Government-Industry clash over price-cut base date

Final prices hinge on base date used for ‘45% price cut’ …Will become a key variable in drug price cuts

Government favors the use of current prices; industry calls for the use of the price set when the across-the-board price-cut was made… Hundreds of billions of won worth of additional losses expected

Industry criticizes application of 45% rate to prices already reduced through price-volume agreements and actual transaction price as “dual regulation”

With the revised drug pricing system set to take effect in just over a month, the base date used to determine the extent of price cuts for already-listed generics has emerged as a key variable.

The government maintains that the 45% pricing rate should be applied based on drug prices at the time the revised system takes effect. The pharmaceutical industry, however, argues that the base should be the prices in place at the time of the across-the-board drug price cuts in 2012, given that prices have since been reduced several times afterwards.

As the difference in the base date could result in additional losses amounting to hundreds of billions of won, industry anxiety is rising.

September 2026 vs April 2012…Disagreement over base date used for pricing rate

According to the industry sources on July 22, the core of the reform is to lower the generic drug pricing rate from the current 53.55% to 45%. On the surface, this appears to be a reduction of 8.55 percentage points, but the actual size of the cut can vary significantly depending on which point in time is used to determine the original price to which the rate is applied.

The government plans to regard the price in place at the time of the September 2026 pricing reform as 53.55% of the original drug price and apply the new 45% pricing rate on that 

The pharmaceutical industry, by contrast, argues that the base should be the price in April 2012, when the 53.55% standard was first introduced, or in January 2014, when the system had become established. The industry submitted this position during the recent public comment period for the drug pricing reform proposal.

Repeated price cuts made through Price-Volume Agreements and Actual Transaction Pricing…Concerns over “double cuts”

The pharmaceutical industry points out that reimbursed drug prices have continued to decline under the government’s post-listing management measures, including the price-volume agreement system and actual transaction price-based reductions.

It also notes that many products have had their prices cut through generic drug price reevaluations, reimbursement and clinical reevaluations, or voluntary price reductions. The industry therefore argues that using the current point in time (September 2026) as the base amounts to double regulation.

An industry official said, “Drug prices have already been reduced several times under the government’s various post-listing management measures. The government’s proposal would cut these already-lowered prices once again, effectively disregarding previous reductions and imposing regulation twice.”

“The 53.55% rate itself was created in conjunction with the across-the-board drug price cuts in 2012. It would therefore be reasonable to apply the 45% generic pricing rate based on prices at the time of implementation.”

Plavitor price cut 7.5% over 14 Years…may incur an additional KRW 5.7 billion loss depending on the base date

The impact of the base-date difference on projected pharmaceutical sales is clearly illustrated by Samjin Pharmaceutical’s clopidogrel antiplatelet drug ‘Platless.’ Even when the price is reduced to the same 45% level, selecting a different base date results in an additional annual loss of KRW 5.7 billion.

Immediately after the across-the-board price cuts in April 2012, Platless was priced at KRW 1,164 per tablet. Its current price is KRW 1,077, representing a 7.5% decline over 14 years.

Under the government proposal, which uses 2026 as the base, dividing the current price of KRW 1,077 by 0.5355 produces an original drug price equivalent to KRW 2,011. Under the industry proposal, which uses 2012 as the base, the then-price of KRW 1,164 produces an original price of KRW 2,174.

In other words, using the current price, which has already been reduced through mechanisms such as the price-volume agreement system, means beginning with an original-price equivalent that is KRW 163 lower.

Applying the government’s new 45% pricing rate to the converted original price would be 45% of KRW 2,011, resulting in a final price of KRW 905. This is KRW 172 below the current price of KRW 1,077, representing an effective price cut of 16.0%.

Applying 45% to KRW 2,173 under the industry’s proposed method would produce a price of KRW 978. This is KRW 99 below the current price of KRW 1,077, representing an effective reduction of around 9.2%. As a result, using the current price rather than the 2012 price as the base creates a 6.8-percentage-point difference in the effective reduction, at 16.0% versus 9.2%.

Applying these reduction rates to Platless prescription sales last year produces a clear difference in the projected decline in sales.

Under the government method, a 16.0% reduction would result in annual prescription sales losses of KRW 13.4 billion. Under the industry’s requested method, a 9.2% reduction would result in annual losses of around KRW 7.7 billion. A change in the base date alone would therefore cost Samjin Pharmaceutical an additional KRW 5.7 billion in losses annually from a single product.

Additional loss near KRW 27 billion across all clopidogrel products

The difference is not limited to one product. Other clopidogrel generics have undergone almost the same drug price reduction mechanisms as Platless.

The current outpatient prescription market for clopidogrel antiplatelet drugs is estimated at approximately KRW 530 billion. Excluding the original product Plavix (KRW 130 billion), the generic market totals approximately KRW 400 billion.

Applying the difference between the government’s and industry’s reduction rates to the entire clopidogrel generic market produces a gap of KRW 27 billion. Under the government method, total losses across generics would amount to approximately KRW 63.9 billion, compared with KRW 36.7 billion under the industry’s proposed method.

Korea’s generic drug market includes numerous large-volume ingredients with annual sales in the hundreds of billions of won, including valsartan, amlodipine and atorvastatin. If the same calculation is extended across the entire market, the annual loss gap for the domestic pharmaceutical industry could expand into the hundreds of billions of won, depending on which base date is selected.