[Reporter’s View] CSO is a double-edged sword

Performance improvement vs increased burden of risk

Over the past few years, small mid-sized pharmaceutical companies and contract sales organizations (CSOS) have developed a strong symbiotic relationship.

 

Small and mid-sized pharmaceutical companies have provided work for CSOs, and CSOs have repaid the companies by improving their performance.

 

Due to this, many companies, especially small- and mid-sized companies, have partnered with CSOs.

 

Over the past few years, CSOs have become "the trend" for small- and mid-sized pharma companies, as their performance varied depending on whether they used CSOs.

 

Also, CSOs have expanded their role by specializing in sales for specific products or regions.

 

They have been praised for improving cost-effectiveness and profitability through flexible sales activities, but they have also been criticized that it has become a ‘breeding ground for rebates.’ It was constantly pointed out that CSOs were being utilized as a rebate delivery channel, hiding in the blind spots of the system.

 

Then, the CSO Reporting System emerged to address this issue.

 

A bill to amend the Pharmaceutical Affairs Act to require CSOs to report to the government and local governments passed the National Assembly in the first half of this year.

 

The revised Pharmaceutical Affairs Act will come into effect on October 19 next year Once implemented, the government will be able to hold pharmaceutical companies that signed contract sales agreements with CSOs accountable for the CSO’s deviant activities.

 

This means when rebates are made, not only the CSO but also the pharmaceutical company involved could be criminally punished as an "accomplice".

 

Even if the company avoids criminal penalties, it will be difficult to avoid administrative penalties because criminal penalties and administrative penalties are imposed separately.

 

The administrative penalty imposed on a Korean pharmaceutical company that was finalized in July this year is a good example.

 

Although the company was acquitted by the prosecution due to insufficient evidence for the rebate case that was discovered in 2016, the Supreme Court made the final ruling to impose a 3-month suspension on the sales of 14 items.

 

Therefore, cases of rebates made through CSOs may also be judged similarly.

 

Even if the companies avoid criminal penalties, they may still face strong administrative penalties.

 

Moreover, if multiple rebate cases are found at the same time, the administrative penalties may be accrued or raised.

 

For small- and mid-sized pharmaceutical companies, such rulings will be a hard blow.

 

In this sense, CSOs are now a double-edged sword for small- and mid-sized pharmaceutical companies.

 

They can improve performance but the companies will have to also bear the risk.

 

The time has come for pharmaceutical companies that have already built a symbiotic relationship with CSOs to make a choice.

 

Will the companies continue to work with CSOs that deliver high performance, or reduce the role of CSOs to mitigate risk?

 

The companies will need to make their decision quickly, as just over 10 months remain until the CSO reporting system comes into effect.