"Eliminating generic pharma's shared bio-equivalence·illegal CSO"

Won-jun Jo, Chief Representative for Health and Welfare of the Democratic Party's Policy Committee, says "We aim for innovative transition of pharmaceutical ecosystem, rather than simply cutting drug prices"

Discussing the abolition of '1+3' shared bioequivalence system…sorting out paper company pharma

Novel drug reimbursement, transiting to RWD-based 'graduation quota system'…announces penalizing CSO rebate

Won-jun Jo, Chief Representative for Health and Welfare of the Democratic Party's Policy Committee

"The goal of the Democratic Party’s drug pricing system reform is not simply to reduce the National Health Insurance budget by cutting  generic prices. The goal is to eliminate the space for paper-company pharmaceutical companies and free-riders that parasitize the pharmaceutical ecosystem, thereby establishing an industry order in which companies that properly manufacture and invest in novel drugs and supply unstable medicines are dramatically rewarded. This is also a principle we have firmly held in our general and presidential election pledges. Now that the reform plan has been finalized, the ruling party will work with the government to complete the remaining puzzle pieces of the drug pricing system through the abolition of the generic '1+3' shared bioequivalence system and follow-up measures to regulate unsound CSOs (pharmaceutical sales marketing agencies)."

As the government finalized the broad framework and key details of the drug pricing system reform plan, the Democratic Party of Korea drew attention by expressing a strong determination to accelerate policies aimed at eliminating illegal rebates through the abolition of the generic 1+3 shared bioequivalence test system and the regulation of poor CSOs to complete the mission of "pharmaceutical and biotech industry innovation."

By lowering the generic drug price calculation rate from 53.55% to 45% and strengthening selective and differential incentives compared to the past for innovative pharmaceutical companies, semi-innovative pharmaceutical companies, and companies contributing to supply-unstable medicines, the party intends to thoroughly exclude name-only pharmaceutical companies from the market that do not align with the values of pharmaceutical industry development, healthy employment and job creation, and the establishment of a sound medicine distribution structure.

On the 17th, Won-jun Jo, Chief Representative for Health and Welfare of the Democratic Party's Policy Committee, met with DailyPharm and expressed, "Starting with the Ministry of Health and Welfare's drug pricing system reform plan, we are discussing follow-up policies that can send a clear and unambiguous message to the pharmaceutical and biotech industry, encompassing both novel drugs and generics, as well as the CSO industry."

Jo evaluated that the Ministry of Health and Welfare's drug pricing system reform plan, which passed the Health Insurance Policy Review Committee and is set for implementation this year, deleted remaining inefficiencies and irrationalities while presenting a future vision for South Korea's pharmaceutical industry to pursue.

The aim is to smartly restructure the reward system for pharmaceutical companies that contribute to novel drug research and development (R&D), the stable supply of essential medicines, and the growth of the national pharmaceutical industry, so that the nation and its citizens achieve a tangible level of practicality they can directly perceive.

​"Novel Drug National Health Insurance Reimbursement, from an 'Admissions Quota System' to a 'Graduation Quota System'

Jo explained that the discussions and designs for the drug pricing system reform with the Ministry of Health and Welfare (MOHW) focused primarily on significantly narrowing the gap between the public and novel drugs under limited health insurance budget conditions, and satisfying the social demand to resolve the issue of essential medicines that frequently go out of stock due to supply instability.

Because the expansion of public access to novel drugs was incorporated into the reform plan, some civil and patient advocacy groups raised concerns that it might grant excessive privileges to global pharmaceutical companies focused on novel drugs, a perspective Jo believes should also be adequately acknowledged.

In particular, Jo emphasized that the speed of implementing health insurance reimbursement to novel drugs is not the only factor that is increasing. He stated that, following the rapid reimbursement of a novel drug, a follow-up policy based on a mechanism to remove it from reimbursement immediately will be implemented if its drug efficacy cannot be proven through RWD.

Jo said, ​"Until now, the barrier to entering novel drug reimbursement was high, and once a drug received reimbursement, it was a structure where reimbursement was continuously recognized thereafter. There were criticisms that this system was actually more irrational," and explained. "A judgment was made that it is more efficient to change the reimbursement barriers and criteria to be relatively flexible, but transition to a system where reimbursement is deleted if real-world prescription efficacy data is not clear during post-evaluations."

He added, "We will proceed with follow-up work to prepare policies capable of determining reimbursement ejection based on real-world data. This is a package that the drug pricing system reform plan must accompany. To use a simple analogy to the college admission system, we are transitioning novel drug reimbursement from an admissions quota system to a graduation quota system. It changes to a graduation quota system where reimbursement cannot be maintained unless clear evidence of drug efficacy is proven after entering reimbursement."

​"Free-riding pharmaceutical companies must be sorted out for good generics to distribute"

Regarding the significance of the generic drug pricing system reform, Jo summarized it as meaning "there are no drug prices to give to free-riding pharmaceutical companies."

​"Can a company that does not perform its own bioequivalence testing, its own clinical trials, or even its own direct manufacturing be called a pharmaceutical company?" Jo asked and assessed that "If you give the same drug price to a consignment pharmaceutical company simply because it has the same ingredient, that company has no reason to invest in personnel or spend money on infrastructure. Consequently, they become entirely consumed by maximizing generic sales competitiveness, which deteriorates into a structure that inevitably links to illegal rebates."

Jo noted, "The major meaning of the generic reform plan is not about cutting drug prices, but rather about rewarding only those pharmaceutical companies that manufacture proper generics with a proper drug price. We believed a policy response was needed to address whether it is right to continue embracing consignment generics within the health insurance system. Therefore, we adjusted and newly established criteria for innovative and semi-innovative pharmaceutical companies, and embedded regulations in the reform plan that can yield benefits for companies contributing to supply-unstable medicines."

Regarding the reduction of the generic calculation rate to 45%, Jo evaluated, "Although it may not be completely satisfactory to either the government or the pharmaceutical industry, an agreement was reached at a level that cannot be viewed as fatal to either side at the same time."

​"The pharmaceutical industry demanded 48% as a baseline margin, while the MOHW discussed the low 40% range. Looking only at the surface, it is the product of a social consensus, and political circles adjust aspects," he said. "It was also determined at a median level between the calculation values of Japan and France, which were referenced during the system design. This is why the pharmaceutical industry, which had major anxieties, was able to say after the system was finalized that it was difficult. They must endure a portion of it."

Jo stated that the "graduation quota system" for novel drug reimbursement, the abolition of the 1+3 consignment generic system, and the eradication of illegal CSO rebates are the path the domestic pharmaceutical industry must take.

​"Abolition of the '1+3' shared bioequivalence system is the goal"

Jo asserted with confidence that the generic consignment bioequivalence system must be completely abolished so that paper-company pharmaceutical companies that free-ride on pharmaceutical industry development and the national health insurance budget disappear, establishing a pharmaceutical industry environment where only genuine pharmaceutical companies receive justified rewards.

Jo's opinion that the current method, which allows three shared consignment pharmaceutical companies for every one pharmaceutical company performing a generic bioequivalence test, is a contradictory policy that stands at the opposite pole of the reformed drug pricing system.

Jo announced that he will take the necessary legislative and administrative steps, alongside the MOHW and the Ministry of Food and Drug Safety, to implement a system that allows only a single generic per original medicine. This policy is expected to exert a significant impact on the overall structure of the domestic pharmaceutical industry, increasing the need to focus on future National Assembly legislation and government administrative movements.

​"Currently, the 1+3 consignment bioequivalence generic system is permitted, but the rationale for why identical health insurance reimbursement drug prices should be given to three consignment generic items cannot be explained by any logic. It completely runs counter to the philosophy of the reformed drug pricing system," Jo emphasized. "In the past, it carried the meaning of partially cleaning up the market as a transitional phase, shifting from permitting unlimited bioequivalence tests to restricting it to 1+3, but now, the biggest characteristic of the reformed drug pricing system is that it will not give drug prices to pharmaceutical companies that free-ride by permitting generic consignment bioequivalence and manufacturing."

Jo pointed out, "The consignment bioequivalence system has reached the point where it must be abolished. Previously, the MFDS also stated its position when announcing the 1+3 system that it was a temporary and provisional allowance. Some argue that the abolition of 1+3 will lead to job reductions. It is questionable what kind of industrial or national production consignment generic companies, which have a large proportion of paper companies, induce, or what employment creation effects they demonstrate."

​"Rebates exploiting rogue CSOs are evolving...We will eliminate these cases"

Jo cited the elimination of CSO rebates as one of the critical follow-up measures that must be implemented after the drug pricing reform.

Jo stated that, alongside the ejection of free-riding consignment pharmaceutical companies, regulations must be placed on malpractice in which some pharmaceutical companies exploit CSOs to continue illegal rebate sales operations to secure unfair profits, thereby amplifying the effects of the reformed drug pricing system.

​"For good generics made by real pharmaceutical companies to be properly distributed in the market and for citizens to take their medications, the next targets for restructuring are unsound CSOs and the pharmaceutical companies that exploit them," Jo pointed out. "Like an open secret, some pharmaceutical companies select and operate with CSOs as indirect actors to diversify the risks and responsibilities of illegal rebates. These CSOs operate under a subcontracting and further re-subcontracting structure, ultimately making it ambiguous as to who bears the final liability for the rebate activity."

Accordingly, he introduced, "Recently, some hospitals and directors have been disrupting the order of the sound medicine market by operating family CSOs as a method of evasion for family business succession to secure illegal profits. We are contemplating measures to strengthen CSO compliance alongside the Ministry of Health and Welfare. One of the measures under consideration is making it fundamentally impossible for a pharmaceutical company to cut off its relationship with a CSO to evade responsibility when a rebate is detected."

In conclusion, Jo said, "We will strengthen regulations on malpractice CSOs through a joint penalty system for pharmaceutical companies and CSOs to eliminate problems where CSOs make it impossible to trace the origin of a rebate by subcontracting and re-subcontracting, and pharmaceutical companies cut relationships and deflect responsibility by blaming the CSO. Legislation that clarifies the mutual chain of responsibility between a pharmaceutical company and its contracted CSO will follow to support the success of the drug pricing reform plan."