Pharmaceutical Company Refunds Are Not Subject to 'Risk-Sharing' Insurance Payments

“No Notice Required for Non-Refund Eligibility
Not a Breach of Insurer's Duty to Explain”

The Supreme Court has ruled that the refund under the ‘risk-sharing agreement’ between the National Health Insurance Service and pharmaceutical companies does not fall under the insurance benefits covered by indemnity health insurance. The Supreme Court also determined that the insurer is not in breach of its duty to explain even if it does not notify the customer in advance that the insurance money is not subject to a refund.

The Civil Division 1 of the Supreme Court (Presiding Justice No Tae-ak) affirmed the lower court’s partial ruling in favor of Plaintiff A in the insurance claim lawsuit appeal (2024Da223949) filed against Meritz Fire & Marine Insurance on the 11th of last month.

[Image source=Beomryul Newspaper]

In October 2016, A entered into an insurance contract with Meritz Insurance under the name of his spouse. A’s spouse received the anticancer drug ‘Keytruda Injection,’ which was administered under the ‘risk-sharing system.’ The risk-sharing system is a mechanism where pharmaceutical companies partially share the uncertainty regarding the efficacy and effects of new drugs or the impact on insurance finances. It has been implemented since 2014 to uphold the principle of selective reimbursement of cost-effective drugs while improving patient access to expensive anticancer drugs without alternatives.

The type of risk-sharing system at issue in this case is the ‘refund-type risk-sharing system,’ where the pharmaceutical company refunds a certain percentage of the total claimed amount for the drug to the National Health Insurance Service. Accordingly, A’s spouse was scheduled to receive a partial refund of the drug cost from the pharmaceutical company. A claimed that this refund should be included in the ‘out-of-pocket expenses,’ arguing that the total amount the insurer should pay was 36 million KRW, and demanded the insurer pay the 14 million KRW that had not been paid.

A’s argument was based on the claim that the risk-sharing refund was not incurred ‘during inpatient treatment,’ was paid afterward, was not a medical benefit under the National Health Insurance Act, and was paid according to risk-sharing rather than medical expense sharing, so the insurer should compensate the patient for the entire out-of-pocket amount, including the risk-sharing refund.

The insurer countered, stating, “The refund is money to be returned, so it cannot be considered the actual out-of-pocket expense borne by the patient, and compensating this through insurance violates the principle of prohibition of unjust enrichment in non-life insurance.”

The first trial court ruled in favor of the plaintiff (A), stating, “The refund is subject to insurance payment, and even if it is not, the defendant has not proven that it explained this.”

The appellate court accepted the defendant’s argument, ruling that “the refund is not subject to insurance payment, and the defendant has no explicit or explanatory obligation,” ordering the plaintiff to be paid 2.6 million KRW.

The Supreme Court’s judgment was the same as the appellate court’s. The Supreme Court stated, “The amount refunded to the insured by the pharmaceutical company under the risk-sharing system is not the actual medical benefit cost borne by the insured. This special contract is a type of non-life insurance, which compensates for the insured’s property damage caused by an insured event. Therefore, providing a benefit that exceeds full compensation for the insured’s loss would contradict the principles of the non-life insurance system.”

It further explained, “The relevant policy clause covers only the portion of medical benefit costs under the National Health Insurance Act that the insured ultimately and actually bears. Amounts refunded to the insured by the National Health Insurance Service or pharmaceutical companies under the risk-sharing system, which do not correspond to actual costs borne by the insured, are not included in the insurance payment subject to this policy clause.”

Moreover, “Since the insurance payment subject of this special contract is property damage, and it is generally and commonly foreseeable in transactions that no profit beyond compensation for the damage can be obtained, the fact that the refund amount is not included in the damage compensated by this insurance contract does not fall under the defendant’s explicit or explanatory obligation,” the court ruled.

Hong Yoon-ji, Legal Times Reporter

※This article is based on content supplied by Law Times.