Backlash mounts to drug price reduction reform plan

Minister of Health and Welfare (MOHW), the calculation method for losses based on sales revenue is on the chopping block…Pharma, "Big data must be utilized"

"Despite the goal of fostering the industry, why implement drug price reductions?...an administrative move toward suppressing the market

The Korean pharmaceutical industry continues criticizing that the background of the Minister of Health and Welfare (MOHW)'s drug pricing system reform, which includes 'calculation criteria for impact of drug price reductions' and 'preferential drug price criteria,' is unreasonable.

The MOHW calculated simulation results for losses incurred from drug price reductions based on total sales amount. However, the view is that the calculation standard itself is flawed, as sales amount includes all accounting elements involved in the manufacturing and production of medicines.

Furthermore, the criticism is that preferential drug price clauses based on whether a company is certified as an Innovative Pharmaceutical Company or on its ratio of new drug Research and Development (R&D) expenditure to sales are inappropriate because they are arrived at unilaterally, without proper agreement between the government and the industry.

On the 22nd, the pharmaceutical industry voiced concerns about MOHW's unilateral push for drug pricing reform, stating, "The justification for the price reduction is unclear, and such administration significantly undermines trust in the government, leading to results that run counter to the fostering of the global pharmaceutical industry."

On the 20th, the Health Insurance Policy Deliberation Committee (HIPDC) subcommittee excluded the drug pricing system reform plan, including the price reduction for currently listed generics, from its agenda.

The MOHW cited insufficient gathering of industry opinions and said it would continue communicating with the industry until next month's (March) HIPDC meeting.

Despite the MOHW’s decision to defer or postpone the agenda, the pharmaceutical industry remains skeptical about the possibility of revisions to the reform plan. This is due to the observation that the MOHW has not shown a proactive negotiation attempts thus far.

Korean pharmaceutical companies cite the MOHW's methodology for calculating the impact of drug price reductions as the biggest issue.

It is reported that the MOHW, based on simulation results analyzing the financial impact after price reductions using the sales revenue of several domestic pharmaceutical companies operating the generic business, concluded that revenue losses would be minimal even if the generic price calculation rate were lowered to 40%.

Furthermore, the ministry believes that its reform plan is sufficiently valid and consistent, having derived results showing that certified innovative pharmaceutical companies or those with a high proportion of new drug R&D relative to sales would remain relatively unaffected by the price reductions.

Korea's domestic pharmaceutical companies maintain that if the MOHW simulates the impact of price reductions based solely on total sales revenue or simple operating profit, an accurate evaluation is impossible.

The reason is that a simulation based on sales revenue calculates figures by including every accounting element without exception. In contrast, one based on operating profit excludes selling, general, and administrative (SG&A) expenses. This evaluation method is impossible to reflect the innovation of pharmaceutical companies that have substantially contributed to the development of the domestic industry.

In particular, while the MOHW has stated multiple times that the purpose of this drug pricing system reform is to foster the pharmaceutical industry rather than reduce health insurance drug expenditures, the pharmaceutical industry argues that reducing generic drug prices significantly while claiming to foster the industry is contradictory.

The criticism is that the ministry's administrative goal, which it seeks to achieve through price reductions, is unclear.

An official from domestic Pharmaceutical Company A pointed out, "The sales revenue evaluation, which is the standard for the MOHW’s impact simulation, is flawed as it includes all accounting elements," and added, "They must divert from single standards like sales revenue, perform a value evaluation considering various factors, and then proceed with simulations in a direction that grows the pharmaceutical industry and the drug market."

Then added, "The MOHW changed the health insurance listing method for drugs from a negative list to a positive list system," and added, "This implies that the governemtn will make value judgments on drug prices. Therefore, all-at-once reduction of drugs listed through this system means the government considers existing medicines to have no value and intends to suppress the market."

An official from domestic Pharmaceutical Company B also expressed, "The MOHW can analyze the reduction in pharmaceutical companies' revenue quite precisely through health insurance claim amounts or supply history reports. It is puzzling why they designed the drug price reduction and the pricing system reform plan with a simulation that excludes such big data when it is available for use."

The official stated, "The pharmaceutical industry will be able to trust the government again only if the MOHW discloses transparent data regarding the evidence and standards used to design the drug pricing system reform and shows a willingness to negotiate," and added, "For now, meetings between the MOHW and the pharmaceutical industry may become a superficial formality, aimed at filing a quota of superficial mutual consultations."