“Drug price reform may bring collapse of generic self-sufficiency”

“Desk-driven policy without industry consultation… will increase dependence on imported APIs and finished drugs”

Legal community “Price cuts should be deferred and implemented gradually to minimize shock and improve acceptance”

Concerns have been raised that if the government’s drug pricing reform, which focuses on generic drug price cuts, is pushed forward without revision, a growing number of domestic pharmaceutical companies will abandon local generic production, ultimately shaking the foundation of Korea's pharmaceutical sovereignty.

Critics warn that such an outcome could weaken new drug R&D, increase dependence on overseas sources for both active pharmaceutical ingredients (APIs) and finished drugs, and, in the long run, lead to shortages in domestic generic supply and greater reliance on originator products, making it difficult for the government to achieve its goal of reducing National Health Insurance spending.

In particular, as the reform plan announced in late November last year was drafted without sufficient consultation with the pharmaceutical industry, industry experts believe the plan should be revised after ample discussion and then be implemented gradually.

On the 26th, attorney Kwan-woo Park of Kim & Chang and attorney Hyun-wook Kim of Shin & Kim (Sejong) outlined the limitations of the Ministry of Health and Welfare’s reform plan and proposed improvements at a National Assembly policy forum on drug pricing reform.

“Generics should be viewed as a measure to ensure public access, not merely low-priced drugs”

Attorney Park pointed out that the Ministry of Health and Welfare's current drug pricing system reform plan is similar to the 2012 policy of across-the-board price cuts for generic drugs.

He noted that although drug expenditure initially declined after the 2012 cuts, spending rebounded to previous levels in just two years. At the same time, production of non-reimbursed drugs, which were not subject to price cuts, increased, employment in the pharmaceutical sector declined, and yet the Ministry appears to be repeating the same administrative mistake it had made more than a decade ago.

They expressed concern that if the Ministry pushes through its reform plan without revision, it will lead to a decline in generic drug sales, reduced capacity to maintain production facilities, decreased investment in new drug R&D, and job losses.

He also cautioned that increased use of low-cost APIs, such as those sourced from China, could lead to quality deterioration, greater dependence on originator drugs, and the abandonment of generic launches beyond the 11th product for a given formulation, ultimately disrupting the stable supply of finished drugs.

Moreover, if the shortage of generic drugs persists and reliance on originator drugs increases, he projected that the achievement of the National Health Insurance Service's cost-saving goals would become uncertain.

Park further stated that the other elements of the reform, such as introducing market-linked actual transaction prices, implementing reforms to the reimbursement adequacy reevaluation system, and establishing periodic drug price adjustment mechanisms, cannot escape criticism for reducing predictability for pharmaceutical companies or being redundant or unreasonable regulations.

To address the issues with the Ministry of Health and Welfare's reform plan, Park stressed that policies must be established to use generics as a means to strengthen public access to medical care and pharmaceuticals at reasonable prices, and to create measures where generics play a pivotal role in maintaining health security.

With regard to the proposed deduction of the generic pricing rate to the 40% range, he urged the Ministry to engage in sufficient consultation with domestic pharmaceutical companies and consider phased implementation or differentiated pricing rates to ease the impact and improve acceptance.

Park stated, “Given that the goal of this reform plan is to transform the domestic pharmaceutical industry ecosystem, revisions are necessary to ensure balanced implementation of both expanded incentives for innovative pharmaceutical companies and regulations increasing the discount rate relative to the benchmark drug price. Before implementing the system, the causes of failure in similar systems must be analyzed, and a flexible policy direction must be set to ensure the system becomes effective.”

He added, “To mitigate the shock to the domestic pharmaceutical industry caused by immediate sales declines and ensure the system is accepted, the reform must be implemented gradually. Also, meaningful dialogue with the pharmaceutical industry must take place from the design stage.”

“France, UK, Japan: Secured governance by gathering pharmaceutical industry opinions when establishing drug pricing policies”

Attorney Kim pointed out that the key issue of the Ministry of Health and Welfare's reform plan was that it was unilaterally established and announced without sufficiently gathering opinions from domestic pharmaceutical companies.

To minimize opposition from the pharmaceutical industry and increase acceptance of the Ministry's drug pricing policy, the system should be designed based on two-way communication with the industry, rather than a government-only approach. He criticized that Korea failed to sufficiently guarantee the industry's procedural rights by announcing the plan without consultation.

In contrast, major countries such as France, the UK, and Japan have established formal consultation procedures and governance structures to incorporate industry input into drug pricing decisions.

France has a framework agreement between CEPS, which handles drug price negotiations, and the pharmaceutical industry association. The UK mandates stakeholder participation and operates official public hearings when reforming drug pricing, payment policies, and systems, centered around NHS England and the Department of Health and Social Care.

Japan also operates the process for determining and revising drug prices under the National Health Insurance (NHI) system through the Central Social Insurance Medical Council, an advisory committee to the Ministry of Health, Labour and Welfare.

Furthermore, Kim also expressed concern that sharply lowering the generic drug reimbursement rate from the current 53.55% to the 40% range would jeopardize the sustainability of the pharmaceutical and biotech industry, threaten public health security, and trigger job losses.

Rather than insisting on a 40% pricing ratio, his point is that the Ministry should redesign a reasonable rate through consultation with industry and defer implementation.

Kim further suggested strengthening price incentives for companies contributing to supply stability to enhance the reform’s effectiveness in terms of practicality.

He proposed guaranteeing a 68% price level for national essential medicines made with domestically sourced APIs, through base pricing rather than a temporary add-on premium, and applying the price premium immediately when companies switch to in-house APIs, rather than waiting until re-listing.

He also recommended excluding innovative medicines or products supplied by three or fewer manufacturers from post-listing price cuts and raising the threshold defining low-priced drugs.

Kim said, “The reform plan should be revised and implemented only after sufficient discussion is made over an adequate period, ensuring meaningful protection of industry stakeholders’ procedural rights and genuine consultation with the government.”