[Reporter’s View] Decade of drug price cuts ahead

With the reassessment of listed drugs set to continue for a decade beginning next year, large-scale disruption from drug price cuts is expected to unfold on the front line every year.

The government needs to put measures in place before price reductions under the reassessment begin next April. Preventing confusion over product returns and price-difference settlements after price cuts should also be part of the responsibilities that come with the latest drug pricing reform.

Phase 1 drugs, which will undergo reassessment from next year through 2033, and Phase 2 drugs, scheduled for 2030 through 2036, will undergo phased annual price cuts of 2%.

Under the system, prices set at 53.55% of the benchmark will gradually be reduced to 45%. Products that fail to meet the relevant criteria will have their prices reduced to 80% of the applied rate for that year.

For individual products, the amount of each reduction may not appear substantial. The problem, however, is the sheer scale. With post-listing management now conducted on a regular schedule, thousands of products are expected to face price reductions every April or October.

Although administrative attention is currently focused on determining which products will be subject to price cuts, once that process is complete, the market will have to contend with the disruption caused by the price adjustments themselves.

Products facing price cuts in April and October will include not only those covered by the reassessment of listed drugs but also products subject to the price-volume linkage system under the regularized post-listing management framework.

If the prices of thousands of drugs are cut simultaneously, pharmacies will inevitably seek large-scale settlements for price differences to protect themselves against inventory losses. If the government follows the same tight timelines used for previous drug price cuts, a wave of product returns across the market will be all but inevitable.

The government should finalize and transparently announce the products subject to price cuts and their respective reduction rates at least one month in advance, giving pharmacies and distributors sufficient time to prepare procedures such as price-difference settlements without disruption.

During the across-the-board price cuts in 2012, procedures for paper-based returns were established, and compensation for price differences was provided. Even so, the sheer number of affected products rendered disruption in the field unavoidable.

The reassessment of listed drugs will affect the market over a lengthy 10-year period. Rather than a one-off shock, it will become an annual event affecting the market for a decade. Before the first round begins next year, the government therefore needs to establish a predictable and transparent buffer system.

To this end, the government should work with organizations, including the Korea Pharmaceutical and Bio-Pharma Manufacturers Association, the Korea Pharmaceutical Distribution Association and the Korean Pharmaceutical Association to establish measures in advance. The quality of a drug pricing system depends not only on sophisticated formulas for determining new prices, but also on whether the system can operate without imposing unnecessary social costs and disruption on the market.