Implementation of the drug price reform may be delayed to next year

MOHW's revised proposal draws attention... Pharmaceutical industry urges “avoid mechanical, uniform price cuts”

Yoon Kim, “Need for fine-tuned price reductions by therapeutic class, like hypertension, hyperlipidemia, and antibiotics.”

The Ministry of Health and Welfare plans to finalize its drug pricing reform proposal that focuses on lowering prices of already-listed generics while granting pricing incentives to innovative pharmaceutical companies through a special one-point meeting of the Health Insurance Policy Deliberation Committee (HIPDC) review in early to mid-March.

However, the government is reportedly considering postponing the implementation timeline from the originally planned July this year to January next year.

The significant backlash from the domestic pharmaceutical industry against the drug pricing reform plan appears to be the reason the MOHW decided in February to postpone submitting it to the HIPDC subcommittee and plenary session, and is now reviewing whether to defer the implementation date from July this year to next year.

Nevertheless, the MOHW remains steadfast in its plan to submit the drug pricing system reform proposal, which contains specific generic drug calculation rates, to the HIPDC this month (March) to finalize the drug pricing policy direction.

A ministry official said on the 3rd, “It is true that we are reviewing a plan to postpone the implementation of the drug pricing system reform plan until next year, but we will complete the submission and vote on the reform proposal at the HIPDC this month.”

In effect, even if implementation is delayed, the policy framework itself is expected to be finalized soon. This means the calculation rate for generic drug price reductions and the detailed regulations for preferential pricing for innovative pharmaceutical companies will be determined at this month's meeting.

Currently, the ministry has proposed lowering the price calculation ratio for already-listed generics from the current 53.55% to the 40% range. The reform proposal also includes pricing incentives depending on whether a company is certified as an “innovative pharmaceutical company,” while allowing non-certified firms to receive preferential pricing based on their clinical trial performance and contribution to supplying drugs with unstable supply.

Domestic pharmaceutical companies have criticized the proposal, arguing that it fails to adequately reward firms that invest in facilities for high-quality drug production and in innovative R&D for new drugs. They contend that it instead imposes the same level of price reduction shock on companies that have made no such investments and focused solely on generating revenue through contract generic production.

Particularly regarding the MOHW's decision to finalize the drug pricing system reform plan at the March HIPDC meeting and postpone its implementation from July this year to next year, the domestic pharmaceutical industry is criticizing that “the specific policy content matters far more than delaying the implementation date.”

They argue that if the government reduces the generic pricing ratio to the 40% range, companies may abandon the production of low-margin drugs, leading to job losses and reduced capacity for new drug R&D.

Based on the current 53.55% generic drug pricing rate, the position of most domestic pharmaceutical companies is that the MOHW must set the rate at a minimum of 48% to allow them to maintain reasonable operations without changing their current business status.

In particular, mid-sized and top-tier pharmaceutical companies, including those certified as Korean innovative pharmaceutical companies, state that the Korean pharmaceutical and biotech industry can only grow if drug prices for companies that have sustained value-based investments for decades are preserved, while prices for contract-manufactured generic-focused companies that have made no investments are significantly reduced.

In other words, they insist the reform must move away from across-the-board mechanical price cuts and adopt a differentiated system reflecting actual investment and contribution.

This is why attention is rising on whether the reform will include measures that foster innovative R&D environments crucial to the growth of the Korean pharmaceutical industry.

As a result, the pharmaceutical industry is closely watching the detailed direction and revisions of the reform proposal expected to be presented at the one-point HIPDC meeting in early to mid-March.

In the National Assembly, lawmakers like Yoon Kim of the Democratic Party of Korea have pointed out the incompleteness of the MOHW's drug pricing reform plan and called for a revised plan.

While praising the Lee Jae-myung administration for deciding on the first significant overhaul of the domestic drug pricing system since the 2012 blanket generic price cuts, Rep. Kim also raised the need for a ‘more refined reform plan’.

He argued that generic drug prices should be adjusted more carefully by therapeutic class, referencing price levels in 8 countries already being referenced by Korea.

However, the drug pricing system reform plan announced by the MOHW on November 28 last year involves a blanket adjustment of approximately 40% for drugs whose prices have seen little change since the 2012 blanket price cuts.

Rep. Kim has urged the MOHW to submit a revised proposal that sets differentiated reduction rates by therapeutic class instead of applying uniform cuts.

Rep. Kim stated, “To enhance the innovation of the pharmaceutical industry through drug pricing policy, drug price reform should not be a standalone policy but part of a package policy that can foster innovative pharmaceutical companies. The core issue is not simply price cuts but addressing excessive marketing competition through CSOs, curbing the proliferation of generics, and identifying price distortions created by competition centered on selling and administrative expenses.”

The pharmaceutical industry points out that the MOHW's approach of simply assigning different drug price premiums and preferential rates based solely on whether a company is certified as an innovative pharmaceutical company is overly crude and risks creating a distorted pharmaceutical industry landscape.

The point is that promoting innovative R&D should not automatically translate into preferential treatment solely for companies with official certification.

A drug pricing manager at a mid-sized domestic pharmaceutical company expressed, “The MOHW's drug price reform plan concentrates all benefits on certified innovative pharmaceutical companies. Ultimately, these innovative pharmaceutical companies are defined by the proportion of new drug R&D relative to total sales. It's questionable whether the standard for innovation can be determined solely by the R&D ratio.”

This manager added, “It is highly inappropriate to select innovative pharmaceutical companies and grant benefits exclusively to them based on this criterion when the government and the pharmaceutical industry have not mutually agreed on the definition or standards of innovation. The reform plan must adequately reflect that pharmaceutical companies not certified as innovative are also striving for the development of the domestic pharmaceutical industry and overseas exports through high-value-added new drugs or improved new drugs. As it stands, it is unfair.”

Another pricing executive at a large pharmaceutical company commented, “The current proposal effectively cuts prices uniformly without distinguishing between companies that invested in high-quality generic production and those that generated profits through contract generics and aggressive marketing without real investment. If the goal is to reward companies that contribute through new drug R&D, high-quality manufacturing, or stabilizing supply, the reform must introduce a differentiated pricing system that significantly lowers prices for companies that make no such contributions.”