MOHW ‘Limited impact’ vs Industry ‘₩3 trillion loss’

Pharmaceutical Industry “Significant discrepancy in sales loss estimates... government should release simulation raw data”

Concerns raised over “high-quality generic incentives”… risk of profit reversal for innovative firms

Calls are growing for the Ministry of Health and Welfare (MOHW) to begin public–private consultations based on the results of its internal analysis of the impact of generic drug price cuts.

The ministry is said to have concluded, based on its own quantitative analysis of the impact on each pharmaceutical company when drug price cuts are implemented, that the industry’s estimated losses of up to KRW 3 trillion resulting from the price cuts are inaccurate. However, the Ministry has not publicly disclosed the simulation results, drawing criticism from the pharmaceutical industry.

The pharmaceutical industry maintains that the government should transparently disclose the results and analytical criteria of its own drug price reduction simulations and begin discussions on policy revisions directly with the pharmaceutical industry, the primary stakeholders. Attention is focused on whether the MOHW will accept this request.

According to government and industry sources on the 6th, the MOHW began internal simulations to assess the impact of price reductions for already-listed generic drugs, a key element of the drug pricing reform plan announced on November 28 last year.

Sources say the Ministry's simulation results show a significantly lower figure than the pharmaceutical industry's claim of ‘up to KRW 3 trillion in sales losses’.

The Ministry of Health and Welfare's own analysis indicates that the projected revenue loss from drug price reductions per pharmaceutical company, calculated using the current 53.55% generic drug reimbursement rate and the discount/preferential rates to be applied during the drug pricing system reform (based on factors like each company's R&D expenditure relative to sales), falls significantly short of the industry's own estimates.

The pharmaceutical industry fears that, based on these results, the MOHW will continue its stance that it can push through the previously announced reform plan with minimal changes, relying on its own simulation findings.

Consequently, multiple pharmaceutical companies are raising the need for public-private discussions regarding the ministry’s simulation results.

The argument is that implementing such a major drug price overhaul, the first in approximately 14 years since the 2012 blanket price reduction, without proper consultation procedures, finalizing and enforcing it just three months after announcement, constitutes excessive infringement on the industry’s right to express its views.

In particular, industry stakeholders dispute the ministry’s claim that companies certified as innovative pharmaceutical companies or those with high R&D-to-sales ratios would be exempt from the negative impact of price cuts.

The argument is that after the price reform, companies that have invested heavily to obtain innovative-company certification or to develop and manufacture high-quality generics may see little to no preferential treatment compared with those with low investment and those that merely contract manufacturing generics. In the worst cases, there could even be a reversal where profits decrease compared to non-investing companies.

With the positions of the MOHW and pharmaceutical companies sharply at odds over the same reform proposal, attention is turning to whether public–private consultations can take place ahead of the plan’s submission and deliberation at the Health Insurance Policy Deliberation Committee later this month.

A pricing manager at domestic pharmaceutical company A stated, “The Ministry of Health and Welfare validated its drug price reform plan based on its own simulation of pharmaceutical companies' sales losses from price cuts, yet it hasn't actually disclosed the simulation criteria or results. Only by initiating mutual discussions with pharmaceutical companies centered on the government’s analysis results would we be able to move closer to a reform that minimizes conflict.”

A pricing manager from another pharmaceutical company, B, also pointed out, “The Ministry should fully incorporate the specific positions of direct stakeholders like pharmaceutical companies regarding the problems with the drug price reduction system, but so far, the Ministry hasn't been taking an active stance toward gathering opinions. The government and the industry may be using entirely different indicators to calculate the impact of price cuts. Without sharing the raw data, meaningful consultation is impossible.”

He added, “Even R&D-focused or innovative pharmaceutical companies report that, based on their own simulations, the ministry’s proposed price cuts would not provide real preferential benefits and could even push operating profits into deficit. There is serious concern that this reform plan, which could undermine the will to contribute to new drug development and solving supply instability issues, might be finalized and enforced without modification.”