'Low-price purchase incentive ineffective and detrimental'

"Low-price purchase incentive ineffective and detrimental to drug quality and nees urgent reform"

Rep. Joo-young Lee, “A low price-centered system conflicts with the government’s pharmaceutical industry fostering policy”

Rep.

 

Joo-young Lee

There is growing criticism that the government’s low-price drug purchase incentive policy should be overhauled due to its structural contradictions and low effectiveness.

 

The low-price purchase incentive, which is linked to the market-based actual transaction price reduction system, focuses on price rather than quality.

 

From the pharmaceutical companies’ perspective, the lower the actual transaction price (purchase price), the higher the likelihood of a price cut, rendering it difficult for them to actively participate in the policy.

 

Some critics have also raised concerns that the system could be exploited for illegal drug rebate practices, calling for a review of whether it should be fundamentally reformed or even abolished.

 

On the 3rd, Rep.

 

Joo-young Lee of the Reform Party, who is also a member of the National Assembly’s Health and Welfare Committee, said, “The low-price purchase incentive system was designed to enhance the financial soundness of the national health insurance and reduce patient drug costs, but it has become an outdated policy that no one welcomes anymore.” Rep.

 

Lee emphasized that if the government wants to establish a reasonable drug pricing system that both strengthens the pharmaceutical industry and ensures the stability of health insurance finances, it must first abolish policies that do not function in the actual healthcare field, such as low-price purchasing incentives.

 

Under Article 22 of the Enforcement Decree of the National Health Insurance Act, the Health Insurance Review and Assessment Service (HIRA) currently operates the incentive system that pays medical institutions (hospitals, clinics, and pharmacies) 70% of the difference between the reimbursement ceiling price and the actual purchase price when they buy drugs of the same ingredient, dosage, and formulation at a lower price than the insurance ceiling.

 

The program aims to reduce national health insurance expenditures, expand the use of generic drugs, curb excessive use of high-priced medications, and lower patient out-of-pocket costs.

 

It has been in effect since 2010.

 

However, Korean pharmaceutical companies and wholesalers argue that the system has failed to achieve these goals and contains inherent contradictions.

 

They have consistently demanded major reforms or the abolition of the policy.

 

Rep.

 

Lee saw eye to eye on these concerns, urging the government to make substantive policy changes.

 

At the industry level, critics argue that low-price purchasing incentives risk promoting an industry structure that prioritizes price over quality.

 

This is because such incentives reward companies based on how cheaply they can procure drugs, rather than rewarding them for the quality of the drugs themselves.

 

As long as the government maintains a policy that rewards cheaper supply, manufacturers will be incentivized to cut production costs and quality to produce low-cost drugs, sustaining a downward spiral in the market.

 

The pharmaceutical industry and drug wholesalers argue that the low-price purchase incentive system inherently contains a contradiction, as it links incentives to reductions in actual transaction drug prices.

 

They point out that the lower the actual transaction drug price becomes to qualify for the low-price purchase incentive, the greater the likelihood it will later be targeted for price reduction.

 

Consequently, no one is willing to trade at lower drug prices.

 

Healthcare institutions have long pointed out that for small and medium-sized hospitals, neighborhood clinics, and pharmacies—not large tertiary hospitals—the actual volume of low-price purchases is too small, resulting in a low perceived incentive effect.

 

Critics note that over 80% of incentives are concentrated in large tertiary hospitals and mid-sized facilities, often benefiting institutions engaging in “one-won bidding” practices.

 

Rep.

 

Lee stated, “Both the low-price purchase incentive and the actual transaction price reduction systems are built on a price-based structure, not on generic drug quality.

 

They contradict the government’s stated goal of fostering the pharmaceutical industry as a national growth engine and supporting global expansion.” Lee also warned of potential abuse of the system through illegal rebates or manipulation of prescription volumes to maintain sales of specific drugs.

 

Rep.

 

Lee concluded, “If the system has neither achieved its original goal of reducing health insurance expenditures nor contributed to the development of the pharmaceutical industry, the government should not leave it as is.

 

Rather, the government should actively consider abolishing it.

 

There is no reason to maintain a policy that no one supports and that only invites calls for reform or repeal.”