"Reference pricing will activate sales of generic drugs"

and break collusive ties between doctors and generic companies

NA member Youngseok Seo’s policy proposal …”Encourage competition between generic companies with autonomous pricing rather than pricing by order of entry”

A pharmacist-politician Seo Young-Seok of the Democratic Party of Korea criticized the generic drug policy failure of the government, saying that Korea should also aggressively implement the ‘reference pricing system’ used in the US and Europe to break collusive ties between doctors and drug companies and lead the generic policy system on the road to success.

 

The basic notion is that the authorities should implement supply regulations to lower the price of generics while regulating the demand to encourage the increased use of cheaper generics and save NHI finances.

 

Seo said that the pharmaceutical expenses can be drastically reduced by reducing the price of generics through reference pricing and profit control and drastically increasing the use amount through systems such as generic incentives for doctors and pharmacists’ generic substitution.

 

On the 6th, Dailypharm analyzed the joint policy report ‘Suggestions on pharmaceutical policies’ that Seo published with a social co-op ‘GungangBut.’ In the report, Seo said that as of 2019, the finished product market accounts for 19.8 trillion won’s worth of the 22.3 trillion won domestic pharmaceutical industry (finished·API drugs).

 

In particular, only 1.7% of the domestic pharmaceutical companies that manufacture finished products produced more than 500 billion won’s worth of products, and the most, 31.9%, produced less than 1 billion, followed by 20.1% that produced 10 billion to 50 billion won’s worth of products.

 

Seo believes that generics can be the source for reducing NHI finances as it has a lower price with the same efficacy.

 

In this sense, Seo stressed that supply-side regulations that set the price of generic drugs as low as possible, as well as demand-side regulations that encourage the use of inexpensive generic drugs, should be implemented together.

 

For this, Seo said that a mechanism in which a lower price ensures market share is essential for market competition between generic developers to work and encourage pricing competition between the companies.

 

More specifically, Seo asked the government to impose demand regulations so that products that voluntarily cut prices are used in the market instead of the current supply regulations that set generics’ prices in the order of entry.

 

Under the current structure, the lowest-priced generic drugs are not used much because the doctors prescribe a drug from a specific pharmaceutical company regardless of the price level.

 

“The reality is that it is more advantageous for the pharmaceutical companies to maintain their high drug price and give rebates to doctors rather than lower their drug prices.

 

This is why there is no pricing competition between generics, and no health insurance savings are taking place.” As a solution, Seo proposed using the reference pricing system as a policy to reduce NHI expenditures by activating the use of generics.

 

The reference pricing system refers to a system in which a certain reimbursement level is set for all drugs with the same efficacy and that level of the drug price is covered by NHI finances, while the patient bears the difference in high-priced drugs that exceed this.

 

To implement the reference pricing system, Seo said we would first need to establish a decision-making system that goes from doctor's prescriptions - pharmacist's generic substitution and information provision - patient’s information acceptance and selection.

 

She pointed to various reasons such as low trust in generic drugs, quality distrust about low-priced drugs, and infringement of doctors' prescriptions’ rights as to why the generic drug policies have failed and financial savings are not being achieved due.

 

If the reference pricing system is implemented, patients will be prescribed drugs in need regardless of brand or ingredient name, and pharmacists will be required to provide generic substitutions, and patients will be given pricing information based on the reference price.

 

Seo also said that the reference pricing system allows patients to express their opinion in choosing their prescription drugs, and pay an additional fee when choosing a drug that exceeds the reference price or receives an incentive of paying no out-of-pocket cost when choosing a drug below the reference price.

 

“The reference pricing system will ultimately allow the government to reduce NHI finances by inducing pricing competition by breaking collusive ties between doctors and pharmaceutical companies and activating the use of drugs that are priced at the reference price level.

 

It also has the advantage of preventing the mushrooming of generics, regaining the public’s trust, and providing an opportunity to make patient-focused decisions," said Seo.

 

Seo added, “We can also expect the system to eradicate negative pharmaceutical sales activities and contribute to diversifying the domestic industry that is currently focused on generic production without competition.

 

Also, the system will allow Korea to achieve substantiality by diversifying and enriching the industry with R&D-focused companies and generic companies.