‘Forcing 40% generic drug price cut will kill the industry’

Industry remains critical despite MOHW’s delay in implementing the drug pricing system reform

“Unmodified MOHW plan will evidently halt R&D, abandonment of essential medicine production, and deepen job insecurity”

“Postponing implementation until next year is ineffective... Key lies in the details of the reform plan finalized by the HIPDC”

“If the generic price calculation rate is cut to 40%, companies will inevitably halt new drug research and development (R&D). Also, they will also stop producing medicines that are not profitable, even if they are designated as essential medicines or market-withdrawal prevention drugs. Companies will likely proceed with workforce restructuring to remove what they see as unnecessary personnel, which will worsen employment instability. While the pharmaceutical industry understands the government’s goal of strengthening the sustainability of the national health insurance system, , the absolute limit we can accept is 48%. Even lowering the current rate of 53.55% by more than 5 percentage points will cause considerable management losses and shock.”

Although the MOHW has decided to postpone the implementation of its drug pricing system reform plan that focuses on generic drug price cuts and preferential pricing for innovative pharmaceutical companies until next year, the pharmaceutical industry has emphasized the need for revisions, stating that ‘the details matter more than the timing.’

Multiple pharmaceutical companies have criticized the MOHW's proposed reform plan, arguing it fails to create a structure that properly values companies that have consistently invested in producing high-quality medicines, improving R&D capabilities for incrementally modified drugs and new drugs, and contributing to the stable supply of pharmaceuticals.

In particular, while the industry understands the government’s intention to reduce drug prices to cut healthcare spending, many companies suggest that the maximum acceptable generic pricing rate would be 48%.

This represents a 5.55 percentage point reduction from the current 53.55% calculation rate, equivalent to a roughly 10% drug price reduction when the generic calculation price is set at 100. The intent is to indicate that, while maintaining current operations and accepting the MOHW's policy, they can only tolerate a price reduction level of up to 10% when calculating the administrative shock impact on sales revenue and other factors.

On the 4th, pricing managers at domestic pharmaceutical companies did not offer particularly positive assessments upon hearing that the MOHW is considering delaying the implementation of the drug pricing system reform plan until January next year.

This is because, even looking at the implementation plan for the drug pricing system reform announced on November 28 last year, it was foreseeable that the timing for major policy implementations, such as drug price reductions, would be next year.

Industry officials say that the specific details of the reform to be finalized at this month’s Health Insurance Policy Deliberation Committee (HIPDC) are far more important than the implementation schedule.

The industry criticizes that the reform plan confirmed by the HIPDC must include measures that can fundamentally improve the domestic pharmaceutical industry's structure. They argue that the drug price preferential criteria and generic drug price reduction methods proposed by the MOHW thus far are essentially irrelevant to pharmaceutical industry innovation.

Companies also say the government must significantly refine the criteria and tools used to evaluate a pharmaceutical company’s “innovation.”

They argue that simply ranking companies based on whether they are certified as an “innovative pharmaceutical company or their R&D expenditure ratio relative to sales revenue to grant preferential drug pricing, or uniformly lowering generic drug prices, fails to accurately gauge the value of each company's true level of innovation.

Pharmaceutical companies propose that the MOHW must establish and implement a drug pricing system reform plan that employs a multi-layered innovation assessment tool. They argue this would naturally lead to the elimination of ‘paper companies’ that contribute little to the development and innovation of the domestic pharmaceutical industry, while favoring drug prices for companies that diligently pursue value-based investment and sound management. This, they contend, would achieve the goal of pharmaceutical industry innovation.

Furthermore, observations of advanced countries indicate that lowering the generic drug pricing rate to 40% may trigger the abandonment of domestic pharmaceutical production.

Analyzing the cases of Japan and France, where the generic drug pricing levels are 40-50%, similar to the level proposed by the MOHW, Japan saw supply shortages and production discontinuation of 4,064 items (23.1% of generic items). Even in the French case published by the European Medicines Agency (EMA), only 15% of new generics are produced in France, and only 30% of all generic drugs are produced in the country.

Given these precedents, the industry strongly advocates 48% as the maximum acceptable generic pricing rate, representing a 5.55 percentage-point reduction from the current 53.55% rate, but still significantly higher than the ministry’s proposed level in the 40% range.

A representative from domestic pharmaceutical company A stated, “Contrary to the policy goal of prioritizing innovation value in the pharmaceutical industry, the MOHW's drug pricing system adopts a blanket price reduction approach. This structure means that companies with larger sales volumes and greater investment scale will incur proportionally larger absolute losses. A revised proposal must be developed to ensure that pharmaceutical companies that have contributed to the industry's development through clinical trial achievements, expansion of high-quality drug manufacturing facilities, advanced quality control, and hiring research personnel can gain a clear competitive advantage over paper companies.”

Another official from pharmaceutical company B said, “If the government truly wants to build an innovative ecosystem for the pharmaceutical industry and strengthen health security, it must create clear criteria to identify companies that genuinely contribute to those goals and provide appropriate pricing incentives. If the generic pricing rate is reduced to the 40% range, this would cause immediate operational losses for pharmaceutical companies, creating shockwaves severe enough to prevent them from fulfilling new drug development, stable supply of essential medicines, and maintaining employment. Maintaining a minimum calculation rate of 48% is essential to ensure management is capable of sustaining innovation.”