“What we need is competition, not rebates”

Professor Hye-young Kwon, ‘The government–industry clash over generic price cuts is a meaningless debate’

“Caught off guard by the MOHW’s lack of social consensus before announcing drug price reform”

“Stop the meaningless debate on what percentage the government is willing to adjust the generic drug calculation rate. Lowering drug prices will simply increase prescription volume, so it won't lead to savings in drug expenditures. The government must regulate rebates to create an environment where lower-priced drugs are prescribed more frequently. That's how we achieve savings in the national health insurance budget.”

Academic experts view that lowering generic drug reimbursement rates alone, even if the government reduces the generic pricing formula from 53.55% to the 40% range, will not lead to savings in the National Health Insurance (NHI) budget.

In other words, simply lowering the generic drug calculation rate, which has led to repeated battles between the MOHW and the industry, will not lead to actual drug cost savings. Rather, the government should focus on eliminating illegal rebates and establishing a market-driven drug pricing environment to save the National Health Insurance and foster the growth of the domestic pharmaceutical industry.

At a National Assembly policy forum on drug pricing reform held on the 26th, Professor Hye-young Kwon of the Department of Health Administration at Mokwon University said, “Creating an environment where lower-priced, cheaper drugs are more widely prescribed in the market is what will save NHI finances.”

According to Kwon, the ongoing standoff between the government and the pharmaceutical industry over generic pricing percentages will not translate into actual reductions in pharmaceutical expenditure.

Kwon also expressed “serious concern” on how the MOHW’s drug pricing reform proposal was announced without sufficient social consensus or prior consultation with stakeholders in the pharmaceutical industry.

She further stated that discussing NHI fiscal sustainability solely through adjustments to generic pricing formulas is inherently unreasonable and significantly ineffective.

Her logic is that even if the generic drug price calculation rate is drastically lowered from 53.55% to 40%, the amount of drugs prescribed in the market will increase substantially due to lower prices. Consequently, the NHI funds spent on drug costs will remain at the same level before and after the reduction.

Kwon advised the Ministry of Health and Welfare that instead of targeting NHIS savings through the generic drug calculation rate, it should devise and implement policies enabling low-cost generics to gain market share. Only then can NHIS savings be successfully achieved.

She argued that the current situation, where pharmaceutical companies manipulate prescription volumes through illegal rebates, must be aggressively addressed, stressing the need to create an environment where generics that offer lower prices and higher quality can increase market share.

Kwon stated, “There was no social consensus or public deliberation process before the Ministry of Health and Welfare announced the drug pricing system. Personally, it was a very disconcerting announcement. "Reducing health insurance expenditures depends on policies leveraging generics. I find it incomprehensible that they are discussing pricing cuts like lowering the reimbursement rate to the 40% range.“

“No matter how much you lower generic prices, NHI spending will not decrease. As prices fall, prescription volumes rise proportionally. To date, the MOHW has never successfully reduced healthcare spending through generic pricing policies. Drug prices only fall meaningfully when they are subjected to genuine market competition, guided by the invisible hand.”

“The reason Korea has failed to let market forces work is that prescriptions are driven not by lower prices, but by the amount of rebates. The MOHW has failed to establish policies that ensure lower-priced generics gain greater market share, resulting instead in the proliferation of increasingly small-scale, mom-and-pop-style pharmaceutical companies.”

“Domestic drug costs are driven by the extremely high prices of off-patent originator drugs. Yet, no advanced country allows originator drugs after patent expiry to generate such high profits. That value should be captured through price competition by domestic generic manufacturers. Only by replacing rebate competition with price competition can Korea simultaneously strengthen its pharmaceutical industry and ensure the long-term sustainability of the national health insurance system.”