Pharma-MOHW disagree on drug pricing policy

Pharmaceutical industry "Requesting grace period for drug price cut implementation·changes to preferential policy"

MOHW "Will implement drug price reform by minimizing concerns of pharmaceutical companies"

The Korean pharmaceutical industry has announced its stance that the government's drug price reform plan, which centers on generic price cuts and preferential pricing for "Innovative Pharmaceutical Companies," is too vague and requires both a delay in implementation and significant revisions.

The industry requested a sufficient grace period, arguing that the plan excludes long-term impact assessments on the pharmaceutical-bio industry and public health, which could lead to industrial contraction.

In contrast, the government stated it has no intention of delaying its plan to submit and finalize the reform at next month's (February) Health Insurance Policy Deliberation Committee for full implementation in July. This has left the gap between the two sides unbridged.

As the pharmaceutical industry and the government have not bridged the divide in opinion, the conflict over drug pricing reform is expected to continue.

On the 14th, the "National Assembly Forum on Drug Price Policies for Becoming a New Drug Powerhouse," hosted by Democratic Party Representatives Lee Un-ju, Seo Young-seok, and Kim Yoon, brought together the MOHW and industry representatives to exchange views.

Pharmaceutical Industry, "Concerns over job losses, supply instability, and slowed growth"

Hong Jeong-Ki, Managing Director of the Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA), pointed out that repeated drug price cuts, executed 10 times since 1999, have gradually shrunkne the industry's overall profitability and investment capacity.

Hong also expressed concerns that large-scale cuts to generic prices, as foreshadowed by the MOHW, would inevitably deepen reliance on low-cost imported raw materials and finished imported drugs.

While price cuts might yield short-term fiscal savings, Hong warned that, based on implementation of policies in the past, they could lead to long-term employment shrinkage, instability in the supply of essential medicines, and a slowdown in industrial growth.

Hong argued that the implementation of price cuts should be reconsidered after a comprehensive assessment of the impact on the industry and public health. 

Hong argues the need for a sufficient grace period for a successful landing and the establishment of a government-industry governance system.

Furthermore, he requested fair compensation for companies that contribute to innovation and supply stability.

The compensation aims to provide uniform preferential pricing for all Innovative Pharmaceutical Companies and to grant price benefits to non-certified companies that demonstrate excellent R&D performance and facility investment.

​"The current reform plan is structured such that damages from strengthened regulations increase while compensation for innovation and supply stability remains limited," Hong pointed out. "This could act as a barrier to becoming one of the world's top five pharmaceutical powerhouses."

He emphasized, "The implementation of drug price cuts must be reconsidered after an assessment of both short- and long-term impacts. We request a sufficient grace period to ensure a soft landing for the system," adding, "It is also necessary to establish a government-industry governance structure for constructive discussions on drug price policy."

He further stressed, "By specifying the innovation-based price addition period and ensuring fair value compensation, we must build a virtuous cycle that accelerates innovation, such as through R&D reinvestment, and leads to the creation of global new drugs," and maintained, "Cuts to the prices of existing listed generics should be minimized to secure investment capacity and ensure supply stability."

​"Preferential pricing plan fails to reflect company contribution and diversity"

Kim Sang Jong, Managing Director of Hanmi Pharmaceutical, also criticized the reform, stating it could weaken the foundation for domestic companies to continue investing in new drugs.

Kim argued that cutting existing generic prices without accounting for a company's contribution to new drug R&D creates a structure in which larger companies with higher investment volumes incur greater absolute losses. 

In his view, the policy is becoming an overall price cut premised on the notion that Korean generics are expensive compared to overseas markets, rather than a system that guarantees fair returns on investment.

Notably, Kim highlighted that limiting preferential pricing to "Innovative Pharmaceutical Companies" and a few others fails to benefit the many firms that contribute to the industry through Phase 2/3 trial investments, manufacturing facility expansions, quality advancements, and employment of research personnel.

Kim added that extending the price increase period for Innovative Pharmaceutical Companies by three years is only effective in the early stages of the patent-expired market. Once generic market share expands in the later stages, prices drop significantly, making the compensation effect felt by companies very limited.

​"The resources needed for new drug R&D, maintaining production facilities for stable supply, and maintaining employment currently come from generic sales," Kim criticized. "It is questionable whether an overall price-cutting policy aligns with reward investment."

Kim further criticized, "The financial resources required for new drug R&D, maintaining production facilities for stable supply, and sustaining employment come from the sales of existing listed generics. For now, this is unavoidable," adding, "While the MOHW stated it would focus on outcomes such as innovation, I question whether implementing a blanket price-cutting policy, based on the idea that high generic prices can now be lowered, actually aligns with the policy goal of rewarding investment."

He added, "It is questionable whether it is truly necessary to further divide preferential drug pricing among Innovative Pharmaceutical Companies into upper and lower tiers. Once the three-year preferential period ends, generic expenditures drop significantly. We are not sure if this can be considered a reward for Innovative Pharmaceutical Companies," adding, "Pharmaceutical companies also need to analyze the reorganization of the drug price system. Since the announcement on November 28 last year, time has been needed to run simulations to determine how to manage operations in line with the policy goals. A grace period (for the drug price cuts) is necessary."

MOHW "Current system has reached its limit... will reform to minimize industry concerns"

Despite such requests from Hong and Kim to delay implementation and revise the preferential pricing policy, the MOHW rejected these requests, stating that the current system has reached its limit and cannot be further delayed.

Kim Yeon-Sook, Head of the Division of Pharmaceutical Benefits at the MOHW, explained, "This reform is being implemented because the current system has reached its limit. It is a structural policy change designed to improve these limits, strengthen the supply stability of both new and essential drugs, and maintain the sustainability of national health insurance," and explained, "Other countries also periodically adjust generic prices while considering fiscal efficiency."

​"While our drug price system has previously lacked predictability and fallen short of achieving the goal of generic activation, this reform is different," Kim added. "Unlike past approaches focused solely on reducing drug expenditures, this reform includes mechanism to reward innovation based on investment, even for generics."

Kim concluded, "The government views this reform as a golden time for structural improvement and a leap forward for the industry, centered on Innovative Pharmaceutical Companies. We will implement a drug price system that leads to rewards for the industry to minimize the concerns of domestic pharmaceutical firms."