Premiums for incrementally modified drugs remain uncertain

Only differentiation by company confirmed based on ‘innovation’ for drug pricing premiums

Follow-up discussions expected on premiums rates for incrementally modified drugs... creation of ‘quasi-innovative’ company category also a variable

As the government has finalized the overall framework of the drug pricing system reform, discussions are expected to move into detailed areas, including premiums for incrementally modified drugs.

The core of this drug pricing system reform is the innovative level of companies. However, decisions regarding product-level premium measures, such as those for incrementally modified drugs, have been left out.

According to industry sources on the 27th, since the premium rate for incrementally modified drugs was not clearly determined at this Health Insurance Policy Deliberation Committee meeting, follow-up discussions are expected to continue.

The reform plan discussed at the Health Insurance Policy Deliberation Committee meeting last November had tentatively decided to maintain the current premium system for “incrementally modified drugs, incrementally modified combination drugs, and biosimilars.”

However, this wording was deleted at the latest HIPDC meeting. With the addition of a new “quasi-innovative company” category, the drug price premium scheme has been significantly revised. The disclosed premium preferential measures consist solely of a 60% premium for innovative drugs, a 50% premium for quasi-innovative drugs, and preferential treatment for pharmaceutical companies and drugs that ensure supply stability.

Under the current pricing calculation system, incrementally modified drugs receive premiums on top of the base price. For salt/formulation changes after original patent expiry, the price is set at 70% with a premium from the base price (53.55%). The price is set at 77% with a premium from the base price (58.9%). The premium is generally applied for 1 year after listing, but can be extended up to 3 years if there are three or fewer generic manufacturers listed for reimbursment.

The key question is whether the government will maintain these premium rates. Since the base calculation rate has been lowered, there is a possibility that the premium rates will also be readjusted. If the government attempts to lower the premium rates for incrementally modified drugs in line with the reduced base rate, strong industry backlash is expected. The prevailing view in the industry is that if the government attempts to adjust the premium rate as well, it will dampen the motivation to develop incrementally modified drugs.

There is also the possibility of reforming premiums for incrementally modified combination drugs. Currently, their price is calculated as the sum of 53.55% of each component drug’s pre-patent-expiry price. In this case, innovative pharmaceutical companies receive preferential treatment with a 68% sum, while general pharmaceutical companies receive a 59.5% sum.

Given that drug price premium tiers are currently divided into innovative, quasi-innovative, and non-innovative categories, changes are needed in the calculation rates for incrementally modified drugs as well.

In particular, since the “quasi-innovative” category is a newly established preferential pricing bracket, discussions must also address whether to apply differential premium rates within this category.

Industry insiders agreed that, as the basic calculation rates and drug price premiums had not been finalized until now, concrete discussions must begin immediately.

A pricing manager at a pharmaceutical company stated, “Until now, the focus was on establishing the overall framework, so detailed discussions were not possible. Now, discussions on incrementally modified drug premium rates must begin.”

Another industry official added, “The content announced at this Health Insurance Review and Assessment Service (HIRA) meeting only covers the broad framework, so significant detailed adjustments are needed. The same applies to the premium rate for incrementally modified drugs. While each pharmaceutical company may focus on different aspects of the reform, since the base calculation rate has decreased, it is necessary to ensure that premiums are maintained as much as possible.”