transaction price at each of the said drug; (e) the regional distribution of the said wholesalers and pre-investigations traded by the said survey establishments; and (e) the Defendant’s purchase price from ordinary medical care institutions and the transaction details confirmed by the management establishments.

(C) However, according to the above facts, the defendant has no choice but to calculate the price of the instant medicine by item without calculating the weighted average purchase price of the medical care institutions for the instant medicine. It is difficult for the defendant to uniformly calculate the reduced price of the instant medicine based only on the discount rate of the above wholesale business establishment (with respect to three medicines based on the comparison method as above, the reduced price is presumed based on the above adjusted formula) and applied the above adjusted maximum price of the instant medicine. The defendant's method of adjusting the discounted price of the medicine by the above adjusted formula is not to calculate the weighted average price of the medical care institutions for the instant medicine, but to calculate the discounted price of the instant medicine based on the discount rate of the Plaintiffs' price of the medical care institutions, and it is also consistent with the purport that the defendant would have no choice but to consider the reduced price of the medicine in light of the fact that there is no clear need for the above adjusted market price of the instant medicine in light of the fact that there is no reasonable need for the above adjusted price of the relevant medical care institutions to reflect the price of the medicine in the general discount rate of the medicine purchase and sale price of the instant medicine.

(D) Therefore, the defendant's act of abusing and abusing discretion in reducing the maximum amount of the drug of this case in relation to the maximum amount of the drug of this case among the notice of this case.

(3) Whether a ruling of assessment is necessary

In the event that an administrative disposition is unlawful, in principle, cancellation or change of such disposition is an exceptional case. If the cancellation or change of such disposition is considerably inappropriate for public welfare, the circumstance that such cancellation is not permitted can be determined ex officio on the basis of various circumstances shown in the records even in the absence of clear arguments by the parties. However, whether it is considerably inappropriate for public welfare, which is the requirement thereof, should be determined by comparing and comparing the necessity of cancellation or change of such illegal administrative disposition and the situation contrary to public welfare which may arise from such cancellation or change (see Supreme Court Decision 98Du4061 delivered on May 8, 1998). The cancellation of the upper limit amount of the medicine of this case under the public notice of this case may cause inconvenience due to the settlement of the subscribers' charges related to the above medicine, and thus, it is anticipated that the substantial purchase price of the medicine in the medical care institution will be accurately examined and reflected, and thus, it is likely that the Plaintiff’s subsequent increase in the burden of financial burden on the subscribers and the public health insurance company’s ex officio due to the considerable price of the medicine of this case.

5. Conclusion

Therefore, the plaintiff's claim of this case is accepted on the ground of its reasoning. The judgment of the court of first instance is just and it is dismissed as it is without merit. It is so decided as per Disposition.

Judges Mobile-Smoking (Presiding Judge)